What’s behind the greatest investment wealth creation in modern history? Computers. Here’s how you can be a part of it
The young staffer was worried his boss was suicidal …
He had just found the hedge fund manager lying on his couch, still reeling from a bad bet on bond-futures contracts.
The mistimed call had lost nearly a million dollars of client money. This was 1979, so that was a large sum, especially for this particular small investment shop.
“Sometimes I look at this and feel I’m just some guy who doesn’t really know what he’s doing,” said the fund manager.
At the time, there was no way to know that this tortured soul would go on to become the most successful money maker in the history of modern finance …
***The astounding success of Jim Simons
Guys like Warren Buffett and George Soros get the limelight, but when it comes to returns, no one tops Jim Simons.
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 even gets close. See for yourself below (by the way, realize that you’re seeing after-fee returns to investors).
The remarkable thing is that 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.
There were no finance classes in his background, and no real trading experience. And unlike so many traditional hedge fund managers at the time, he had no idea how to perform basic investment analysis like estimating earnings, or using macro factors to predict changes to the broader economy.
And yet somehow, this was his result over three decades of volatile markets …
***What’s behind this astonishing success?
From The Wall Street Journal:
For a while, Mr. Simons traded like most everyone else, relying on intuition and old-fashioned research. But the ups and downs left him sick to his stomach.
So, what did Simons do instead?
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 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.”
***If this sounds, familiar, it’s because famed investor, Louis Navellier, shares some striking similarities to Simons
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.
Early in his career, Louis turned to math and computers for better investment results, and he’s never looked back.
Thanks to technological advancements, an analytical project that took one month to complete a few decades ago can be performed on high-powered computers in less than one minute today … and at less than 1% of the cost.
This massive increase in computing power is enabling us to gather, record, and monitor trillions of data points, signs, and clues … and then determine exactly what they mean.
This is what Louis and his team have been working on for years, incrementally improving models, algorithms, and inputs. It’s something they now refer to as “Project Mastermind.”
***Let’s take a closer look at Project Mastermind to see how this works
Every public company has millions of data points that are related to its business and its stock price. There are data points related to its fundamental business — like its core operations as reflected in its financial statements.
But there are also data points related to the macro environment — for instance, how are competitors and the broader market affecting the company?
Then there’s time — certain data points are more reflective of shorter-term moves, while others relate more to the long term.
Louis’ project focuses on shorter-term price movements. As you’d probably guess, they’re often more complicated to analyze than longer-term movements. That’s because a huge variety of factors can affect the price of a stock in the short term …
You have quarterly earnings, net profits, gross profits, sales, P/E, return on equity, tangible assets, stock price momentum, trading volume, and relative strength.
But you also have to factor in countless other economic and political influences that are often overlooked. For instance, what’s the effect of a low interest rate environment? Or geopolitical tensions? Where are unemployment levels?
Then, what about correlations? For instance, take a tech company that uses rare earth metals in its products. How might political tensions in the country that sources those metals be affecting supply? What are the correlations between both of those factors and stock movements?
It’s too much data for any one human to crunch. That’ why computers are necessary.
Similar to Simons’ mathematical approach, Louis’ goal with Project Mastermind was to use numbers to cut through the “noise.”
He wanted to identify the right combination of these millions of inputs that would help his readers find not just profitable stocks, but the ones that were most likely to make big moves in a short period of time.
***What were the results?
During Louis’ “beta test,” the system helped him find a pharmaceutical company called Depomed, which delivered 169% gains. There was also a biotech called Repligen that jumped 311%. The model also found Santarus just before it went on a 613% run.
We profiled another early winner just last week.
At Louis’ Mastermind event in early October, he gave away the name of a stock which his computer system had identified — Universal Display Company (OLED).
Last Wednesday, OLED posted a 13.5% revenue surprise and an incredible 34.5% earnings surprise. The stock jumped 15% overnight and has held those gains since. As I write Thursday morning, it’s pushing another 1.2% higher.
Of course, Louis’ system anticipates even more gains to come.
***Louis’ Project Mastermind has identified a new stock that will be released tomorrow
This new recommendation saw its revenue rise 36% in the 3rd quarter. During the same period, its earnings rose 300%, which led to a positive earnings surprise of 36.8%.
And as if growth alone isn’t enough for you, this particular stock has a 5% annual dividend yield.
If you’re curious about this latest pick, or simply wonder what a computerized market approach could do for your portfolio, click here to learn more.
Here’s Louis’ take:
(Project Mastermind is) unlike anything you’ve ever seen from me before.
Completing it was a huge milestone — the culmination of my life’s work …
The impact this could have on your wealth is incredible … enabling you to “catch up” on your retirement in no time.
Have a good evening,