Superperformance stocks: An investment strategy for the individual investor based on the 4-year political cycle

The Author suggests using the 4-year political cycle as an investment strategy. And subsequently, he writes about the superperformance stocks of the time, and the common denominators of those stocks.

What traits do they have in common, how to find them?

Definition of a superperformance stock: "One that at least tripled in price and increased at a minimum rate of three times during a two-year period. A move was considered ended if the price failed to reach a new high in less than six months, or if there was a price reaction of 25 percent or more."

Stocks that have a chance to become superperformance stocks share some of these characteristics:

• Large increases of earnings, especially if the large increase comes as a surprise.
• Mergers and acquisitions.
• New management.
• New products.

Large increases of earnings and sales are the main reason for a stock to rise substantially.

Other reasons come into play as well, as mergers and acquisitions, new management and new products are all in service of providing higher earning power for a company. The market discounts the future, and that might be enough to push the price higher significantly, even though the increase in earnings is not still visible. However, if those expectations are not realized in the future, the price of the stock may drop severely, as the move would inflate the valuation.

The best results come after the market has experienced a severe correction or a bear market, because that is the time when there would be many bargain opportunities in that environment. The environment is dependent on the fiscal and monetary situation, as the lowering of interest rates and fiscal stimulation lead to higher stock prices. And that is the environment where superperformance stocks are abundant and have the most potential. Rising interest rates and fiscal tightening are negative for stocks in general, and in that kind of environment it is much harder to find a stock with potential to have a large increase in price.

History often repeats itself in the stock market. The names of the stocks change, but the overall situation is always similar. Acceleration of earning power is the most important thing to look for when examining the potential of a stock to become a superperformance stock. And the superperformance move will most often coincide with the bull market cycle of the general market.