Editor’s note: “The Fourth Great Divergence: Lock in Your Next Triple-Digit Winner” was previously published in October 2022. It has since been updated to include the most relevant information available.
Four weeks ago, I told my readers that it was my goal – my ultimate New Year’s Resolution – to make record returns in the stock market in 2023.
At the time, I’m sure most folks laughed. I don’t blame them. Stocks were coming off their worst year since 2008 and one of their worst years ever. In 2022, trillions of dollars of stock market wealth were wiped out. Dozens of individual stocks dropped 70%, 80%, 90%-plus.
It seemed like the sky was falling on Wall Street.
Yet, against that backdrop, it was still my goal to make my readers record stock returns in 2023.
Four weeks later, we’re well on track to achieving that goal.
The stock market is currently in the midst of a big breakout. Year-to-date, the S&P 500 is up nearly 6%, while the tech-heavy Nasdaq is up more than 10%.
And we’re faring even better. Our Core Portfolio is up almost 15%.
Certainly, that’s a great start to 2023. But I think the rally is just getting started. In fact, I think what the market has in store could end up being the best money-making opportunity in stocks ever.
Why? Because of a rare stock market phenomenon that emerged in 2022 and has historically created some of the best money-making opportunities ever…
Stock Prices Follow Fundamentals
To understand the enormous opportunity I’m talking about, we need to first understand the behavior patterns of stocks.
In the short term, stocks are driven by myriad factors. Geopolitics. Interest rates. Inflation. Elections. So on and so forth.
However, in the long term, stocks are driven by one thing and one thing only: fundamentals.
That is, at the end of the day, revenues and earnings drive stocks prices. If a company’s revenues and earnings trend upward over time, then the company’s stock price will follow suit and rise. Conversely, if a company’s revenues and earnings trend downward, then the company’s stock price will drop.
That may sound like an oversimplification. But, honestly, it’s not.
Just look at the following chart. It graphs the earnings per share of the S&P 500 (the blue line) alongside the price of the S&P 500 (the orange line) from 1988 to 2022.
As you can see, the blue line (earnings per share) lines up almost perfectly with the orange line (price). The two could not be more strongly correlated. Indeed, the mathematical correlation between the two is 0.93. That’s incredibly strong. A perfect correlation is 1. A perfect anti-correlation is -1.
Therefore, the historical correlation between earnings and stock prices is about as perfectly correlated as anything gets in the real world.
In other words, you can forget the Fed and inflation. You can forget geopolitics, trade wars, recessions, depressions, and financial crises.
We’ve seen all of that over the past 35 years. And yet, through it all, the correlation between earnings and stock prices never broke or even faltered at all.
At the end of the day, folks, earnings drive stock prices. History is crystal clear on that. In fact, history is as clear on that as it is on anything, mathematically speaking.
That’s why we invest in world-changing companies that have the biggest revenue and earnings growth prospects. History tells us those stocks will rise the fastest — and by the most!
But today, my team and I are starting to see a rare anomaly emerge in this pattern. And we think it’s creating a once-in-a-decade buying opportunity in stocks like Shopify.
Great Divergences Create Great Opportunities
About once a decade, a rare anomaly emerges. And earnings and revenues temporarily do not drive stock prices.
We call this anomaly a “divergence.”
During these divergences, companies continue to see their revenues and earnings rise. Yet their stock prices temporarily collapse due to some macroeconomic fears. The result is that a company’s stock price diverges from its fundamental growth trend.
Every time these rare divergences emerge, they turn into generational buying opportunities. The stock prices snap back to fundamental growth trends, scoring investors some massive returns.
A first divergence emerged in 1989, on the heels of the Savings & Loans Crisis. Investors assumed a large part of the American financial system was on the brink of collapse. World-changing computer stocks like Microsoft (MSFT) and Intel (INTC) plummeted 30%-plus over the course of a few months, while their revenues rose more than 10% over that same stretch. This divergence ended with both stocks rallying more than 70% over the subsequent year — and more than 500% over the next five years.
A second divergence emerged in 2000, during the dot-com crash. Lots of folks were worried about the internet being a passing fad. This divergence saw Amazon (AMZN) stock collapse 94% in the early 2000s, while the company’s revenues rose 145% over that same stretch. This divergence ended with Amazon stock rising 185% over the subsequent year and 433% over the following five years.
And a third divergence emerged in 2008, during the great financial crisis. Amid that divergence, Salesforce (CRM) stock dropped 70%, while its revenues rose 20%. What happened over the following year? Salesforce stock snapped back, rallying 185%. Over the next five years, the stock gained a jaw-dropping 861%.
This is the most profitable repeating pattern in stock market history.
And right now, my team and I observing another great divergence emerge.
The Final Word on the Fourth Great Divergence
My team and I understand that market volatility always creates market opportunity.
So, amid 2022’s wild market gyrations, we made it our top priority to research that volatility and develop a stock-picking strategy to make tons of money despite the mayhem.
That led us to making the biggest discovery in InvestorPlace history: the existence of rare divergence windows.
These divergence windows only appear about once a decade, in the midst of peak market volatility. They open for very brief moments in time and only in certain stocks. But if you capitalize on them – by buying the right stocks at exactly the right moment – you can make a lot of money while everyone else is struggling to survive in a choppy market.
Moreover, these divergence windows give you a real shot at turning $10,000 investments into multi-million-dollar paydays over time.
They represent the best investment opportunities of a lifetime. And one is happening right now.
Click here to learn how to take advantage of the Fourth Great Divergence – and potentially make millions.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.