The zero-sum game of investing pits you against computers … the long odds of doing well on your own … a special quant-based income project from Louis Navellier
For you to profit in the market, someone else has to lose…or at least suffer an opportunity cost.
This begs a question…
Who’s taking the other side of your investment bets?
It turns out, in the U.S. stock market, roughly 70%-80% of overall trading volume is generated by algorithms.
In other words, if you’re managing your own investments, you’re going head-to-head against artificial intelligence (AI).
How do you feel about your odds?
From the Globe and Mail:
AI…surpasses humans in its powers of prediction. It can determine if one stock or bond is likely to perform better than another based on factors ranging from past returns to weather patterns to who uses a company’s products where and when…
Numerous fund companies are already turning to AI in the hope it can deliver better returns than human stock pickers. The systems identify patterns in pricing data, yield curves, how markets execute trades and much more, and then make predictions based on those patterns.
Bridgewater Associates, the world’s largest hedge fund, said last year that it will replace many of its managers with machines.
Research firm Optimas estimates that by 2025, AI use will cause a 10 per cent reduction in the financial services workforce, with 40 per cent of those layoffs in money management operations.
Going head-to-head against a computer is clearly a daunting task. So, you might think that retail investors would spend countless hours each month, analyzing their holdings and conducting loads of research into potential stocks to include.
Not so much…
In 2018, the Bureau of Labor Statistics surveyed how Americans spend their time. After “sleeping,” and “working,” what was the most time-intensive activity for survey respondents?
Watching TV.
That clocked in at 2.84 hours per day.
And how much time, on average, was allocated to personal financial management?
0.03 hours per days…which is less than two minutes.
In other words, the average person spends more time preparing their coffee each morning than they do preparing for their financial future.
So, we’re battling against artificial intelligence that can slice-and-dice a mountain of data a million different ways… and we’re spending practically zero time preparing for this battle.
Hold on, there’s more troubling news…
***The truth about stock-winners and stock-losers
About a decade ago, the team at Longboard studied the total lifetime returns for individual U.S. stocks from 1983 through 2006.
In short, the study found that the worst performing 6,000 stocks – which represented 75% of the stock-universe in the study – collectively had a total return of…0%.
The best performing 2,000 stocks – the remaining 25% – accounted for all of the gains.
Source: Longboard
Here’s Longboard on the takeaway:
The conclusion is that if an investor was somehow unlucky enough to miss the 25% most profitable stocks and instead invested in the other 75% his/her total gain from 1983 to 2006 would have been 0%.
In other words, a minority of stocks are responsible for the majority of the market’s gains.
But this isn’t the end of it. If we dive into this study on a more granular level, it’s even more sobering.
The above statistic, that 75% of the stocks had a collective return of 0%, masks a darker truth.
While it would be unfortunate to sink your money into a stock that generated nothing, you might be fooled into thinking that you’d at least walk away with your original investment capital. Not so fast…
The Longboard study found that 18.5% of stocks lost at least 75% of their value.
So, nearly one in five stocks didn’t just return nothing, they were double-digit losers that destroyed investment capital.
Here’s the breakdown:
Source: Longboard
Other studies have found similar results.
Research from Hendrik Bessembinder, which looked at equities from 1926 to 2015, concluded that about 60% of stocks were so bad that their performance was worse than one-month U.S. Treasury notes.
From Bessembinder:
It is historically the norm in the U.S. and around the world that a few top-performing companies have great influence over how the market does overall. It’s the norm and I expect it to be the case in the future.
While it may be “the norm,” it points toward a sobering takeaway for investors…
It’s not easy to find big winners – because very few big winners actually exist. And in searching for them, you’re competing against high-powered computers.
So, if investing is this daunting, how can the average person compete?
Well, as the saying goes, “if you can’t beat ‘em, join ‘em.”
***Putting the power of computers and algorithms in your corner
Our resident quantitative expert, Louis Navellier, was fortunate enough to discover the power of computerized investing at the beginning of his career.
From Louis:
When I was in college, for example, my economics professor told me that the stock market could not be beat… that you might as well put your money into index funds and call it a day.
But then I wrote an algorithm that crushed the S&P 500 by a factor of more than 3-to-1. My algorithm worked so well, in fact, that I even began publishing stock recommendations out of my dorm room. I wasn’t even 19 yet!
Yep, new technologies and investing can be a powerful combination, if you have a few programming skills.
Louis went on to put computerized trading to work for himself and his subscribers, amassing one of the most impressive multi-decade track records in our industry.
***In recent months, Louis has focused his quantitative approach on helping address a big problem – generating income in a zero-rate world
According to the FDIC, the national average interest rate on savings accounts is 0.06%.
It improves only marginally if we look at CDs. Whereas in 1984 the average one-year CD paid over 10%, today, it’s 0.17%.
For a five-year CD, the rate climbs only to 0.31%.
And bonds?
As I write Monday morning, the 10-year Treasury bond – which has soared higher this year – still only clocks in at 1.48%.
That means an investor who’s about to retire with a $1 million portfolio invested in government 10-years would generate just $14,800 a year.
With this as our backdrop, here’s Louis:
Income is all but nonexistent in the traditional quarters.
And with the Federal Reserve expected to keep interest rates low for at least another two years, this is going to be a problem for those trying to earn extra income… especially those looking to retire soon.
According to a recent survey, only 10% of folks have enough money to last them until their 80s. And more than 10,000 Americans reach the age of 65 every day.
That gap needs to get filled somehow!
So, I’m setting out on a new project: To find a method that can put thousands of dollars of cash into the hands of everyday Americans quickly and consistently.
I’m finally ready to share what I’ve found.
During my special presentation this Wednesday, June 30, at 7 p.m. Eastern time of the Accelerated Income Project 2021, I’m going to give you a sneak peek at this new income breakthrough…
Louis says it’s a way to generate massive, consistent, hold-in-your-hand cash payouts from the markets… and it doesn’t require a huge, initial outlay of cash.
Bottom line, you can be an investor who battles against computers, or you can be an investor who puts them on your side – and, in this case, uses them to generate big streams of income. That’s what the Accelerated Income project is all about.
Here’s Louis to take us out:
It’s already proving to be such a retirement game changer that it could even be the “ultimate solution” to America’s retirement crisis.
I created a short video explaining what it’s all about.
Just click the link above to watch what I put together. If you like what you see, then be sure to join me for the Accelerated Income Project 2021 event. You’ll get your name on the list to attend simply by clicking here.
Attendance is 100% free, no strings attached. I hope to see you there on Wednesday!
Have a good evening,
Jeff Remsburg
