Nvidia made headlines in 2024 as the company continued its multi-year rally, but the chipmaker didn’t finish the year atop the S&P 500. Instead, the title for the highest return on the stock market in 2024 belongs to Palantir. The software company specializing in data analysis founded by Peter Thiel had an annual profit margin of 340.5%.
Nvidia came in third with 171.2%. Utility company Vistra (261.3%), United Airlines (135.3%) and weapons manufacturer Axon Enterprises (130.1%) rounded out the top five.
Whether you own one of these rising stocks or are simply considering adding them to your portfolio, this time of year tends to have you asking philosophical questions. “Looking to the future, is it better to own last year’s winners or last year’s losers?”
On the other hand, hot stocks in popular industries may continue to outperform the market. Meanwhile, many investors (Warren Buffett among them) are getting rich by buying stocks trading at discount prices.
Looking at historical market data, the answer is subtle but clear, says Sam Stovall, chief market strategist at CFRA.
“If you look at history, if last year was a good year, you want to own last year’s winners,” he says. “If last year was a down year, you want to own last year’s losers.”
Why 2025 will be a good year for last year’s winners
Remember, 2024 was a big year with rising stock prices. The S&P 500 index returned nearly 25%, piggybacking on its 26% performance in 2023.
Therefore, 2025 will generally be an environment in which the market’s top performers tend to do well. Back in 1991, when S&P sector data became available, a portfolio that held equal shares of the top three rising stock market sectors in the previous year outperformed the S&P 500 by an average of three points 75% of the time. . Convert to CFRA data.
But that doesn’t mean you should go all winners or rush to your brokerage to buy the stocks listed above.
First, the price of individual stocks may fluctuate for idiosyncratic reasons. Stock prices can fluctuate based on fundamental factors such as company earnings and balance sheet strength, and may have nothing to do with other stocks in the sector. Investors may even find company-specific news gloomy, such as the launch of a new product or brand or the hiring of a visionary executive.
For another, experts say it’s essential to make decisions about your portfolio based on your specific investment goals. If you have a big winner in your portfolio, consider why you own that stock in the first place, Stovall says.
“Why did you buy this stock? Was it for the dividend yield? Was it for the potential for price appreciation? Was it for diversification?” he says. “And I ask myself, has it already achieved my goal or is there still potential for upward mobility?”
If you consider your reasons for owning a particular investment and it’s still intact, you may feel comfortable holding it. If you think the stock price has reached its upside limit, it may be worth reducing or selling your position.
Set rules for adding or selling winning positions
Deciding whether to hold or sell can be a difficult and often emotional decision, which makes having some strict guidelines for the contents of your portfolio even more important, says Certified Financial Planner and President of Born, Inc. says Doug Boneperth. Loyal wealth.
One revolves around concentration risk. Having too many stocks in your portfolio means that too much of your future economics is tied up in one company. Boneparth recommends capping your portfolio, even if it means selling some stocks that have performed well.
“Really, where I draw that line is above 20%. I don’t want my concentration to go beyond that,” he says. “The greater the concentration, the greater the risk and volatility based on the performance of that security.”
And if you’ve realized very solid returns, Bonepers adds, it’s rarely a bad idea to take a profit for yourself, even if you think your investment could go even higher.
“If you have an opportunity to change your life or achieve an important long-term financial goal, strongly consider doing it,” he says. “That’s probably better than waiting to see if that rise or rise continues.”
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