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Investors Shape Up! (The Adults Are Back in the Room)

Posted January 10, 2022

Zach Scheidt

By Zach Scheidt

Investors Shape Up! (The Adults Are Back in the Room)

If you've ever been in charge of a group of young kids, you know that their behavior will be vastly different depending on whether an adult is in the room.

This weekend, my 8-year-old son had a couple of friends over and chaos quickly ensued.

From across the house, I heard a game of indoor dodgeball erupt… followed by crashing picture frames and at least one broken dinner plate.

But when I walked into the room, the kids turned into little angels. One of Caleb's friends even offered to help clean up!

The situation isn’t all that different from what we've seen in the markets over the past few weeks. 

And while the shift from a "childish" to a "mature" market may be abrupt, it's actually a very positive adjustment.

Today, I want us to look at this shift from a new angle. And I've got a list of healthy investments for you to consider for this new "mature" stock market environment.

Childish Stocks With Unrealistic Prices

To say the current bull market for stocks has been childish isn’t a stretch.

Heck, for the last 18 months, many of the most spectacular stock returns have been driven by enthusiastic investors with no experience in the stock market.

As stay-at-home traders opened brand new Robinhood investment accounts and jumped into stocks they read about on message boards, the entire tone of the stock market shifted towards speculative growth plays.

Now don’t me wrong, I'm not upset about this trend. It's part of the typical greed and fear cycle that we see in markets time and time again.

But given the amount of government stimulus, unparalleled access to the stock market, leverage that was offered to inexperienced traders and our always-connected social media culture... things got a little out of hand.

Some of the most popular stocks included cloud computing companies that didn't have a hint of when they might produce a profit... Artificial intelligence tech companies with no real business model... And autonomous driving vehicle manufacturers that technically never manufactured anything at all!

As investors gobbled up shares of these story stocks, speculative investments soared. Meanwhile, those old-fashioned companies that generated profits and had stable reliable businesses were put out to pasture.

The good side of this development is that many new investors are now in the market and learning about the power of the overall stock market to grow and protect wealth.

I love that!

But the bad side is that many of these childish investors are now in trouble. Because the adult investors are stepping back into the room again…

A Stock Market Shift Toward Maturity

Take a look at the two charts below.

The first is a chart of the Vanguard Growth ETF, packed with speculative stocks that may (or may not) live up to the expectations these rookie investors had.

chart

As you can see, the growth stocks sold off sharply in 2022 after plenty of volatility in December.

Now, check out the grown-up chart for the Vanguard Value ETF. This fund is full of value stocks: companies that generate profits and have cheap stock prices compared to earnings.

chart

Notice how the value stocks have held up just fine during the January selloff.

You might also notice that VTV is still near an all-time high even though these stocks have been largely ignored by the childish investors who have been too focused on cloud, AI and other high-tech areas.

Which would you rather be invested in right now?

An area of the market in a clear breakdown pattern with stocks that are still too expensive compared to earnings?

Or an area of the market where stocks are hitting new highs, holding their ground during a selloff... oh, and I didn't even mention that many of these value stocks pay great dividends!

Here's Where to Start

If you want to be invested in the strongest area of today's market, simply pick out the areas that are holding up well.

Here at Rich Retirement Letter, we've already talked about many of the strongest areas of the market including financial stocks, consumer staples and even energy stocks!

Below is a list of the top 10 holdings included in the Vanguard Value ETF (VTV). These are the stocks driving solid performance for this healthy group.

table

Not every stock in this list deserves a buy rating. And I was disappointed to see that VTVs top 10 positions only includes one energy company, Exxon Mobil Corp. (XOM).

But the list is a great place to start finding stocks that are working right now. 

And if you look for competitors of these names, you'll soon have 30-40 good candidates to consider adding to your retirement investment account.

Sure, these names may not be as exciting as an artificial intelligence company with a specialty in self-driving personal rockets that also stream your favorite TV show from space (ok, I got a little carried away with that one)...

But they will give you a better shot at locking in reliable profits even in today's turbulent market.

Here's to living a Rich Retirement,

Zach Scheidt

Zach Scheidt
Editor, Rich Retirement Letter
RichRetirementFeedback@StPaulResearch.com

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