A very different bull market is on the horizon

Bears have done its job. it removes overly bullish, and revalued the stock according to the actual situation. Like previous major sell-offs, these resets were driven by significant fundamental and forecast changes. so…

Don’t expect the next bull market to be like the last one

Times, conditions and attitudes are changing. However, most investors and many investment professionals will slowly let go of the past. Being comfortable with what they know will hinder their adjustment until they are convinced there is a newer, better approach. Of course, that means they need to see proof: superior performance and widespread popularity.

The pattern will be familiar:

  • Amid heights of negativity and skepticism, some stocks start to rise
  • Stocks stop falling and form foundation as negative sentiment eases and buying returns
  • Stocks start to rise, generating relief and a willingness to look ahead
  • The stock market has risen significantly, boosting investor interest and even generating limited bullish sentiment
  • The new bull market is mostly accepted, and it is now realized that some parts of the stock market are far outperforming other, more familiar areas.

So today’s strategy is clear:

Start targeting new stock ideas that can be outperformers. Knowing them and the rationale behind them makes all the difference: new, exciting and interesting.

What is the difference?

Very. What will emerge are distinct “themes” containing winning stocks. Importantly, they bear no resemblance to familiar themes of the past.

Why is there always such a dramatic shift? human nature:

  • In bull markets, themes emerge as rationale and descriptions of winning strategies
  • In its heyday, themes became the ultimate way to invest in stocks
  • At peak popularity, these themes generate extremely high valuations and return expectations
  • When some concerns were first noticed, those top valuations slipped
  • When fears start to ease expectations, a slide turns into a slide that could signal a bear market is forming
  • As fears become more prevalent and certain, bear markets occur, ending in a flood of negative sentiment, undermining and discrediting those bull market themes and beliefs

Key question: How to invest in the next bull market theme?

Realize that some magical Wall Street prospectus doesn’t predict a new bull market. It will evolve with conditions, actions and developments. So, the answer is to ride the Wall Street carriage. this means…

Invest with active managers in pursuit of capital appreciation. Diversify between value, growth and eclectic management styles. Also, diversify company size (better yet, find funds that aren’t limited by size). Avoid the biggest funds — they’re too bulky to adjust in time, and they tend to be closer to the overall stock market allocation to keep performance consistent.

An Example: My Fund Selection

I believe that winning in the next bull market will require sound, in-depth research backed by experienced portfolio managers. Therefore, I have selected the following four equity funds (three in Vanguard and one in Fidelity).

These three Vanguard funds are managed by independent investment management firms selected by Vanguard investment professionals. This multi-pronged management style has been adopted by major institutional funds and has been the foundation of my career. It allows the pursuit of superior performance from professional managers while controlling overall risk through the diversification of different management styles.

Here are the three Vanguard funds and the number of investment firms selected to manage each (each linked to a Vanguard funds page):

  1. Vanguard Windsor Fund (Value Fund): Two Investment Management Firms
  2. Vanguard Growth and Income Fund (Growth and Value Convergence): Three Investment Management Firms
  3. Pioneer Explorer Fund (Professional Growth Funds): Five Investment Management Firms

The Fidelity Fund is managed solely by Fidelity, which has a history of successfully identifying new growth themes. The fund focuses on top stocks, and the fund’s small size makes it versatile.

Fidelity Focus on Stocks (Professional Growth Fund):

  • Holding: 40 companies
  • Fund size: $3.2 billion
  • “Active Share” (0% for index funds, 100% for full divergence from the S&P 500): 66%

Bottom Line: Be Positive, Think Different, Act Now

The main challenge of investing is dealing with a new, alternative universe unlike any of its predecessors. With a tectonic shift, like the current shift, investors’ belief in the last set of “ground truths” is overturned. In its place is uncertainty, which seems to point to the need for caution.

However, we should welcome the newfound focus on risk in the murky forecast. This mindset controls valuation and therefore makes potential returns more attractive.

So, glad this is the beginning of something new, everyone faces the same unknowns. Now, all What we need to do is invest in a way that allows us to catch the new excitement that is coming before it becomes popular.