There’s a subtle shift going on in the market right now that you may not have noticed.
It’s one of the most exciting changes I’ve seen in a long time!
Investors are changing how they put their money to work. And as these investors shift their money around, there’s a huge opportunity for you to capitalize on.
Today, I want to explain what’s going on — and how you could profit from the shift that’s causing so much uncertainty right now.
Let’s jump in!
The Problem With Passive Investing
A prominent economist came up with a novel idea back in the 1960s.
Eugine Fama, Ph.D. created the efficient market hypothesis — an idea that’s had a ripple effect on how investors put their money to work over the last 60 years.
Fama’s hypothesis states that the stock market efficiently prices in all known public information.
Let’s say if we know that more subscribers are signing up for Netflix, less oil is being used for driving, or a coronavirus vaccine is scheduled to be released in the spring…
That information is available to everyone, so the market reacts immediately to the news.
Baked into this study is the idea that no one can consistently beat the market without insider information, because the market is supposed to be priced perfectly for the information that’s available to everyone.
Now you and I know this simply isn’t true.
Markets and individual stock prices swing higher or lower because of many factors.
And some of these factors are very predictable, like the greed of individual investors, consistent growth for great companies, and dividend payments that investors crave!
So I strongly believe that you can use common sense and the information we post here at Rich Retirement Letter to generate profits that are much higher than the average market returns.
But the efficient market hypothesis has convinced many that it’s simply not possible.
So instead of picking individual stocks that can outperform the overall market, many investors have turned to passive investing.
This simply means that they invest in the whole market. They buy index funds that spread their investments to all stocks trading in the market without any consideration for the strength of any individual company.
This wave of passive investing has caused some big problems in the market. There are fewer investors putting money into good stocks and pulling their money out of stocks that aren’t worthwhile investments.
We’ve also seen a tremendous amount of money invested in the biggest stocks simply because passive index funds allocate more money to bigger companies. This trend has sent stock prices for many of the market’s biggest companies into the stratosphere!
And remember, the money isn’t being invested because people think these companies are great. It’s because they’re passively putting money into the biggest stocks in the market.
But this is all about to change…
A Change That Brings Opportunity
One of the things that I love about our market environment today is that people are starting to question whether the efficient market hypothesis is accurate.
And as these questions are being raised, many investors are starting to take a more active role in which stocks they’re buying.
Yes, many individual and professional investors are still using index funds for the majority of their capital.
But at the margins, we’re starting to see people question whether it’s wise to allocate most of their capital to the biggest stocks just because they’re big.
As this trend picks up speed, we’re going to see more money moving out of “the market” collectively and into the best stocks that offer investors the best opportunity to profit.
I love it — and you should too!
Because as part of our Rich Retirement Letter community, you’re already ahead of this wave.
Each week, we highlight areas of opportunity in this market and identify stocks that offer tremendous value.
Our philosophy goes directly against the efficient market hypothesis and assumes that we can find great value for investors.
And many other investors are waking up to the fact that you can make wise decisions in the market.
They’re moving capital away from index funds and into great areas of opportunity. That’s partly why we’re seeing gains in:
- Value Stocks: These are shares of companies that trade at a discount compared to the profits they generate.
- Real Estate Opportunities: This sector is helped along by historically low interest rates.
- The 5G Revolution: Many great stocks are surging as the U.S. adopts 5G networking technology.
And there are plenty more trends as well!
So while the shift away from passive investing may be causing ripples in the broad market, you can rest assured knowing that you’re already invested in many of the stocks that will benefit from this change.
We’ll continue to highlight the best opportunities for taking advantage of this shift in the days and weeks to come.
So stay tuned!