When you read the information below, you will find that logic-based investing has delivered gains over the past year. In order to apply logic to investments, pay attention to current consumer trends. For example, ecommerce remains on the rise. Even if there are some short-term blips, this trend should continue for many years. On the other side of the equation, furniture stores aren’t faring well, which relates to the rise of minimalistic living as well as reduced discretionary spending.

While there are no guarantees, if you invest with the trend your odds of success should increase. That said, even if you’re investing with the trend, there will be risks.

Consumers and Lower Prices

There has been much debate about whether or not consumers want lower prices. The answer to that question isn’t as simple as it seems. On the surface, of course, they want lower prices. Below the surface, those lower prices are an effect of deflation, which can be bad news for those same consumers. (For more, see: 3 Volatile Consumer Discretionary Stocks for the Risk Taker.)

Lower prices for goods and services is due to a lack of demand. In order to increase demand, the companies selling those goods and services must lower prices. This leads to a lack of top-line growth, which then leads to those same companies reducing headcount in order to reduce costs and deliver for investors on the bottom line. In some cases, since those companies are seeing deflation, they see no use in spending capital on growth and instead allocate capital to stock buybacks. This reduces share count and improves earnings per share.

When jobs are cut, consumers have less money to spend. When consumers spend less money, companies selling goods and services must reduce prices more in order to maintain demand. This, once again, hits revenues. It’s a vicious deflationary cycle that cannot be stopped by central banks. Ironically, deflation is good for the long-term health of the economy because it allows prices to come down to natural levels. This then allows the economy to grow organically. (For more, see: The Upside of Deflation.)

If you’re a stock-picker basing investments on consumer trends and underlying fundamentals, you might appreciate the two lists below.

Winners and Losers

The first list is of winning stocks. You will find home improvement stores (homebuyers locking in low interest rates prior to them moving higher), off-price retailers (cost-conscious consumers always looking for discounts), strong-brand and affordable restaurants (fast food offers low prices/fast casual offers value and experience), streaming and e-commerce (both on the rise), and a dollar store (once again, cost-conscious consumer).

This simple chart will include one-year stock performance, short interest and dividend yield. Every stock on this list has appreciated over the past year. You will notice that the short interest is low for many of them, which is often a bullish indicator. The dividend yield is included for your convenience.

The majority of the stocks above are trading at reasonable multiples, excluding AMZN and NFLX, which are trading at 349 and 456 times earnings, respectively. If you’re only focused on the underlying businesses, this means nothing. If you’re concerned about the potential for a bear market and the impact it would have on these stocks, it’s a factor. High-multiple stocks usually don't perform well in bear markets. (For more, see: 3 Predictions for Amazon in 2016.)

Now let’s get to the losing list. You will find furniture stores (reasons mentioned above), an electronics retailer (too many discretionary products as well as online competition), a major appliance company (consumer too strapped), movie theaters (losing share to streaming) and hotel companies (too discretionary and losing share to Airbnb).

The short interest is high for most of these stocks, which is not a coincidence. Savvy investors and traders have identified the risks. These companies are simply not in line with consumer trends at this point in time.

The Bottom Line

If you want to increase your odds of investing success, then strongly consider siding with consumer trends. Whether you choose to go long on stocks that are in line with consumer trends or short stocks that aren’t there will be risks, such as high-multiple stocks on the long side and short squeeze potential on the short side. Always consider these risks prior to investing.

(For more, see: The Top 5 Retail Stocks for 2016.)

Dan Moskowitz does not have any positions in any of the stocks listed above.