Is the “Big Switch” Already Underway?

Colin’s Note: Last week, we featured an essay from our colleague and friend of Brownstone, Kris Sayce…

He’s been writing his readers over at his Daily Cut newsletter about something he calls the “Big Switch.” It’s the idea that investors will soon start moving out of large-cap and mega-cap stocks in favor of small-caps.

So, this week, we’ll be spotlighting this idea with more from Kris.

Today he shares his thoughts on if the Big Switch has already begun… and where you might start upping your exposure in small-cap stocks to take advantage…

Last week we wrote to you about the “Big Switch.”

That’s the idea that money will begin moving from large-cap and mega-cap stocks to small-cap stocks…

And that investors will see limited opportunities in mega-billion-dollar market cap stocks…

And when they do, they’ll look for opportunities elsewhere.

Where?

Small-cap stocks.

That’s our bet anyway. Could we be wrong? Of course. It wouldn’t be the first time!

So, is the “Big Switch” already underway?

And, regardless, where should you start building your small-cap exposure as you lighten up your large-cap and mega-cop stocks?

We’ll share an idea or two today.

Fill Out Your Grid

Recently, we’ve discussed not just the “Big Switch,” but also the idea of using the “10×10 Approach” to help grow your wealth.

As a recap, the 10×10 Approach simply involves dividing your investable wealth into 10 groups of up to 10 stocks in each.

You may have one group of stocks with dividend stocks… another with tech stocks… another with REITs (real estate investment trusts)… another with biotech stocks… and so on.

You can set up your own grid using an Excel spreadsheet. Or if you’re old-school, write it out in a notebook:

And don’t be afraid to use some trial and error until you’re happy with your investments.

You see, it’s quite simple.

The thing is, where do you begin?

That’s pretty simple too. First, look at your current portfolio… which, right now, probably just looks like a long list of stocks in your brokerage account.

But instead of looking at them like that, start grouping them. Create your groups… or start with ours first, and then adapt and improve once you get the hang of it.

That’s the first part. Now for the next part.

Our guess is that once you’ve filled in your grid, you’ll have a bunch of gaps. Some rows may be full. Others may be bereft.

Perhaps you already have 10-15 dividend-paying stocks. Maybe you only have two gold stocks… or none at all.

Here’s where we pause. Do not just go and buy a bunch of stocks all at once! That’s not how to play this. The idea is to build each of your rows – or columns, depending on how you’ve structured it – over time.

As another example, right now could be a great time to buy gold stocks but a terrible time to buy tech. In which case you’ll divert more of your capital to the gold stocks now and wait a while before buying more tech.

If you already have stocks in some of your categories, that’s a great start. It will be much easier to build that out. Let’s use the gold stocks category as an example.

If you already own Barrick Gold (GOLD) and Newmont Corp. (NEM), just look for similar stocks. Those are two of the biggest you can get, so anything else you add will be smaller — that’s a good thing.

If one of your newsletter subscriptions doesn’t recommend gold stocks… find one that does! Or do your own research. That can be as basic as looking at something like Yahoo! Finance.

When you type a ticker in Yahoo! Finance to display a stock, on the right of the screen it will display a box with other suggested stocks, like below…

We typed in Newmont Corp, and it showed us five other gold-related stocks:

Source: Yahoo! Finance

What a great and easy way to start looking around for ideas. Again, we’re not saying you should just go ahead and buy these other five stocks… we’re just saying this is another starting point for you.

Now go ahead and do that with other stocks you own. See what similar stocks crop up. Make a list. By the time you’ve finished making your list, you may have a “long list” of 15 or 20 stocks for each of your categories.

Then you just need to narrow them down. Do your own research… check out the recommendations in our newsletters.

In no time, you’ll be well on your way to building out your portfolio.

There’s just one final problem. What if you’re starting your whole portfolio from scratch… or you don’t have any stocks in any of the columns we’ve suggested above?

No problem. On Thursday, we’ll look at some ideas to help with screening for stocks from scratch.

See you then.

Cheers,
Kris Sayce
Editor, The Daily Cut