The Best Performing Stock in 2023 Will Be…

If you want to produce superior returns in 2023, then your primary focus should be on strategy rather than trying to find a great stock pick.

The best-performing stock in 2023 will be the stock you trade most effectively. It may not even be a great stock, but your trading will make all the difference.

My headline may be a bit annoying for readers that want some good quality stock picks that they can buy and forget. I will discuss some names I like for 2023 next week, but in this column, I want to discuss an issue that is far more important than stock selection.

What you should focus on in 2023 more than anything else is your trading and investment strategy rather than trying to find a stock that requires no effort. If you want to make more money next year, then spend more time working on a strategy that you can apply to those great stock picks that you find. Active trade management requires more work, but it is the path to success.

This is the time of year when the financial industry rolls out its predictions for the year ahead. Strategists make market forecasts, and there are long lists of stocks that professionals believe will produce superior returns. Generally, these predictions perform randomly. Sometimes someone is lucky and makes a good call, but no one – and I mean no one – consistently predicts the twists and turns in the market.

Luck plays a huge part in stock selection, and it is very important to recognize that fact. You will have good luck and bad luck with stock picks, but what will determine your level of success is how you react to that luck.

The Problem With Annual Predictions

One of the major problems with the annual prediction game is that there isn’t any clarity about time frames. The default assumption is that a stock will be held for the entire year, but that is a terrible way to approach investing or trading. If you don’t manage the trade and just count on the market to recognize the greatness of your stock picks, then you are asking for trouble.

Sitting and doing nothing as a trade develops is the worst thing you can do. If your pick turns out to be a poor one, then you need to reduce your risk and protect your capital. If the pick is a good one, then you need to make the most of it and leverage up. As George Soros famously said, “It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.”

I will discuss some stocks that I think will do well in 2023, but these stocks must be actively managed. One very simplistic market aphorism that contains great wisdom is to cut your losses quickly and let your winners run. You can’t help but have success if you follow that rule, but the actual execution is extremely difficult.

The great benefit of focusing primarily on strategy rather than fundamentals is that it doesn’t matter much what the overall market does. The natural volatility of the market during the year will create a steady diet of opportunities, and if you identify some good stocks and have an effective trading methodology, then you can do well even if the indexes have losses for the year.

Your best stock pick in 2023 is going to be the stock that you trade most effectively. You will pick losers that you will have to dump quickly, and you will pick some winners that will produce huge profits if you pursue them aggressively.

I hope you will join me in making 2023 the best year ever.