Outliers Make All The Difference

Fact: Joe Burrow threw for more touchdowns this season than the prior 4 LSU seasons combined.

Quote: Winning is habit. Unfortunately, so is losing. -Vince Lombardi

Outlier Stocks Make All The Difference

Charlie and the Chocolate Factory with Gene Wilder fueled the imagination and also freaked me out.

If you remember the super fizzy, lifting drink scene where Charlie and his grandpa stole a sample – they floated up and nearly got shredded to bits by the ceiling fan. They had to burp to get back down to ground level. It’s like this bull market which is also fueling the imagination and freaking people out!

“Charlie, have you ever paid attention to big money in the stock market?”

We are seeing off-the-charts buying persisting right through the new year. Last week saw whopper-sized buying and hardly no sells. 10 of 11 sectors saw more than 25% of their institutional-sized stocks log buys. It’s like there is a vwap buy program day after day.

As the market goes up, you may wonder “when is a good time to get in and where do I put my money?”

The Big Money Index is now at 87.6% which is wildly overbought. It may be hard to fight the feeling of wanting to get in if you’re on the sidelines, but you’d likely be buying at an unsustainable top.

The reality is it’s not main street buying. It’s not you and me. I am not hearing people at the gas station raving about stocks.  The office water-cooler doesn’t have people clamoring to compare Fidelity accounts.  That was the case for bitcoin fever – I saw it and you likely did too.  When the Coinbase comparisons peaked, so did the crypto market. We’re nowhere close to that.

That’s the good news: this bull market has loads of room yet to run. But timing-wise, this market is overbought and due for a pullback.  When the BMI starts to fall, that’s the signal a top has likely been reached. Based on the data, I can’t, in good conscience, recommend buying into a setup like that.

As for where to put your money, I’ll answer that with a story about football. A week and a half ago I went to New Orleans to watch the Clemson/LSU National Championship game in the Superdome. Man, it was incredible. Being from Louisiana, I had to go. I needed to see an outlier in person.

That’s us (Mapsignals co-founders) at the game.

An outlier is someone or something that clearly deviates from the ordinary.

Babe Ruth was a baseball outlier: he skewed home runs for 100 years. Michael Jordan was a basketball outlier, establishing long-held records that only Lebron James is coming close to breaking.  Wayne Gretzky was the hockey outlier – there was Gretzky, then everyone else. You can see what I mean in this graph:

source: fivethirtyeight

The Clemson/LSU game was less about the championship for me and all about seeing Joe Burrow.  This is the college football outlier. He slayed records. He threw for more touchdowns this season (60) than the prior 4 LSU seasons combined. He led the NCAA with 5,671 passing yards.  He has become a legend in college football.

And if you want to know what an outlier thinks of himself after he caps off the big prize, here is a picture of the screen after the game:

Joe Burrow when asked “who’s the daddy?”

Outliers are where to put your money. In a sea of stocks, I focus on the Joe Burrows: only the best. It means I don’t care about 99% of stocks. There is evidence that those outliers, 4% of all stocks, are responsible for all the gains (above treasury bills) in the market for the last 100 years according to this Hendrik Bessembinder paper.

While you stay patient for a Charlie like, burp-buying opportunity, make your outlier shopping lists. Look for stocks with growing sales and earnings, big profits, low debt, and amazing businesses.  Big Money tends to find these stocks.

Once you win- you get that face. Gene Wilder had it. Joey Burreaux had it. MJ, the Babe, the Great One- they all had it.  They knew they were the outliers. When you look for when and where to put your money in stocks, play the odds, and bet on the outliers. They are the ones that keep winning, that keep shattering records. But then again, I’m not telling you anything new… You know it.

Get in the winning habit. According to Vince Lombardi: “Winning is habit. Unfortunately, so is losing.”

In this video, how we win, we discuss how we use Mapsignals research to find outlier stocks.