Artificial intelligence generated massive buzz in 2023. And the Magnificent Seven stocks — Alphabet, Amazon.com, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — tapped into that AI boom in a big way.
So what lies ahead for these tech titans and the stock market as a whole in 2024 and beyond?
Despite a hiccup to kick off the new year, Nvidia has landed on multiple buy lists and continues to hit record highs, as has Meta Platforms. Plus, the best mutual funds have just placed a massive bet on MSFT stock. And Google stock has found its muse as Google Bard unveils a new era in AI.
But before peering into a crystal ball to predict what happens next, investors should look in the rearview mirror. As the past few years clearly show, Wall Street history is filled with dramatic swings.
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The pandemic-induced crash in early 2020 was followed by a just-as-sharp rebound. And after the 2022 bear market savaged tech stocks like NVDA, MSFT and AMZN, January 2023 kicked off a strong new uptrend that has continued into 2024.
Bottom line: Investors need to have — and follow — a set of rules to manage risk and maximize returns whatever the market does in 2024 and beyond.
Here are three basic tenets for how to invest in stocks safely and successfully in the year ahead.
Investing In Magnificent Seven Stocks: Rule No. 1
Follow — Don't Fight — The Market Trend
Investors ignore the Wall Street adage —"the trend is your friend"— at their own peril. The reason is simple: Three out of four stocks tend to follow the overall direction of the market indexes, either up or down.
So learning how to invest in stocks starts with keeping the odds in your favor.
When the market is in a clear downtrend, as it was in 2022, why test your luck against such poor odds? Instead, protect your portfolio — and your confidence — by only buying stocks in an uptrend.
During a downturn, you can test the waters with small purchases as the market shows signs of a potential rebound. But before getting aggressive, wait for a follow-through day to signal a change in trend. Also, in both good and bad markets, regularly check The Big Picture and IBD's recommended market exposure level to gauge how aggressive or defensive you should be.
Market trends change, sometimes quite abruptly. Focus on capturing good gains in a strong market and locking in the bulk of those profits as a downturn hits. You can avoid — or at least minimize — the damage done in a bear market by learning when to sell stocks.
By taking most profits in the 20% to 25% range and cutting all losses at no more than 7% to 8%, you'll lay the groundwork for remaining profitable and protected in any market. With the stock market indexes soaring on a Santa Claus rally, such rules play a key role in overall risk management.
Stock Investing: Rule No. 2
Stay 'Numble' — Nimble And Humble
Whatever the market and the Magnificent Seven stocks like Nvidia and Amazon do in the New Year, success starts with investor psychology, the art of managing your emotions and expectations.
Hope, greed and fear play an integral role. Pride — or what some might call stubbornness — is also a cautionary factor.
IBD founder William O'Neil was remarkably nimble. He could shift gears on a dime if the market told him he was wrong, or his stocks did not behave as expected. Bill did not play the very risky game of "hope and hold."
Not every trade, of course, works out — for anyone. But as an early pioneer of using computers to view stocks charts to determine how to buy stocks and when to sell stocks, Bill relied on market facts, not opinions, to decide how aggressive or defensive to be.
And despite decades of success with huge winners like Apple stock, he remained humble. As he said many times in multiple ways, the stock market finds a way to humble investors who think they've got it all figured out.
So as we ring in the New Year with hopes and plans, let's strive to remain numble. Nimble enough to adjust to whatever the market brings. And humble enough to know the market doesn't care what we expect or want to happen.
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Investing In Magnificent Seven Stocks: Rule No. 3
Don't Play Chicken With A Tesla Semi
While cheeky in tone, the rule is a serious one.
Mutual funds and other large institutional investors account for the bulk of all trading in the stock market. Think of these large players like a Tesla Semi or other big rig barreling down the road.
Only these large investors have the buying (or selling) power to fuel a sustained climb or trigger a steep decline in megacap stocks like Nvidia, Microsoft, Amazon and Tesla.
If you see a Tesla Semi charging toward you, move aside. You can argue about who has the right of way later. (Staying "numble" clearly comes into play here.)
And when investors start selling aggressively, trying to fight that trend is a losing battle. Take defensive action by applying sound sell rules. One is to cut all losses at no more than a 7% to 8% loss. You can also help gauge how aggressive or defensive to be by monitoring any changes to IBD's recommended market exposure level.
The big rig analogy also works on the flip side. While it takes a big rig time to get going, once at full speed it takes time to stop.
Given their longer-term mindset, it's the same with large mutual funds. After doing their due diligence, it can take weeks or months of buying to establish their large positions in a stock. That gives individual investors time to hitch their sedan to the back of that big rig and get pulled up the mountain.
Note that big swings in Tesla stock since 2021 showcase this point. As the EV giant sets up a double-bottom pattern as 2024 gets underway, will large invests pump money into Tesla to drive a new breakout in 2024?
How can you see that happening in time to ride that climb (or on the downside, avoid a long slide)?
Learn how to read stock charts. By tracking price and volume movements, as well as signs of support and resistance, charts reveal if these large investors are buying or selling — and how aggressively in either direction.
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Trading Magnificent Seven Stocks In 2024
Making predictions is fun. Making money is better.
So rather than predict what AAPL, AMZN, GOOGL, META, MSFT, NVDA and TSLA will do in 2024, focus on what you will do.
Will you stick to reliable buy and sell rules using a sound investing routine? Will you stay disciplined, vowing to plan your trade and trade your plan? Doing so will lay the groundwork for success in the New Year and beyond.
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Follow Matthew Galgani on X (formerly Twitter) at @IBD_MGalgani.
