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Best Investment Strategy – Embrace Last Year’s Losers

Investing in 2014 has been tricky, given the volatile stock market environment. The S&P 500 index is sitting on a profit (barely), but has been quite volatile for the last few months.

To start the year, the benchmark was around 1,850; the S&P plummeted 6% in a few weeks to bottom at 1,740 in February, then raced up to almost 1,900 in early April before rolling back again.

So how do you invest money in this choppy stock market environment?

Well, Russ Koesterich, chief investment strategist at BlackRock, advised in his weekly note this Monday to look beyond the obvious picks and focus on recent underperformers.

He writes:

“In this environment, rather than chase last year’s winners—a poor strategy year-to-date—investors should consider embracing some of last year’s losers and adopting a general bias toward value-oriented areas of the market. Valuations for last year’s high-flying growth stocks appear stretched (this is particularly true for biotech and internet stocks).”

That’s shrewd advice, given some of the stocks that are winning and stocks that are losing this year. Take some of last year’s biggest tech winners last year — Amazon (AMZN), Google (GOOG) and Yahoo (YHOO) — that all impressively outperformed the S&P’s 30% gain last year; all are significantly in the red in 2014.

Meanwhile, the worst dow stocks including IBM (IBM), AT&T (T) and Caterpillar (CAT) are up nicely YTD in 2014 — with CAT stock up by double-digits.

Who knows if this trend will continue, but in a choppy market it is clear that the best investment strategies do not involve resting on your laurels and letting your winners run without a hint of skepticism.

The breakdown in high-flying tech stocks is proof of that in 2014.

Jeff Reeves is the editor of and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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