Repeating Success

Success is not a random act. It arises out of a predictable and powerful set of circumstances and opportunities.-Malcolm Gladwell

Have you ever noticed that people like things predictable and repeatable? We love routines. We love knowing what’s coming, and generally dislike surprises.

The same goes for our taste in music. Colin Morris wrote a really cool (for us nerds) interactive article about repetition in music elegantly titled: An Exercise In Language Compression: Are Pop Lyrics Getting More Repetitive?

He studied 15,000 songs that charted on the Billboard Hot 100 between 1958 and 2017. Colin found that through the decades, songs have been getting more repetitive.

source: The Pudding

Now here’s where it gets cool. He plotted all of the songs on a bell curve (yes!). The purple are the most repetitive songs, the yellow the least:

source: The Pudding

But he did what many data scientists do: he excluded outliers. So, look when we include them:

source: The Pudding

Look how the whole curve shifts to the left! The outliers are so off the charts, that scientists tend to exclude them because they skew results so much.

The king repetitive song is Around the World by Daft Punk. Here’s an excerpt from lyrics.com:

source: lyrics.com

Repeating Success In Stocks

We love outliers: the positive kind. And when it comes to financial markets, the biggest winners in the market also repeat year after year. That’s the key to success…repetition.

Professor Hendrick Bessembinder asked if stocks outperform treasury bills. Over 100 years he found they did, but only 4% of stocks accounted for 100% of the gains above t-bills. 1% of stocks account for 50% of the gains. In other words: the outlier stocks are where all the gains come from. This graph from his paper makes it clear as day on what he’s saying!

And notice that most of the stocks peak at zero:

source: SSRN

The professor showed if you’re not in the 1%, you’re never going to be in the 1%. So, if you focus all your time on finding the outlier stocks, you should be golden. Now if you wait for the outliers to repeat time and time again, you get big juice.

This Mapsignals Outliers paper, shows what happens. In short, if you buy the most frequent occurring outlier stocks every six months and repeat, the results would have destroyed the market.

Now that we’ve established that you must be in repeating outlier stocks, let’s see where the juice has been. I went back to my data on Mapsignals top 20 reports.  These are the top 20 outlier stocks bought by big money each week.  I went back from January 1, 2019 – nearly 40% of the stocks have been tech:

That’s not a surprise when you look at index returns:

Here’s the deal: Leading sectors reveal where the best stocks are. Outlier stocks are the ones getting bought by big money.  When they repeat over and over, it’s a great winning recipe.

So back to that outlier chart above, here is where we want to live, because that’s where the juice is:

source: The Pudding, Mapsignals

Finding success in music is stunningly like finding success in stocks. Look for repetition. Embrace it.