A trader on the floor at the New York Stock Exchange on Thursday.Jeenah Moon/Reuters
Hello again, Trade Off players!
It’s time for another edition of Trade Secrets, our weekly newsletter for The Globe and Mail’s stock picking contest, Trade Off.
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The Leaderboard
Quick check on the leaderboard, and one thing jumps out right away: Nvidia is the most selected stock across all Trade Off portfolios. Not totally surprising, given it’s the biggest company in the world. But it’s also a sign that most players have hitched their wagons to the AI boom, whether they realize it or not.
And the bet has been paying off. Nvidia’s market cap alone has risen by nearly $1-trillion since this season of Trade Off began. The bigger question for players is what to do from here. On that note, let’s stress-test a common saying about the month of May ...
Don’t cash out your winners
If you’ve been watching your Trade Off portfolio climb thanks to AI exposure, you might be tempted to lock in your gains and play defence for the summer. You might even be familiar with the old adage that encourages it: “Sell in May and go away.”
The idea is that investors should step aside for the summer and come back in the fall. It’s catchy. But for Trade Off players especially, it could be the wrong move.
Here’s why. Bloomberg recently looked at the past 33 years of S&P 500 performance between May and October. The index was positive in 25 of those years, more than three quarters of the time. Last summer, the S&P actually rose 22 per cent during that stretch. And over the past 10 years, the only summer that netted negative performance was 2022.
In other words, the seasonal slump that traders used to talk about hasn’t really shown up in the modern data. The bigger risk for a Trade Off player isn’t holding through a quiet summer. It’s stepping aside and missing the next leg up, especially with AI driving so much of the action right now.
There’s also a contest-specific angle worth thinking about. Trade Off rewards relative performance. If you cash out your winners and the market keeps grinding higher, you’re not just leaving money on the table, you’re falling behind everyone else who stayed in. Sometimes the best move is the one that doesn’t feel like a move at all.
A different way to play AI
We’ve talked a lot about how concentrated Trade Off portfolios are in the big AI names, with Nvidia leading the way. But there’s another way to think about your AI exposure that doesn’t get as much attention.
On the latest episode of Ticker Take, I spoke with Citi software analyst Fatima Boolani about the software companies she believes are built to win in the AI era. Her big idea is that the real opportunity isn’t in the flashy apps people see every day. In fact, some of those companies are at risk right now. Instead, Boolani sees opportunity in the software running quietly in the background. She calls it the plumbing.
More specifically, she looks for a few things: Products that are essential, companies with pricing power and strength in more than one area, strong financials with room for growth, and management teams that execute consistently. The five names that fit the bill are CrowdStrike (CRWD-Q), Palo Alto Networks (PANW-Q), Datadog (DDOG-Q), Cloudflare (NET-N) and Rubrik (RBRK-N).
For Trade Off players, that’s a useful lens. Most of your peers are loaded up on the same handful of obvious AI plays. The plumbing companies could be a way to get AI exposure without doubling down on the names everyone else already owns.
Trade Secret Tips
A lot of you have asked about using ETFs to round out your investing approach. But not every ETF survives. This piece looks at the ETF graveyard and shares some helpful lessons for spotting healthy funds before you buy in.
For the parents in our Trade Off community, this one is worth a look. More than 25 per cent of Canadian parents say they won’t be able to afford their kids’ postsecondary education. It’s a useful reality check, and a reminder of why building good investing habits early matters.
And if you’re staring down a higher mortgage renewal rate, you’re definitely not alone. This piece walks through how four Canadian households are coping with the squeeze. A good read for anyone thinking about how their bigger financial picture fits with their investing goals.
If you’re looking to sharpen your overall investing knowledge, don’t forget The Globe’s e-book section. Scroll down to Business & Investing for a stack of helpful deep dives.
Happy trading,
Jon
Jon Erlichman is the founder of Ticker Take on YouTube and a contributor to BNN Bloomberg.