Goodbody Best 8: Here’s what can be achieved with active stock picking

The Reddit-Robinhood trading mania of recent months provided the latest reminder (if one was necessary) that active stock trading is very hard to get right. It also highlighted that, despite the explosion in popularity of passive investment strategies (e.g. ETFs) over the past decade, investors remain inherently interested in trading direct equities. Irish investors are no exception. Indeed, it was client feedback that first led us to develop Best 8, a fully managed trading service, several years ago.   

As the name suggests, Best 8 is Goodbody’s top 8 stock ideas for the next 12 months. It’s an equal-weighted list that focuses on large-cap companies operating and listed in developed markets. Most of the companies that feature are household names, which resonate with clients that enjoy following the fortunes of their stocks. 

Whether you are trying to protect your wealth from the market disruption or position for a recovery, knowing what to buy and when to be invested is essential. Anyone can have a “one-hit wonder” when trading markets. However, to achieve superior returns consistently requires a robust investment process and a strong sense for market timing allied with strict discipline and risk controls. Just like long-term portfolio management, it pays to remember that it’s a marathon and not a sprint when actively trading stocks. 

As detailed below, the performance of Best 8 has far outstripped popular benchmarks by focusing on blue-chip businesses with strong thematic credentials and structural growth trends. We’re happy to leave the truly speculative opportunities to others.  

Note: All performance data quoted as at 26 February 2021 and expressed in Total, Gross euro terms. The inception date for Best 8 was 1 April 2019.

Take, for example, Allianz, one of Europe’s largest insurers. Its diverse and defensive revenue streams appealed to us during the pandemic. Similarly, its strong solvency ratios meant it could continue paying dividends when peers could not. We successfully traded Allianz on three occasions over a 14-month period, achieving cumulative client returns of almost 40 per cent* despite the stock price being effectively unchanged over this 14-month timeframe. 

In addition to original idea generation, we add value by constantly monitoring market developments so that client funds are invested and divested at the most opportune times. Indeed, our active investment approach often facilitates repeat trading in the same stocks. One such example is SouthWest Airlines (SA), which we successfully traded on three occasions over a 9-month period. Our clients achieved cumulative gross returns of over 75 per cent*, versus a circa 27 per cent* return for the S&P 500 index over the same nine-month timeframe.

The only US airline with an investment-grade credit rating, SA also boasts one of the most experienced and well-respected management teams in the aviation industry. However, we’re especially keen on the company because we believe domestic US leisure travel will post one of the earliest and strongest recoveries post-pandemic. SA is almost entirely (circa 98%) focused on the US domestic market and caters predominantly to the leisure segment (circa 65% of passengers).

Sometimes the investment rationale for a stock can evolve and grow in ways that were not fully appreciated at the outset. In those cases, it may be best to eschew short-term trading opportunities and stick with it for the medium-term. One such example is Walt Disney. We originally bought the “The House of Mouse” because we felt its vast back catalogue of high-quality TV and film content was under-appreciated by the market. Since then, the hugely successful launch of its streaming service, Disney+, has greatly exceeded market expectations. Looking forward, segments like Parks, Film and Cruise look set to prosper as economies re-open.   

Naturally, not every trade idea will produce a profitable outcome. So, it is imperative that underperformers are quickly identified and eliminated. We achieve this by continuously re-appraising the investment rationale for every position and being committed to strict risk parameters. Taking the emotion out of the decision-making process is key here. This discipline has served us well to-date, with 70 per cent of the completed Best 8 trades generating positive returns*. Furthermore, as Best 8 profits are subject to CGT only, the service is also highly tax-efficient for clients. 

* Total, Gross returns expressed in local currency terms

Jerome Kavanagh is a Senior Trading Strategist on Goodbody’s Active Trading Desk

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To learn more about Goodbody’s Best 8 please visit: www.goodbody.ie/best8

Warning: Past performance should not be taken as an indication or guarantee of future performance.
Warning: Past performance is not a reliable guide to future performance.
Warning: The value of your investment may go down as well as up.
Warning: If you invest in this product you may lose some or all of the money you invest.