I issued the very first trade alert for 10X Profits on December 5, 2016.
Three years, 150 weekly issues, and 20 “switch” trades later, I thought it’d be nice to have a look back at the origin of the service, which is focused on implementing my market-timing model and understanding the “systematic” way of investing.
Back in 2016 when I stumbled upon the observations and research that ultimately led to 10X Profits, I didn’t have any intentions of starting a new newsletter service.
I was simply studying the returns of the major U.S. market sectors as part of the research I was doing for Cycle 9 Alert, which is focused on finding momentum-based trades within the market’s various sectors and industry groups.
So, I was charting the trailing returns of the major market sectors over time when I noticed how the chart fluctuated between periods when the sectors moved like a tight-knit pack, and periods when the “spaghetti-chart” lines (as we call them) fanned out and showed the dramatic difference between top- and bottom-performing sectors.
Sometimes the market sectors moved with much “togetherness,” and other times they moved with a much larger degree of, what statisticians would call, dispersion.
This was a simple observation. But it somehow made me think of the Dow Theory, which originated from market technician Charles Dow in the late 1800s.
Dow theorized that if the various components of the broader stocks market were moving along with a good degree of togetherness, it suggested the current economic and market conditions were stable, and that the current bullish trend would likely continue on a while longer.
However, if the various components of the broader market began diverging, with one doing dramatically better or worse than the others, that that was an early warning sign that, as Dow put it, “change is in the air.” Meaning, that the favorable conditions in the economy and markets were on shaky ground and could soon turn negative.
Now, I realize that Dow’s 1800s economy and markets were decidedly more quaint than the ones we operate within today. But I still think that Dow’s theory is simple enough, and fundamental to how markets become unstable — or at least how they can be identified as unstable) — that it still provides much value in forecasting potential “changes in the air,” even in today’s fast-pace markets.
Long story short, I ran additional research and confirmed the same phenomenon in major foreign stock markets as I’d found in U.S. Sectors: cyclicality between periods of “low” and “high” return dispersion, between the global markets various components with a good degree of forecasting value provided by the “high” dispersion environments, which I found have tended to usher in periods of subpar stock returns and higher volatility (i.e. an environment anyone would love to avoid, if they could be warned of it ahead of time).
Finally, the idea for a simple market-timing strategy came to me.
I figured we ought to assume a “default” position in a risk-on investment, since the economy and stock market tend to spend much more time in favorable environments than unfavorable ones. And then, I figured our model should employ a “risk-off” trigger, which would tell us exactly when to close out our risk-on position and adopt a risk-off position instead — to at least protect ourselves from a potentially major change in the markets, or even better, to capitalize on it.
Once I had my model fully designed, coded and tested, I sat down and figured out what I wanted to do with the service, which is now called 10X Profits.
The Three Goals of 10X Profits
I had three specific goals for 10X when we launched it in 2016.
Goal No.1: Share a simple, systematic market-timing model that captures the “meat” of major market trends, both bullish and bearish.
I wanted the model I shared with readers to be simple enough for anyone to follow. I wanted the model to be fully systematic, requiring zero discretionary decision-making. And I wanted the model to catch the “meat” of major market trends, both bullish and bearish. Partial check, here.
My model’s timing signals have indeed caught the meat of two major bullish rallies since we began. First, a risk-on signal appeared on June 12, 2017 and lasted all the way until May 31, 2018. And more recently, the model has nicely captured the meat of the 2019 rally, as our current trade is up 57.6% from our January 15 buy signal to the end of November (note: we tally our performance the first Thursday of every month).
But, while we have caught the meat of the market’s bullish trends, we have not exactly caught any bearish trends for lucrative gains. That’s largely because the stock market has been predominantly bullish for the past three years! There simply haven’t been many bearish trends to take advantage of — certainly not a major one, the likes of what we saw in 2008.
Not yet, at least…
Goal No.2: Share the “religion” of systematic investing.
Long-term success with systematic investing requires a worthwhile model (the “mechanics”), but it also requires the right mindset (the “mentality”).
You can’t appreciate the value of a rules-based approach (aka “systematic”) if you don’t first understand and acknowledge all the behavioral biases that lead most discretionary investors to poor results.
That’s why I wrote shared with my 10X readers the story of “hungry judges, which is a lesson on decision fatigue and how it makes us make bad investment decisions… and the story of the mental error my dad made when deciding to sell his investment condo, which was a lesson on loss aversion and how it also routinely trips up stock market investors., too.
My readers have told me those conversations we have about the philosophy of the systematic way have been informative, eye-opening and sometimes even entertaining!
Goal No.3: Grow a sum of money as much as possible — targeting “10X” returns — as quickly as possible.
I like to say the investment vehicles that we buy in 10X Profits are “super-charged.” They’re quite volatile, but they also hold the promise of delivering monster, market-beating gains.
One of the vehicles we buy is a 2x-leverage stock market fund, which is our “risk-on” trade. And the other is a long-volatility vehicle, which is our “risk-off” trade when my model suggests trouble is ahead.
We’ve had our ups and downs in both vehicles. But as I told my 10X readers last week, as I did my own internal review of the service’s first three years, I’m still confident we’ll earn monster returns in the coming years.
That’s largely because my model is specifically designed to play both sides of the market. And if the rate of return it generated between September and December of 2008 (185%!) is any guide… we could be setting ourselves up for a windfall profit during the next market crash, whenever that comes.
There’s no telling when it’ll come… but I’m confident my market-timing model will be ready to capitalize on it.
It’s been a fun three years of 10X Profits, and I’m just as excited for the next three.