Performance Charts

Today, as we wrap up June, I want to talk about the power of performance charts in investing. You might have noticed that I often use these charts because they provide a quick, clear picture of which stocks are performing well and which are lagging.

Three Key Points About Performance Charts:

1. Period

Stocks can perform well in the short term but poorly in the long term, or vice versa.

Image: Healthcare Realty Trust (HR) vs. Russell 1000.

• • 3 Months: HR gained alot more than the Russell 1000 – looks promising!
  • 6 Months: HR underperformed.
  • 1 Year & 4 Years: HR consistently underperformed.

Focus: Trend investors should look for stocks that outperform over multiple periods.

2. Direction

Strong stocks drive the index upwards. Follow stocks that move with the index. If you see a divergence, it’s a warning signal to monitor the stock closely. This can be a sell signal when the stock underperforms the index.
Or a buy signal when the stock outperforms, see image below

Image: Heico Corporation (HEI) vs. Russell 1000.

• • 3 Months: Both moved in the same direction until mid-April, when Heico diverged positively: the distance between the two lines increases where the curve of the stock notes above the index
  • 6 Months, 1 Year & 4 Years: Generally moved together.

Click here to watch the video.

3. Relationship of Bottoms and Tops

Assess the position and distance of bottoms and tops relative to the stock and benchmark.

Image: Walt Disney (DIS) vs. Russell 1000.

• over 4 years:
  • Green Dots: DIS and the index continue to rise until April 2021.
  • Red Dots: While the index continued to rise until December 2021, DIS shares declined: DSI moved opposite to the benchmark.
  • Green Dots: From December 2021 to October 2022, both dropped synchronously.
  • Red Dots: October 2022 till October 2023, the index makes higher lows, DIS still makes lower lows: weak
• Last Year:
  • Green Dots: DIS started following the benchmark again and even outperformed the index.
  • Red Dot: The market reacted negatively to quarterly results in early May and while the index continues to rise, DIS shares fall.

Conclusion

I use performance charts alongside other studies to confirm trends. When the benchmark makes higher highs, your stock should too. If not, investigate and adjust your strategy.