Forget stock picks. Use trends instead!

Key Markets report for Wednesday, 31 December 2025

When considering securities markets, most investors would like to know the next Nvidia, Tesla, Apple Computer, Google, or Bitcoin: that hidden “value” play that might be capable of rising 10- or 100-fold, bringing us a large, life-changing windfall. Finding such an investment should be more probable than winning the lottery: the stock markets are full of companies that have appreciated 100-fold or more, and we do hear and read stories about these fairly frequently.

So, both individual investors and professionals put a great deal of effort into identifying such plays, be it in the IT industry, energy, mining, health care or whichever industry is perceived as promising. Today, the AI sector could be hiding such future plays… In reality, the average investor is unlikely to get the full advantage of such stocks, even if they identify them. Over the years, I met many investors who spoke with a great deal of satisfaction about investments where they’d doubled or tripled their money. “Ten-bagger” stories are not as common, but they get told and retold for years.

Genius investor who beat Buffett

However, I do not know even a single investor who has made 100 times their money on any stock pick. It seems to me that the only people who get the full traction out of those storied 100-fold stocks are the people who bought and forgot: the investors who don’t trade actively and sit on their investments for years, spending little time thinking about their portfolios, profits, losses, the news flow, quarterly earnings, valuations and all the rest.

One of the best examples of this was when one Onni Nurmi from the village of Pukkila purchased 760 shares of Nokia. At the time, Nokia made rubber boots and Nurmi’s rationale for that particular stock pick was that people will always need good rubber boots, so a boot making company seemed like a safe investment. In 1962 Nurmi died, leaving his Nokia shares to the village.

The legacy was then worth some $30,000 and Nurmi’s will contained instructions that the shares should never be sold. By the year 2000, the town’s holdings were estimated to be worth as much as $90 million. Thus, even beyond his grave, Onni Nurmi outperformed Warren Buffett and Benjamin Graham: his $30,000 investment soared to $90 million at peak — a 3,000-fold return over a period of 38 years. That’s a compound annual growth rate of approximately 23-24%.

To be fair, over those 38 years, Nurmi had an unfair advantage over Buffett and Graham: he was dead. He was therefore unable to overthink his allocations or run out of patience.

Hardwired to underperform

For most investors, however, stock picking is not likely to lead to the levels of performance we strive for, regardless of the stocks we pick. Investment performance isn’t about value as much as it is about the way we make decisions, and this is where most of us fall short. One of the key pitfalls is that we tend to hold on to our losing investments but are quick to cash out our winners. That tendency is pretty much hardwired in our psyche.

Researchers Hersh Shefrin and Meir Statman published an influential paper titled, “The Disposition to Sell Winners Too Early and Ride Losers Too Long: theory and Evidence.” They found that investors will hold on to stocks that have lost value (relative to purchase price) too long and will be eager to sell stocks that have risen in value.

One of the most interesting field studies was conducted by Odean, who found that investors held losing stocks a median of 124 days and held winners only 104 days. Investors sometimes say they hold losers because they expect them to “bounce back” (or mean-revert), but in Odean’s sample, the unsold losers returned only 5% in the subsequent year, whereas the winners that were sold later returned 11.6%.

All these findings are consistent with the hypothesis that markets move in trends: assets that rise in value tend to keep rising… Any investor wanting to get the most out of their assets should therefore think as much, if not more, about their strategy of investing as they do about the investments themselves. I believe that sailing with the trends over long time horizons will tend to be a more reliable approach than picking winners for some stratospheric gain in the future - a gain we’re most likely to miss out on (unless we forget about it altogether).

To learn more about TrendCompass reports please check our main TrendCompass web page. We encourage you to also have a read through our TrendCompass User Manual page. For U.S. investors: an investable, fully managed portfolio based on I-System TrendFollowing is available from our partner advisory (more about it here).

Today’s trading signals

With yesterday’s closing prices we have the following changes for the Key Markets portfolio: