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Inside Howard Lindzon’s 8-80 portfolio

How do you build out a list of stocks to watch and own? Every investor and trader has their own approach. However, there is one that stands out in its simplicity.

“Basically, there are certain companies and brands that are timeless — that eight-year-olds use and 80-year olds use,” investor and entrepreneur Howard Lindzon, who came up with the strategy, tells Opto.

The average consumer uses certain companies every day, making them attractive for an investor to have these firms in their portfolio for a very long time.

“When the markets are in turmoil, this list of companies should be where I go to shop,” Lindzon has previously explained. “When the markets are trending up and seem easy, these companies are the ones I am glad I own.”

“When the markets are in turmoil, this list of companies should be where I go to shop. When the markets are trending up and seem easy, these companies are the ones I am glad I own”

 

Some examples of the companies that fit his criteria are stocks like Nike [NKE], Starbucks [SBUX], Lululemon [LULU], Google [GOOGL], Amazon [AMZN] and Apple [AAPL] — most of which are some of the most recognisable brands in the world.

“The products and services of the 8-80 brands have deep and broad mass appeal,” he says. Each stock has a solid growth and brand model making it a worthwhile investment.

As a result of their popularity, growth companies make for notoriously crowded investments. But that hasn’t discouraged Lindzon.

“They are crowded because they are easier to spot and they are crowded because money is paid nothing to sit on the side-lines,” he clarifies.

 

Inventing the 8-80 portfolio

The idea, Lindzon says, was developed over time as a way to “quickly explain my strategy for picking stocks, especially when on stage, talking to the media and people on the streams”. 

Lindzon first started discussing his 8-80 portfolio and list in early 2016. “The approach was inspired by just looking at my holdings and noticing a theme,” he explains. “I was hooked on certain products and companies that were digital or in the ‘fashology’ space.”

Fashology, in Lindzon’s terms, is fashion with technology. “It meant they were physical, fashion appeal companies but viewed as design and technology companies as well, which led to Nike and now Lululemon in the portfolio”.

Before Lindzon perfected the 8-80 list, he used a pure momentum investment approach, focusing on finding businesses with high returns.

“[It was a] mix of 8-80 and some companies that may one day be 8-80 companies but are generally not household names beyond engineers or 20-50-year-olds like Twilio [TWLO], Shopify [SHOP] and even Tesla [TSLA],” he says.

“[It was a] mix of 8-80 and some companies that may one day be 8-80 companies but are generally not household names beyond engineers or 20-50-year-olds like Twilio [TWLO], Shopify [SHOP] and even Tesla [TSLA]”

 

Back then, his list included companies such as Facebook [FB], Uber [UBER], Under Armour [UAA] and McDonald’s [MCD]. He even considered Netflix [NFLX] while still in its infancy as having appeal to the 8-80s.

In 2016, the streaming service traded at a low $82. As of 22 April 2020, the stock trades as high as $433.

“[The 8-80 approach] has slowly evolved to be much less old economy, which included FedEx [FDX], to more 100% cloud-based, remote work, and digital companies — and that trend should continue.”

“[The 8-80 approach] has slowly evolved to be much less old economy, which included FedEx [FDX], to more 100% cloud-based, remote work, and digital companies — and that trend should continue”

 

In 2017, Lindzon published a book about the approach called 8 to 80 — The Next 1,000% Stocks and Trends Everyone Can Ride with the help of Ivaylo Ivanov, portfolio manager and investment advisor at Zor Capital.

The book is an anthology of their combined years writing about stocks, markets and trends. It’s about momentum investing — an investment strategy that Lindzon has specialised in since his early career — and finding the stocks to ride out until they make profit. 

“Picking winners is hard. Riding winners is harder. Knowing when to exit is the hardest,” Lindzon has previously stated.

 

Market downturn sparks  8-80 buying opportunity

Lindzon believes there at least 50 of what he calls 8-80 brands around the world that if they dropped 30% to 50% investors should be excited.

According to that notion, investors and traders should have been ecstatic in March, when many equities that fit the 8-80 framework clocked percentage losses within that range. Shares in Starbucks fell more than 39% between hitting an YTD high of $93 on 23 January and 23 March close.

Both Lululemon and Google also logged similar declines from their respective YTD highs, falling by 34% and 30% respectively to 23 March. With the stock prices for these two behemoths trading at lows of $172 and $1,056 respectively, investors and traders were presented with a bargain at the end of March.

“While everybody's freaking out, there's a fire sale,” he notes, adding: “Why would you want them to be at all-time highs? Why pay retail for something that's now on wholesale?”

While of course there are possibilities of the demand in coffee slowing, a new fashion trend overtaking athletic apparel or a search engine rival taking up market ownership, these industry stalwarts won’t just disappear.

“Will habits change? For sure.  But [changing] habits is going to be worse for Starbucks’ competitors — the corner coffee shop that wanted to just offer a local experience,” Lindzon points out.

“So who's going to bounce back the fastest once this ends? Starbucks, because they can spend the money on drive-thru and kerbside delivery, they can spend the money on their employees and overpay them. But the corner shop is a goner.”

