Tracking How Far They Fell: 2018's Rotational Winners

Dec. 31, 2018 12:31 AM ETBRK.B, CCL, CMI, EMR, ETN, FDX, GD, GLD, JNJ, MGA, MMM, NOC, PNC, ROK, RSP, SPLV, SPY, TIF, UTX, VPU, MG:CA21 Comments


  • I wrote over 30 bearish 'warning' articles on Seeking Alpha in 2018.
  • For most of the stocks I warned about, I suggested alternative investments that I thought would be more defensive, and each month I tracked their relative performance.
  • This article explains the rotational strategy I've proposed and why investors in the stocks of quality long-term businesses should consider share gains just as important as other measures of success.
  • The article reviews all 14 of the realized share gains produced in 2018 from the rotational strategy.

falling stocksSource: Pixabay


Slightly less than a year ago, in January of 2018, on the heels of a massive tax reform bill being signed into law, the stock market bolted to new all-time highs. Yet, almost everywhere I looked in the market, particularly among more cyclical stocks, I saw danger. It wasn't that most of the businesses I looked at were bad. In fact, usually, the opposite was true. Usually, what I saw were good businesses whose stocks were trading as if the market or the economy would never turn lower. The prices of cyclical stocks, in particular, were too high, and I was genuinely worried for many retail investors who had no idea of the sort of severe downside they might suffer if the cycle turned down.

I wanted to warn investors about this situation, but I also wanted to do more than that. There are always permabear writers and short-sellers who are willing to share the bear case with investors. My problem with the permabears is that they are like stopped clocks. Eventually, their downside predictions of doom and gloom come true, but not before the market has risen more than enough to compensate for the future downturn on the upside. Just look at the total return of gold (GLD) versus the S&P 500 (SPY) for the past five years. (And this is even after the S&P had a bear market):

ChartGLD Total Return Price data by YCharts

The other option that shareholders of overvalued stocks have, is, well, options. And there are lots of great writers on SA that can provide ways to protect your portfolio to one degree or another using options. But, options do have time constraints, and not everyone has an account that is big enough to make using options practical. Others simply want an easier and simpler strategy.

ChartCMI Total Return Price data by YCharts

ChartSTT Total Return Price data by YCharts

ChartNOC Total Return Price data by YCharts

ChartUTX Total Return Price data by YCharts

This article was written by

Cory Cramer profile picture
One-of-kind research using historical cycles to identify tops and bottoms

My analysis focuses on the cyclical nature of individual companies and of markets in general. I've developed a unique approach to estimating the fair value of cyclical stocks, and that approach allows me to more accurately buy near the bottom of the cycle.

My academic background is in political science and I hold a Bachelor's Degree and a Master's Degree in political theory from Iowa State University. I was awarded a Graduate Research Excellence Award in 2015 for my research on conservatism.

Disclosure: I am/we are long BRK.B, TIF, FDX, STT, EMR, CMI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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