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Aaron Martens
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Former entrepeneur turned trader. I manage my own investments and have averaged 40% returns YOY through long/short stock and options. "Be greedy when others are fearful. Be fearful when others are greedy."-Warren Buffett
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  • 5 Long Term Plays To Outperform Any Index

    Backstory:

    The more I talk with fellow investors/traders, I'm amazed to discover how many trade on a story of the minute or a thesis someone else has built. I think its a travesty to hopelessly hop in and out of stocks in an attempt to keep up with or beat the market, as the only people you will every truly make rich is your broker. To truly outperform over the long term, the best approach is to pick companies with wide moats in long term macro growth environments for 2 reasons:

    1. As the macro environment continues to push growth, all exposed companies will benefit.

    2. The best of breed companies with the widest moats will always outperform their peers over time.

    These two characteristics play out time and time again in appreciating stock prices that far outperform the markets. Every time, investors look at what happened and try to find the next best thing. Instead of looking to back the best horse, they try to play the same sector or industry, instead of the best companies. Remember, investing is about picking long term winners that will outperform for years, not months. So without further delay, here are 5 trends/stocks to outperform any index over the next few years.

    The Picks:

    Short Bonds and Income Equivalents: The taper is here. This is no longer speculation or a point of debate. The economy is finally showing some signs of life and the Fed is pulling back its unprecedented liquidity.....albeit very slowly. This has created the opportunity of a lifetime with inflated bond prices. There is no question about how much support the Fed has provided the bond market over the last few years, and now that they scale out, bond prices WILL rise. How fast is anyone's game, but the risk reward is very compelling. I would look to be long an inverse ETF such as TMV or TBT. A more risky play would be to short REITs and junk bonds as these have been places to hide money in a zero income environment.

    Cashless Society: I can tell you for a fact that I rarely see anyone using cash anymore. It's a thing of the bygone era, more of a pain than its worth. Play the trend being long V or MA if you like the safe bets. AXP, DFS, and COF take more credit risk, but with credit quality on the rise, these names stand to benefit as well. None of these names are cheap on a historical basis, but as long as the economy doesn't fall apart, they will continue to outperform over the long haul.

    The Fracking Revolution: Innovation has spread to the oil fields, and it is as real as the oil they're pumping from the ground. We've suddenly gone from oil dependent, to exporting natural gas. For those of you late to the game, its creating some of the greatest wealth opportunities of our lifetime. There are countless ways to play it. From the drillers, to the oil services, to the pipeline operators. Ultimately, your picks will be based on your investment objectives, but I like EOG, CLR, PXD, LNG, HAL, NOV, and SLB. They're the best of breed in their sectors. I would avoid the integrated E&Ps like XOM and CVX. While they have billions in cash on hand, they will be forced to start paying up in order to rehab their growth rates.

    The "Too Big To Fail" Banking System: Try as the politicians might, instead of removing risk by breaking up these massive institutions, they've simply forced overregulation upon them. I'm not saying it wasn't needed in some areas like prop trading and mortgage fraud, but the lawsuits are now a circus sideshow to what banking really is. The populist legal agenda in the DOJ has made that apparent. While these are major issues for right now, the longer term picture looks simply amazing. These massive institutions are highly leveraged to a rising 10 year and better economic growth in the U.S. and abroad. While everyone loves to knit pick the sector for 1 or 2 stocks, I say own the lot. BAC, C, WFC, JPM, MS, GS, and AIG all stand to benefit as the economy begins to stand on its own 2 legs and the Fed finally removes itself entirely from the bond market.

    Here's the real play in the sector: politicians wake up and re-establish Glass-Steagall. As a result, these institutions get broken up and you get double the holdings from the same companies. While not likely, as an investor, you have to love tail risk working in your favor.

    Biotech Revolution: While this article isn't about the actual science behind their drugs, there is no question that the new drugs brought to market by BIIB, CELG, REGN, and GILD have what it takes to create wealth over the long term. None of these stocks are overly cheap, but the profits they are expanding are for real. The best part: all their drugs are on patent protection for most of the next 2 decades. Long story short, demographics in the U.S. continue to support expansion in medical science, and these 4 names stand to benefit over the next few years.

    To Summarize: I've given 5 long term plays to put your money now in order to reap long term profits over the course of the next few years. While none of these names is overly cheap, their long term growth rates and macro trends support their inclusion in any portfolio at any time. Given where rates and the economy are headed, load up now to profit from the trends in place.

    Disclosure: I am long TBT, V, MA, DFS, AXP, EOG, LNG, CLR, PXD, HAL, NOV, BAC, C, MS, GS, JPM, AIG, BIIB, CELG, REGN, GILD.

    Tags: TBT, V, MA, DFS, AXP, EOG, CLR, PXD, HAL, NOV, BAC, C, MS, GS, JPM, AIG, BIIB, CELG, REGN, GILD, SPY
    Dec 24 4:14 PM | Link | 2 Comments
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