The benefit of “facts” over “feelings” … how a numbers-based system has fueled some of the biggest returns in the modern era … InvestorPlace’s latest numbers-based analyst … how the system is racking up winners
If you want better investing results, there’s a simple step you can take …
Follow the numbers.
This isn’t what the average investor does. He tends to follow something else …
Feelings.
Most of us have done it — I certainly have.
You read about, say, a budding trend, then latch onto a particular stock that’s related.
For whatever reason you really like this stock — maybe it’s been surging recently … perhaps your brother-in-law swears it’s about to go to the moon … maybe Jim Cramer or some talking head on TV has it on a “Must Buy Now!” list …
Whatever the reason, you’re bullish.
So, rather than doing a thorough, impartial investigation into the stock’s likelihood of growing your portfolio, you do something else …
You search out reasons to buy.
The technical term for this is “confirmation bias.”
We look for information that confirms what we already believe, while ignoring information that runs counter to our narrative.
As someone who has done this more often than I’d care to admit, I can assure you that this is a fantastic way to lose money.
***The power of a numbers-based approach is that it bypasses emotion
Some of the most successful investors in the world have used numbers and a quantitative system to achieve astounding wealth.
As one example, there’s Jim Simons, founder of the hedge fund, Renaissance Technologies.
Simons began his investment career with practically zero investment experience. He was a distinguished mathematician who simply decided to try his hand at trading currencies.
For a while, Simons traded like the average investor … which means getting average (or sub-average) returns. Worse, relying on his own intuition left him sick to his stomach as he watched his positions climb then crash.
Simons told a friend, “I don’t want to have to worry about the market every minute. I want models that will make money while I sleep. A pure system without humans interfering.”
So, what did he do?
Using his mathematical background, he built a high-tech trading system guided by preset algorithms — basically, step-by-step computer instructions.
It was a program designed to digest vast quantities of market data from which it would then select attractive trades. The goal was to remove human emotion and instinct from the investment selection process.
Simons’ numbers-approach turned him into, arguably, the most successful investor of the modern era.
Starting in 1988, his flagship Medallion fund has racked up average annual returns of 66%, generating trading gains of more than $100 billion. No other marquee hedge fund manager has even gotten close.
***Our own Louis Navellier has had tremendous success with his numbers-based approach
Though Louis might follow trends and broad markets for his own edification, they’re not what drives his investment decisions. For that, he looks exclusively at numbers.
Think quarterly earnings, net profits, gross profits, sales, P/E, return on equity, tangible assets, stock price momentum, analyst revisions, trading volume, and relative strength.
He then runs this data through his own powerful, computer algorithms, sifting and sorting to identify a select few stocks characterized by one thing …
Quantifiable strength.
From Louis:
I’m a numbers guy. Always have been. Since I was a kid, I’ve loved math and I knew that math was the right way to understand the world.
Said another way, I depend on evidence for my decisions.
I depend on an objective set of criteria that signals what I should buy, when I should buy it, and when I should sell and collect the profits.
As to the results of Louis’ numbers-based approach, he’s racked up one of the best long-term track records in the entire financial newsletter industry.
I’m looking at his current Breakthrough Stocks open portfolio, seeing gains of 103%, 220%, and 377% amidst other big winners.
***We just added a new, numbers-based market tactician to our InvestorPlace portfolio of analysts
Regular Digest readers will recognize the name “Stefanie Kammerman.”
She’s the analyst behind Dark Pool Trader. Last week, she sat down with Matt McCall to explain her system (you can click here to watch a replay of the evening).
Like Louis and Jim Simons, Stefanie doesn’t invest according to hunches or gut-feel. Instead, she uses computers to follow the Dark Pool money-trail by monitoring “prints” — in other words, a record of a market transactions. These prints alert her to trade opportunities.
Once she’s in a trade, she follows specific exit-timing rules to guide her profit-taking and risk-mitigation. Again, the name of the game is “remove emotions.”
By following numbers, not feelings, Stefanie has been able to rack up a slew of winners.
She’s done this on her own for years. But over the past several months, during which our InvestorPlace team has been tracking and vetting her trading system, we’ve seen her do it repeatedly.
To illustrate, we’ve watched Stefanie’s numbers-based system churn out a 60% winner on Freeport-McMoRan … nearly 75% gains on Schlumberger … the 89% winner from Wells Fargo … the 91% gainer from the iShares MSCI Japan ETF … and a 130% gain with the SPDR Select Energy Fund, XLE, among others … all in matter of weeks — sometimes just days.
Curious what this system is in a nutshell?
***Follow the big money … when in doubt, cover your bases by placing two bets
As we’ve highlighted here in the Digest, Stefanie is able to access the private stock exchanges where the Wall Street “big boys” place their trades.
When I write “big boys,” I’m referring to institutional traders that need to move massive chunks of stock — many times in the hundreds-of-thousands of shares.
When you’re buying or selling in this quantity, it can easily push that stock’s price around by 5% – 10% in the span of a week.
Stefanie’s system catches these “prints.” Then it’s up to her to simply follow the numbers, regardless of what she feels is going to happen.
Sometimes the likely direction the stock will move is clear. In that case, Stefanie recommends a single-direction trade using either a call or a put (“calls” and “puts” are options — Stefanie explains how to use them in her service — they’re easy to learn).
Other times, the direction isn’t as clear. In these cases, Stefanie recommends both a bullish and bearish position. That way you’re covered — all you need is a big move, regardless of which direction that big move goes.
Take one of Stefanie’s most recent Dark Pool recommendations, Cisco. From last Friday’s Dark Pool Trader update:
My analysis of Dark Pool trading in Cisco Systems Inc. (CSCO) indicates the tech giant’s stock is poised for a massive short-term move. I would recommend putting on a strangle trade based on the massive Dark Pool prints that came in over the past few weeks.
Earnings are coming up August 12. The implied volatility is very low. If we get a move prior to earning, I will likely recommend taking profits. If we do not get a move prior to earnings, we will hold into earnings. The Dark Pool has been very heavy for a few weeks now.
The update then got into the specifics of the recommended trade.
As we’ve noted in past Digests, it might seem strange that these strangles could be profitable when they include two opposite-direction trades. But given how options work (what increases and decreases their value), a trade with two opposite positions can be quite profitable because it’s not just price-action that impacts an option’s value.
At the end of the day, Stefanie’s numbers speak for themselves. It’s hard to argue against a string of double- and triple-digit winners.
***Would a numbers-based approach help you in our current market environment?
Today, investors face endless uncertainties.
The shape and length of our economic recovery … the potential for a sustained and even more damaging COVID-19 resurgence … the timing of a vaccine … escalating tension with China … stark socioeconomic polarization in our nation fueling the potential for more social unrest …
Given all this, might it bring you greater peace (and profits) to adopt an investment approach that doesn’t require your feelings to play out correctly?
A numbers-based system has created literal fortunes for Jim Simons, Louis Navellier, and Stefanie Kammerman. If you’re not getting the market results you want, perhaps it’s worth your time to do some investigating today.
To learn more about Stefanie’s system, and how she identifies her trades, click here.
Have a good evening,
Jeff Remsburg
