Bulletin
Investor Alert
×

Outside the Box Archives | Email alerts

July 19, 2019, 8:30 a.m. EDT

6 ways to beat the stock market — from a money manager who’s been doing it for years

These five picks from Ken Broad will get you started

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    Jackson Square SMID-Cap Growth Fund;Investor (JSMVX)
  • X
    Russell 2500 Index (R25I)

or Cancel Already have a watchlist? Log In

By Michael Brush, MarketWatch


Stitch Fix
A clothing box from Stitch Fix, one of Ken Broad’s favorite stocks.

Donald Trump makes a lot of questionable comments, but the president is right about one thing: Everybody thinks they’re a great investor in a market hitting new highs.

Some investors really do deserve accolades. Here’s how you tell: They consistently outperform by a wide margin over five or ten years.

Take Ken Broad and his team at the Jackson Square SMID-Cap Growth Fund /zigman2/quotes/209178180/realtime JSMVX -0.59% , for example. It’s up 13.9% over five years compared to 10% for its Russell 2500 benchmark /zigman2/quotes/210598146/delayed XX:R25I -0.42% . It also outperforms by three percentage points over 10 years.

/zigman2/quotes/209178180/realtime JSMVX 23.40, -0.14, -0.59%

How do they do it? And more importantly, what can we learn from them? Here are six lessons and five stocks to get you started.

1. Think long term

In a market full of short-term investors, volatility can shake you out of good names. This won’t happen if you have a long-term horizon. For Broad, it’s three to five years. This is especially helpful when investing early on in growth stories, a key tactic, because you want to allow time for their businesses to develop.

Broad cites Stitch Fix /zigman2/quotes/208173073/composite SFIX -5.12% , an online apparel company which went to the stock market in late 2017. He compares investing in Stitch Fix now to owning Netflix /zigman2/quotes/202353025/composite NFLX -2.36%   early on. Like Netflix, Stitch Fix uses data analytics to decide what to put in front of customers. It’s also a recurring revenue business. In exchange for ongoing fees, Stitch Fix sends customers regular apparel fixes. Customers keep what they like and return the rest. Top executives come from Netflix, Walmart /zigman2/quotes/207374728/composite WMT +0.56%  and the Gap /zigman2/quotes/206554267/composite GPS -1.48%  .

2. Go small

Big companies like Microsoft /zigman2/quotes/207732364/composite MSFT +0.82%  or Apple /zigman2/quotes/202934861/composite AAPL +0.94%  have so many analysts following them that potential developments are already priced in. At smaller companies, you can still get an advantage via research.

Broad’s fund buys names up to $7.5 billion in stock-market value. Stocks graduate out of the portfolio when they hit $15 billion. The ideal size for new positions is companies worth $1 billion to $3 billion.

“This is where you have earlier stage and potentially disruptive businesses,” says Broad. At the same time, they’re big enough that they’ve started to prove themselves.

A favorite at the moment is LiveRamp /zigman2/quotes/200307325/composite RAMP -0.71% , which helps companies navigate the fragmented sources of personal data on consumers, to refine marketing pitches. This company changed dramatically last year when it sold a legacy business to focus on consumer data aggregation. It has a $3.5 billion market cap.

3. Be contrarian

How to be “contrarian” changes all the time, depending on what stocks are out of favor. But here’s one way which consistently works: Buy spin-offs. Studies show that spin-offs outperform on average, for these reasons.

/zigman2/quotes/209178180/realtime
US : U.S.: Nasdaq
$ 23.40
-0.14 -0.59%
Volume: 0.00
Sept. 18, 2019
loading...
/zigman2/quotes/210598146/delayed
XX : FactSet Prices
637.77
-2.69 -0.42%
Volume: 0.00
Sept. 18, 2019 11:32p
loading...
/zigman2/quotes/208173073/composite
US : U.S.: Nasdaq
$ 20.39
-1.10 -5.12%
Volume: 2.54M
Sept. 18, 2019 4:00p
P/E Ratio
43.72
Dividend Yield
N/A
Market Cap
$2.17 billion
Rev. per Employee
$207,811
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 291.56
-7.04 -2.36%
Volume: 7.84M
Sept. 18, 2019 4:00p
P/E Ratio
114.34
Dividend Yield
N/A
Market Cap
$130.74 billion
Rev. per Employee
$2.22M
loading...
/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 117.16
+0.65 +0.56%
Volume: 4.12M
Sept. 18, 2019 6:30p
P/E Ratio
26.40
Dividend Yield
1.81%
Market Cap
$331.39 billion
Rev. per Employee
$223,654
loading...
/zigman2/quotes/206554267/composite
US : U.S.: NYSE
$ 17.94
-0.27 -1.48%
Volume: 3.91M
Sept. 18, 2019 6:30p
P/E Ratio
7.33
Dividend Yield
5.41%
Market Cap
$6.84 billion
Rev. per Employee
$122,815
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 138.52
+1.13 +0.82%
Volume: 24.45M
Sept. 18, 2019 4:00p
P/E Ratio
27.32
Dividend Yield
1.33%
Market Cap
$1049.03 billion
Rev. per Employee
$902,473
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 222.77
+2.07 +0.94%
Volume: 25.63M
Sept. 18, 2019 4:00p
P/E Ratio
18.99
Dividend Yield
1.38%
Market Cap
$997.38 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/200307325/composite
US : U.S.: NYSE
$ 46.06
-0.33 -0.71%
Volume: 674,083
Sept. 18, 2019 6:30p
P/E Ratio
3.64
Dividend Yield
N/A
Market Cap
$3.14 billion
Rev. per Employee
$182,418
loading...
1 2
This Story has 0 Comments
Be the first to comment
More News In
Investing

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.