“So who's going to bounce back the fastest once this ends? Starbucks, because they can spend the money on drive-thru and kerbside delivery, they can spend the money on their employees and overpay them. But the corner shop is a goner”

 

To pick, or not to pick?

The colossal size of these companies does bring drawbacks. “The digital 8-80 companies have so much cash, data and network effects you can feel them squeeze the life out of the rest of the economy and the competition,” he wrote in 2016.

Since big tech companies started reaching valuations in the trillions, their market dominance has raised concerns. Five of the most valuable stocks — Apple, Amazon, Alphabet, Microsoft [MSFT] and Facebook — accounted for a massive 17.5% of the S&P 500 in January, according to data seen by CNBC.

That influence over the US blue-chip index means that investors aren’t getting the diversification that they’re looking for and are, as a result, unintentionally betting on Silicon Valley tech companies.

Lindzon is not a fan of passive investing. He says: “I have choices and I refuse to follow everyone else blindly into ETFs with 500 companies when the pickings are so slim and the macro environment screams be cautious.”

After the financial crisis of 2008, many US investors lost trust in the ability of mutual funds to protect their investments, prompting a surge of interest in the ETF market.

That popularity has helped the global ETF market rack up a record $6.35tn in assets under management at the end of 2019, according to research by ETF industry consultants ETFGI.

“I think the big lie is there is no such thing as passive, even in the  S&P 500 they rebalance every month or every quarter so stocks are going in and out, you just don't see it,” Lindzon explains.

“I've never liked it because it leads to a point where few people own all the stocks and therefore why do I want to own the best 500 companies in the US? Why not try to own the best 50? Is there really a difference?”

While the battle rages on between active and passive management, Lindzon expects to stick with his tried-and-tested stock-picking approach.

“No index or list is perfect … and mine will keep evolving. The secret sauce over time is not so much the list itself, but the ability to adjust, allocate and manage risk as you go.”

“No index or list is perfect … and mine will keep evolving. The secret sauce over time is not so much the list itself, but the ability to adjust, allocate and manage risk as you go”

 

 

 

 

What’s inside Howard’s 8-80* list?

 

Facebook

Lindzon has had a love-hate relationship with the social media company. “I’ve removed Facebook before. I don't really love the company but [with the stock falling 27% between January and 23 March] it's on the list right now,” he says.

 

Apple

The iPhone maker is one of the leading fashology companies in the world, making it a firm favourite on Lindzon's list. “People can’t get their heads around the fact that women and kids are going to be going to the Genius Bar for the next 60 years,” he told IBD in 2019.

 

Lululemon

Lindzon believes that the business’ pioneering approach in combining technology and fashion has made it a cultural icon. However, he is also quite wary of it as a copycat risk. “In a world where people can wear t-shirts to work they’re in a perfect position,” he previously told IBD.

 

Mastercard

The rise in fintech has not gone unnoticed by Lindzon. “I used to own both Visa [V] and Mastercard [MA], but now just Mastercard," He does note, however, that after Visa's acquisition of Plaid, it “has a more interesting network and platform opportunity”.

 

Nike

On the 26 November 2016, Lindzon made his first buy call on sportswear giant Nike and hasn’t looked back since. “It’s another 8-80 brand we want to own when times are good and that we want to buy when times are bad,” he wrote in Futures magazine in 2018.

 

Zoom

“There has never been a faster 8-80 brand than Zoom [ZM],” Lindzon said in April. Fortunately for him, he owned shares in the video conferencing software before the global lockdown boosted them from $68 to a high of $169  on 23 April.

 

*According to Lindzon’s Koyfin account in April, these are the holdings in his 8-80 list excluding, Google, Bitcoin and US Medical Devices iShares ETF.

 

 

 

 

A stock market aficionado’s chronicle

 

Investing isn’t just a career for Howard Lindzon — it’s a lifestyle. His journey so far through the markets has seen him don many hats, from being both a private and angel investor to becoming an entrepreneur and most recently a  venture capitalist.

Originally from Toronto, Lindzon’s first foray into investing began with buying stocks in beverage company Clearly Canadian when he was just a teenager. At college, his eye for good investments led him to start his own hedge fund, Lindzon Capital Partners.

He managed the fund for 18 years before shutting it down in 2016. By that point, he had founded three more businesses and was living in Arizona, earning him the title of a serial entrepreneur.

Inspired by YouTube, Lindzon created a satirical video podcast called Wallstrip in 2006, before selling it to CBS. Two years, later Twitter-inspired him to co-found Stocktwits, one of the largest online investment communities.

“The numbers make for pretty charts, but fear and greed are what drive the markets. If you understand people, you have an advantage”

 

Today, Lindzon is also the founder of Social Leverage, an eclectic seed-stage venture capital firm that financially backs and incubates consumer web businesses.

Over the course of his more than 20-year investment journey, Lindzon has gathered a tremendous amount of insights into the stock markets that he shares through his podcast and blog, as well as in a number of highly regarded books such as The Stocktwits Edge and more recently The Next Apple.

His writings are underpinned by a desire to decentralise and democratise investing, with Lindzon believing that the markets are as much behavioral as financial.

“The numbers make for pretty charts, but fear and greed are what drive the markets. If you understand people, you have an advantage,” Lindzon writes on his blog.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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