The “Magnificent Seven” stocks’ outperformance over multiple cycles is historically unusual — and the long run of dominance for these seven large technology stocks has convinced people that they are impervious to underperforming, says Mark Minervini, a two-time U.S. Investing champion.
In an interview with MarketWatch, the Wall Street veteran with almost four decades of trading experience warned that the stock market’s speculative nature means there’s no margin of safety for any stock. To drive his point home, he recalled a number of failed companies that were part of the “Nifty Fifty,” a group of 50 large caps that led the market in the 1960s and 1970s. Only a handful of stocks from that group went on to thrive, like American Express Co. AXP and Coca-Cola Co. KO, while others like Avon and Polaroid did not.
Minervini is known for being a two-time winner of the U.S. Investing Championship, taking first place in the $1,000,000-plus stock division with a 334.8% annual return in 2021. He also won the competition in 1997 with a 155% return. He has spent most of his career teaching the next wave of investors how to find winning stocks using fundamental and technical analysis through his published books and courses.
One of his overarching guidelines is that while fundamentals drive the technicals, you may not always see the fundamentals in time — but the technicals can improve, or degrade, before the fundamentals become obvious to the public.
That’s because Wall Street is always looking ahead and factoring in future expectations when valuing current stock prices. It’s where the popular saying that “stocks are a discounting mechanism” comes in. It also means that by the time the big news is out or earnings are reported, the information has already been acted on, and so investors should assume it has been priced into the stock.
“Sometimes the stock will have great earnings and it will go down, and there’s other times they’ll have horrible earnings and all this bad news comes out and the stock rallies — and that’s why they say ‘Buy the rumor, sell the news,’” Minervini said.
