What the Great Rotation Means for Investors

I am working right now — and will be for the next few months — from a country that most people have never visited.

Investor holding pen pointed at on-screen stock chart.
Source: Shutterstock

In fact, most people have zero desire to visit it, in part because they have preconceived views that are the farthest thing from the truth.

Nicaragua has some problems, yes. But it is also beautiful and has its bright spots as well.

I like to get away from all the noise once in a while to keep a healthy perspective and to make sure I’m focused on what’s important.

And even in a third world country like Nicaragua, you can learn about investing and even about life.

Take a group of guys I just met for example …

I had a long, in-depth conversation the other morning with a small group of gentlemen from different parts of the world. We talked about everything from the stock market to cryptocurrencies.

Their perspective was fascinating.

One guy, who is heavily invested in growth stocks, was completely unaware that many of the highest growth stocks have been hit hard recently. “I didn’t even realize that was happening,” he said.

The ARK Innovation ETF (NYSEARCA:ARKK) has fallen 30% in three months, so why didn’t he know about it?

Because he is all about investing for the long term. He’s not concerned about day-to-day or even month-to-month price swings. The way he was raised and the country he is from do not bombard him with the short-term view that is so often driven into our brains in the United States.

One of the other gentlemen, whom I would go so far as to call a crypto expert, was aware of the pullback in cryptos … and how it is a great long-term buying opportunity. We agreed that it is impossible to pick a bottom, but that the path of least resistance for Bitcoin (CCC:BTC-USD) and altcoins over the long term is higher.

You won’t hear that many other places. If you googled “price of Bitcoin,” you would see what I am referring to. I did recently, and here are a few results that came back …

Is Bitcoin “melting”?

“Extreme Fear” in Bitcoin market

Look who sold their Bitcoin

For years, I have preached the following formula: If you can be a long-term investor and a short-term contrarian, you will be wildly successful.

That’s not always easy. It can be very lonely when you are the contrarian, buying stocks and cryptocurrencies when everyone else is selling and the headlines reverberate fear.

But that’s how you make money.

My new friend excluded, most of us know that once high-flying growth stocks have suffered the most the last two months. I shared this analysis in the just-released Early Stage Investor issue, and I want to share some of it with you, too.

In that time, money has rotated out of growth stocks and into value stocks. We can see this clearly by comparing two representative funds: the ARK Innovation ETF I mentioned and the Schwab U.S. Large-Cap Value ETF (NYSEARCA:SCHV). As the ARK ETF fell 32% the last three months, the Schwab ETF gained 10.5%. That’s a big difference, especially in such a short time.

On the flip side, it has my eyes lighting up with dollar signs. Any time there is such a drastic difference in a very short period, there are opportunities.

To show you what I am talking about, let’s zoom out a few years. For most investors, the best way to build wealth is to buy quality companies in hypergrowth trends and hold them over time. That’s probably at least three years, if not longer.

With that said, here’s the five-year chart of those same two growth and value funds …

Five years gives you a radically different picture than three months, doesn’t it?

Even with the pullback in growth stocks the last two months, ARK has outperformed value stocks by better than five-to-one over five years.

Let’s put that in terms of profits. A $10,000 investment into ARK five years ago would now be worth about $61,000. The same investment into Schwab would be worth only $18,370.

If you only look at recent action, you would assume that the ARK Innovation ETF was a terrible investment. That, of course, is wrong. In reality, it would have returned more than 6X your money over the last five years.

Rotations from growth into value are common, but this latest is one of the most extreme I have witnessed in my career because of its speed.

That rapid compression makes it like a loaded spring, and I believe we will look back years from now and realize what incredible opportunities were available to investors.

That’s why I share 10 stocks with my Early Stage Investor readers in the brand new issue. I hope you are taking advantage as well.

On the date of publication, Matthew McCall did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.


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