If you’re a typical adult (like me), research says you make about 35,000 decisions a day. So acting on “conventional wisdom” serves as a kind of time-saving shortcut that cuts stress, gets you to an answer quickly, and usually works out.
This conventional wisdom includes things like:
- Asking an owner if it’s safe to pet their dog — so you don’t get bit.
- Looking both ways before crossing the street — so you don’t get hit.
- And washing your hands before you eat — so you don’t get sick.
Conventional wisdom tends to work out well when we’re talking about simple decisions. But the more complex the question, the more analysis that’s needed — and the greater the risk that a quick decision will be the wrong decision.
Sometimes with horrific consequences.
When it comes to investing, one of the deadliest pieces of conventional wisdom is something called the “efficient market hypothesis,” or EMH.
The EMH was popularized in the early 1970s, and it’s something that I’ve crossed paths with many, many times in the decades that followed — as a business journalist, author, analyst, and stock picker.
In simple terms, the EMH says that every piece of information about a stock — public and private — is reflected in its price at any given moment. That would mean the playing field is perfectly level. It would mean there are no advantages to be had. And because stocks are always “fairly priced” at any given moment, it would mean there’s no way to beat the market.
EMH hardliners believe that the only way to invest is passively, with a low-cost portfolio like an index fund.
And we know that bit of conventional wisdom just isn’t true. Because if you believed that was the best way to invest, you wouldn’t be reading this right now.
You and I both know that there are competitive edges to be had… edges that hand you market-thrashing windfalls.
Today we’re going to bust the efficient-market myth — and show you how our friends at Derby City Insights can connect you with market-beating trades.
Founders Andy and Landon Swan listen to the most important person of all — the consumer — and can give you an advance peek at the messaging that will accompany a company’s quarterly financial results. Consumer spending drives two-thirds of America’s economic activity. It’s the consumer whose dollars act as the “votes” that determine which products and brands are the winners and losers. It’s the consumer whose spending on particular products or services can make or break a company’s financial results.
Imagine having that insight ahead of a company’s earnings announcement. That’s a bit of market intelligence that gives you a “first-mover advantage” with a stock or an options trade.
The efficient market hypothesis says that kind of intelligence doesn’t exist.
But the team at Derby City Insights knows that it does — if you know where to look or who to ask, as the Swan brothers, Andy and Landon, do.
They see what the consumer is saying directly via Twitter. Twitter is where consumers post and share their true feelings about the products and brands that get them excited… and those they’d prefer to avoid.
The team “mines” that data, deciphers what consumers are saying and feeling in real-time, and turns that insight into opportunistic trades. And they do it before earnings are released, through such indicators as:
- Consumer Buzz — A tweet that mentions a specific company’s product or brand.
- Consumer Purchase Intent — A tweet that refers to a brand/product and includes a word or phrase that indicates a purchase is imminent. Someone saying they “Made reservations for our Disney World trip!” would count as a purchase-intent mention for Disney.
- Consumer Happiness — An indication of consumer sentiment toward a company’s product in a tweet. A post counts as a “positive tweet” if it contains a word/phrase that shows up on LikeFolio’s “trigger list” of upbeat mentions, and rates as a “negative tweet” if it includes a term from the Swans’ specific downbeat lexicon. Tweets that lack terms from either list are counted as “neutral.”
The bottom line: Andy and Landon can show you what’s happening on Main Street before it becomes news on Wall Street — and then show you how to profit.
Like we’re going to do right now…
That’s right: I’m going to spotlight one stock where you can put this EMH-myth-busting, market-beating intelligence to use: On Holding (ONON).
Running Towards Big Profits
The word “disruptor” gets thrown around a lot. But the Switzerland-based On Holding earns that title because of how it has brought true innovation to the athletic shoe market.
Running shoes have an average “lifespan” of between four and six months. But sports shoes are pricey. And budgets are getting stretched these days (U.S. credit card debt hit a record up near $1 trillion in May).
So folks are wearing those shoes for (pun intended) longer runs than ever before.
Add in the fact that cheaper prices may be more attractive than brand loyalty, and you’re looking directly at an unpredictable revenue model.
But “innovator” On Holding found one way to create clockwork-like revenue predictability — each and every month — with a “subscription” program.
That’s right … subscriptions … for shoes.
That’s not only innovative. It’s downright cool.
For roughly $30 a month, you can pay to swap out your old, fully recyclable running “kicks” — for a new pair every six months.
An avid runner herself, Derby City Insight’s data guru Megan Brantley swears by her pair of Cloudneos and takes full advantage of the subscription service. (She’ll even show you how it works in this video — around the 1:30 mark.)
And the real genius about this subscription model is that On Holding found a way to make $360 from a customer per year… without ever having to sell a single shoe. And because the recycling program is through On Holding, it incentivizes someone to keep buying its shoes… adding even more revenue to the On Holding coffers … and predictability to its financial reports.
On maintains one of the highest Consumer Happiness scores in the LikeFolio universe, surpassing 82% after a significant bump of 4% on a year-over-year (YoY) basis.
That’s an incredibly positive long-term indicator of success.
And while Purchase Intent mentions have slowed a bit from their all-time highs, the latest LikeFolio data shows they’re up 47% over the last year.
The most bullish analysts see ONON reaching $42 per share, representing plenty more gains ahead.
Gains of 30%, to be exact.
Anyone who wants to keep believing in the efficient market hypothesis can, but we can keep following Derby City Insights to find opportunities that will leave the benchmark returns of the S&P 500 in our dust.
On Holding (ONON) is expected to report earnings between Aug. 14 and Aug. 17
— Keith Kaplan
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Source: TradeSmith