From Grant Wasylik, chief analyst, The Palm Beach Letter: In investing, as in football, high scores may put fans in stadium seats, but “defense wins championships.”
The S&P 500 Index lost 5.6% in the first half of October 2014… only to roar back 8.4% in the month’s second half. That made for a net gain of 2.3% on the month.
It was a seesaw month for the market. In the first half of October, there were five trading days with losses of at least 1%. Then in the latter half of the month, the market had its best trading day of the year (+2%).
I ran the numbers on The Palm Beach Letter Performance Portfolio (average of all current holdings) for comparison:
| Index/Portfolio | October’s First Half | October’s Second Half | October’s Full Month |
| S&P 500 | -5.6% | +8.4% | 2.3% |
| Performance Portfolio | -1.9% | +7.5% | 5.4% |
As you can see above, the Performance Portfolio lost only one-third as much as the S&P 500 in the first half of the month… but it still participated in 90% of the market’s gain in the second half.
Because of our defensiveness during the first half’s “mini” correction, Palm Beach Letter subscribers outperformed the market in October by a 135% margin—5.4% to just 2.3%. Let me explain how powerful this is…
Many investors believe if their stock portfolio declines by 50%, they need a 50% gain to break even. But that’s wrong. Say you have $10,000 invested in the market. It drops 50% (leaving you with $5,000). Now you have to gain another $5,000—100%—just to break even again. That’s why we want to select defensive stocks that never fall as far in the first place.
Now, your average investor doesn’t want to hear this… he wants an “offensive” stock. He wants the next great tech miracle—like electric carmaker Tesla. He falls in love with the story behind eclectic founder Elon Musk. He salivates at the prospect of 1,000%-plus growth. He excuses the ugly little details—like the company’s “earnings” of -$1.64 per share. And he gets punished…
This “Offensive” Stock Takes a Beating
Where the average investor focuses on wins… we focus on losses (and how to prevent them). That’s why we’re relentless in providing safe, income-oriented picks every month. These stocks traditionally hold up better during market pullbacks. And of course, we add another layer of defense to the mix: the Palm Beach Three-Legged Stool of Safety. This risk-management combination includes position sizing, stop-loss discipline, and diverse asset allocation models. This keeps us further shielded from ever incurring a catastrophic loss.
The result is security, prosperity, and market-beating results… in any economic environment. Defense does win championships.