One of the things we all learn the hard way — in life and in markets — is to stop doing what isn’t working and double down on what is.
Feel like garbage the next morning because you drank too much and crushed a bag of Doritos at 1 a.m.? Easy fix: Stop doing that. Drink less, go to bed earlier, avoid the junk. It’s amazing how much better you feel when you sleep, eat some protein, and get a little exercise.
Want to feel better during the day? Do more of what works. Do less — or none — of what doesn’t.
It’s the exact same thing in the market. If you’re buying stocks that aren’t making you money, stop buying those types of stocks. And if you’ve got positions that are working, add to them. Lean into your winners.
If the goal is to increase the value of your portfolio, treat it the way you treat your body: Keep doing the things that make it stronger, and cut out the things that make it worse.
Adding to losing positions or doubling down on ideas that keep losing you money? That’s the market equivalent of late-night junk food — you’re going to feel terrible in the morning. Or in this case, when you check your portfolio.
Doing more of what’s working isn’t just common sense. It’s a core pillar of what we do here every day at TrendLabs.
Putting This Into Practice
A few months back, I thought we might see some rotation into regional banks as money began flowing into small caps. Regional banks are a huge weight in the small-cap indexes, and a few of them were starting to show some relative strength.
So I took a shot. I bought one regional bank stock.
It didn’t work. We got stopped out.
So did I go out and buy more regional banks? Of course not. Since that failed trade, our regional bank exposure has remained exactly 0%.
What did we do instead? We bought more biotech stocks for our Divergence portfolio — because they were working. More and more of them kept showing up on our scans, breaking out, acting right, and making us money.
If you looked at my portfolio over the past few months, you might mistake me for a scientist. And if you know me at all, that’s objectively hilarious. But the truth is, I’ve never owned this many biotech names in my entire career.
There’s a time and a place for everything. And right now, as money rotates into small caps, biotech is leading. Regional banks aren’t. So we positioned ourselves accordingly.
One day that will change. Maybe soon, maybe not. When it does, we’ll adapt and shift our strategy — because that’s the job.
Same thing with energy. We bought one name and it started working. So we bought another, then another, and then another.
That built a solid mix of energy stocks in our Divergence portfolio — oil services, refiners, explorers, producers — not because of some grand macro view, but because they’re acting well. They’re winners, so we’ve added to them.
We water our flowers and cut our weeds. That’s the whole game. That’s TrendLabs.
But most people do the opposite. They add to losers and sell their winners quickly. As Paul Tudor Jones taught us, “Only losers average down losers.”
In other words, the only people doing more of what isn’t working… are the people who want to lose money.
If you want to make money — like I do, and like you do — then it’s simple: Do more of what’s working, and less (or none) of what’s not.
When Headlines Scream “Plunge”
I don’t know what the future holds. I have no idea whether money will keep rotating into the groups that have been leading — biotech, energy, transportation, metals — or if something entirely different will take over next.
We can weigh the evidence, manage risk, and ride the trends for as long as they’re working. After that, the market will do whatever it wants, regardless of our opinions.
All I can tell you is what has been happening — and whether it’s been working for us.
Take this “correction,” for example. It effectively began on September 11, when the percentage of NYSE stocks in uptrends (above their 200-day moving average) peaked. That was also the day the NYSE Advance-Decline Line topped out.
Here’s the performance of all the equal-weight sectors during this nearly 10-week pullback:
Two of the best performers have been healthcare and energy — exactly the groups that had been showing up at the top of our scans and working in our portfolios — while the S&P 500 and the Dow Jones Industrial Average are flat, up just 0.6% and 0.1% during the same period.
Meanwhile, the areas we’ve avoided — like consumer discretionary (down 9.6%) and financials (down 6.1%) — haven’t been working at all.
And that’s fine. We don’t own them. Their problems aren’t our problems.
Now look at yesterday. According to the headlines, stocks were:
- “Plunging” (DailyMail)
- “Dow Down Nearly 500 Points” (CNBC)
- “AI Bubble Hits Stocks” (WSJ)
- “Tech Wreck” (Investing.com)
- “Longest Slide Since August” (CNBC)
- “Stocks Sank Sharply” (CBS)
But if you checked our Divergence Portfolio, you wouldn’t have noticed any “plunge.”
Of our 17 positions, 12 closed higher — several were up 3% to 4% on the day. Only five were down.
It was a good day for our portfolio, despite the doomscroll headlines.
Of course, it’s only one day. It’s not always like this. But yesterday was a perfect illustration of why we do more of what’s working and less — or none — of what isn’t.
I don’t know what happens next. Maybe leadership shifts. Maybe it doesn’t. We’ll adapt either way. That’s the job.
We don’t waste time worrying about what we can’t control. We focus on what we can control — our process, our risk, our positioning.
That’s exactly what our strategy is built to do: adapt to the environment. And if your strategy can’t adapt, it’s only a matter of time before the market breaks it in half. I’ve watched that movie too many times.
That’s why, when we built TrendLabs, we made sure everything starts with identifying the market environment first — then deciding how to profit from it.
Anything else would be irresponsible.
And in this business, doing the irresponsible thing isn’t just costly. It’s fatal.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs