In an effort to expand the range of
evidence-based research and investment tools available to Fundstrat clients, Fundstrat Capital LLC has filed a
preliminary prospectus for the Fundstrat Granny Shots U.S. Large Cap ETF in collaboration with Tidal Financial
Group (as of July 2024).
Wilt Chamberlain is widely considered one of the greatest professional
basketball players in history. He is also a cautionary tale for ‘macho-ness’ gone awry, and we are not even
talking about his infamous womanizing. Chamberlain, already a great basketball player, likely would have
been significantly better if he could have bitten his pride and used the under-handed, but also widely
disparaged, ‘Granny Shot’—so named because it is likely how your Grandma would choose to
shoot.
In fact, Chamberlain was a terrible free-throw shooter, so bad that he
switched to the indecorous 'Granny Shot' for a season. Which season did he switch? Well, of
course, the one in which he scored his famous hundred-point game (’61-’62), a performance that wouldn’t have
been possible without this unsung free-throw method. Chamberlain normally shot about 50%, but when he
switched to the underhanded shot, he made more free-throws in a single game than any player ever has; 28/32
for a success rate of nearly 90%.
Despite this success for the ages, Chamberlain would not permanently
switch because he did not like the look of the shot. Shaq, a notoriously bad free-throw shooter, told former
basketball and Granny Shot ambassador Rick
Barry that he would rather shoot zero percent than look uncool. Barry, who has been trying to advocate for
wider use of the shot for years describes his thoughts on the subject by saying “I really truly can’t
comprehend the aversion that people have to try something that could be very effective for them. After all,
the ultimate goal is to make the highest percentage you can!” We couldn’t agree more with Mr. Barry.
Unfortunately, we see many individual investors making a similar mistake
of trying to be macho and not asking for help and having their returns suffer accordingly. Not asking for
directions costs you a lot more in investing than it does in driving or basketball. Investing is far too
serious to let it be adversely affected by the illogical attitude that leads to NBA players avoiding a shot
that could result in more victories for their teams. This is the general idea behind our ‘ Granny Shots’
product.
Divorce Emotion In Your
Investing Process, Take a Granny Shot
At FS Insight, we like to take diverse approaches to analysis and
investing to maximize our returns. At any time, multiple forces will result in above-par growth for
individual companies. Accordingly, we have three tactical portfolios and three
strategic/thematic portfolios to take advantage of various economic tail-winds and changes that
we think will significantly affect asset prices. We mix ample use of historical relationships with technical
analysis and proprietary quantitative tools to try to identify these currents in the economy that we believe
will positively affect certain stocks.
These allocations are just for example purposes. To view the most recent tickers please visit Granny Shots Stock
List.
Our tactical portfolios have an investment horizon of
six to twelve months. They are taking advantage of observed shorter-term trends in the economy. We also have
our strategic portfolios that we think will benefit from more secular changes in the
economy. When a stock is selected by more than one of these six methodologies, we add it to our list of
"Granny Shots".
Figure: Granny Shots Portfolio Performance
Monthly. Source: FS Insight. FactSet as of 12/17/21
The logic behind this process is that stocks benefitting from multiple
tactical and strategic macro-economic tailwinds should be poised to perform better than their
peers. You don't have to take our word for it; check out the performance of our 'Granny Shots'
compared to the S&P 500 since its inception (shown above). Stocks that meet more than two categories are
generally even better bets. The Granny Shots methodology has identified some of the best-performing
stocks of the last decade, including AAPL, GOOG, TSLA, and more.
What themes are involved in choosing Granny Shots stocks?
As noted, the Granny Shots portfolio contains stocks that appear in at least 2 of these 6 investment
strategies, 3 tactical and 3 longer term. The tactical approaches are expected to capture exposure to
the investment themes we favor for the next 6 to 12 months, while the longer term strategies are
designed to capture the exposure for three to 5 years.
What Tactical and Strategic Themes Guide Our Selection?
Tactical Strategies
Style Tilt
One of our tactical portfolios is our
'style-tilt.' While this is based on the main distinction in investment styles between
Value and Growth stocks, it also has two more dimensions; defensive vs.
cyclical and quality vs. non-quality.
Currently, we believe that that
market will be led by Value stocks in cyclical sectors.
We have done much work on shifting
leadership between value and growth investing strategies and generally find that macro-economic
conditions favor stocks with reasonable valuations that typically benefit during periods of
economic expansion. The 'New Seasonality,' our next tactical theme, is a major reason.
Seasonality
Seasonality usually refers to the
natural changes that accompany the calendar-year. For example, certain goods' consumption tends
to be higher around the holidays.
These factors are somewhat more
predictable than many unforeseen, or exogenous, developments in markets.
Our Seasonality portfolio is somewhat like
our style-tilt but drills down to the granular industry and sub-industry level to ascertain
which of these should benefit from the current seasonal forces. We use multiple analytical
approaches to detecting which industries have the highest likelihood of outperforming
given seasonal currents in the economy.
PMI Recovery
The Purchasing Managers Index isn’t
as complicated as it sounds. Basically, it surveys those in businesses responsible for
purchasing working capital on their optimism for the future compared to the recent period.
If the PMI goes above 50, more
managers feel optimistic about future prospects. We have looked throughout history and analyzed
the PMI Index and economic activity.
Clearly, when PMI begins trading
above 50, companies that benefit from expansive economic cycles tend to do better.
The PMI readings have
recently indicated that many businesses are expecting a coming boom and economic normalization.
Thus, we tilt heavily toward pure-cyclicals for this tactical portfolio.
Thematic
Strategies
The Millennial Strategy
We will start with the secular
trends that guide our strategic and thematic portfolios. We believe that many people often miss
a key driving factor of markets, who exactly they are comprised of.
Millennials are the largest
generation on Earth.
Their peak spending, borrowing, and
earning years will soon be upon us. In addition to this, they will also be inheriting a
massive amount of money, in the trillions, from the aging baby-boomers
As this massive boon in demand occurs in
the economy, we think certain companies are particularly poised to achieve superior growth.
Global Labor Shortage and Rise Of
AI/Automation
One of the main catalysts for global
economic integration over the past decades was cheap and plentiful labor available to
first-world firms in third-world countries.
This revolutionized
supply-chains and lowered the costs of many products; it also may have contributed
to staving off high inflation levels
However, this influential trend has
recently been reversed. We estimate that by 2028 the global economy will be short nearly 80
million workers.
Does this mean AI/Automation will replace
workers fully? Of course not; however, the labor shortage likely means that companies who have
invested in the technology and software to act as a significant force-multiplier to their human
capital will have better performance than those who have not. Companies supplying the new
solutions in automation and artificial intelligence are also included in this thematic
portfolio.
Asset Intensity
Last week, the 10-year Treasury
went above 1% for the first time since COVID-19 roiled markets in February and March. There are
many emerging inflationary forces and accommodation to them from the Fed. There are few more
serious threats to investment returns than inflation. You will likely want to have some
protection against what will likely be some of the highest inflation rates that we have seen in
recent history. Many investors will have to ‘dust-off’ their inflation manuals since it
hasn’t really been an issue for investors since the 1980s.
Thus, this strategy's thrust is going
overweight stocks that are 'asset-heavy' instead of
'labor-intensive'. Due to FIFO Accounting, the appreciation of assets on
balance sheets tends to make stocks benefitting from a lot of assets to outperform. Companies
with many assets will benefit from them acting as a natural hedge against the devaluation of
currency. Rising labor costs accompany rising inflation, which disproportionately hits companies
that have a good portion of costs tied up in paying for labor. This economic current is the
foundation of our third strategic thematic portfolio.
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