Can you really beat the market? | Wall Street's secret weapon | A.I. systems are nothing new to billionaires | They're watching your trades | How you can level the playing field…
By Michael Salvatore, Editor, TradeSmith Daily
Imagine you're sitting at a table with 10 professional investors, whose job it is to beat the market by picking individual stocks.
How many of them would you guess beat the S&P 500 over the last 15 years?
Keep in mind, these are Wall Street investors with vast connections… resources… and know-how that few can compare to.
They've dedicated their lives to getting this investing thing right. They're straight-up paid to beat the market… so they'd better do it.
The only logical conclusion is that at least half of them managed to do better than the 9.4% the market's averaged each year over that time, right?
Wrong. Going by the numbers, they'd be lucky if one of them did.
According to S&P Dow Jones Indices annual SPIVA report, which measures the performance of large-cap fund managers, 92% — 9 out of 10 — of these professional investors failed to beat the market over the last decade and a half. Even the 10th Wall Streeter at the table has the odds stacked against them.
So if 9 professional investors out of 10 are guaranteed to underperform the market over the long-term, what do you think the odds are of an individual mom-and-pop investor? Next to none.
Provided with this information, you have two paths before you:
Throw up your hands, set up a recurring investment in the S&P 500, and resign to a life of average returns…
Or focus on the 8% of funds that DO outperform the markets… and learn how you can do what they're doing.
Because even if it's improbable, that doesn't mean it's impossible.
Since you're reading this, I'd bet good money you're in camp No. 2.
And if you are, you're in good company with the half a million other TradeSmith Daily readers… and the investment minds in our network who regularly create and share market-beating strategies using similar techniques to those found at the top-performing hedge funds.
So today, let's walk down the second path.
We'll look at one of the top performing funds of 2023, and reveal the secret weapon it uses to regularly beat the market…
And better yet — we'll show you how TradeSmith is doing the same.
❖ Citadel Securities is one of the world's top-performing funds…
The firm's flagship Wellington fund raked in gains of 15.3% in 2023, after fees. It recently went public with plans to return all of its $7 billion in profits back to shareholders.
Granted, they didn't quite beat the S&P 500 with its blistering, anomalous 24% recovery in 2023. But it was still one of the best returns of any active strategy in the market. (And it follows a return of 38% in 2022, when the S&P dropped 18%.)
Citadel's edge — what's helped it return 19.6% a year since it launched in 1990 — is twofold. Data and speed.
The financial world is an ocean of billions of data points, each of which changes by the second. Not just stock prices, but currency pairs… commodities costs… Treasury yields… earnings reports… and dozens more data points.
All of these are constantly influencing each other, like an endless butterfly effect bouncing back and forth throughout the markets.
These datasets are plainly inscrutable to the human mind working on its own. I don't care how smart you are — nobody has the capacity to take all of this in and translate it into something useful as quickly as you'd need in order to beat the market.
But Citadel, and other funds of its caliber, can.
And not only that, but it can do it faster than you can even pull up a stock chart, much less analyze it. I'm talking a fraction of a fraction of a second.
And it's all thanks to a trick Wall Street's had up its sleeve for many years…
❖ Supercomputers and A.I. have been a staple of Wall Street for decades…
ChatGPT may have been the first true consumer product to show the power of A.I. But it's hardly the first time humans have used it.
Billionaire Wall Street hedge funds have used various forms of A.I. for decades, through the power of supercomputers that can read and analyze tremendous amounts of data at once.
These supercomputers are in a league of their own. The sheer analytical power lets hedge funds like Citadel make educated, strategic bets every fraction of a second of the trading day through high-frequency trading algorithms.
This ability to quickly process, analyze, and act on such an unfathomably vast sea of data is how the top-earning hedge funds in the world stay ahead.
Though that's hardly the only technique these high-powered hedge funds use to make money. And it's far and away the most ethically sound.
❖ Payment for order flow (PFOF) deals help hedge funds legally trade ahead of you…
There's an saying that goes "if the product is free, you're the product."
People like to say this about social media platforms, and they're right.
But on Wall Street, the grift is on a whole different level.
Hate to break it to you, but the phenomenon of zero-commission and zero-fee trading over the last several years wasn't borne out of goodwill from the major brokerage houses.
They simply found a new, even better way to make money from individual investor transactions: payment for order flow (PFOF).
PFOF is the practice of selling investor order flow to market makers, like Citadel and many others, so they can legally see where investors are placing their chips while those orders are executed.
This — in addition to giving them yet another valuable dataset to analyze — also ensures they can make a penny or two off every trade investors make.
By taking the other side of each trade, they're able to immediately profit on the difference between the "bid" and "ask" prices of every security — which quickly adds up when we're talking about millions of individual traders.
So, what's an investor to do with these kinds of odds stacked against them?
The A.I. Revolution kicked off when ChatGPT was launched in late 2022. Now we're entering a new phase; one that offers a shot at the kind of explosive gains investors captured at the beginning of the internet revolution.
❖ Use TradeSmith's best-in-class A.I. tools to level the playing field…
At TradeSmith, we've spent nearly $20 million and work around the clock to continually develop and update our market-analysis algorithms.
Three dozen people on staff are dedicated to just this task, and their work helps ensure these systems run day and night, helping you spot major profit opportunities before they're headline news.
All this work, time, and expense is devoted to helping you level the playing field against Wall Street.
An investor working alone, without A.I.-driven tools at their side, has little chance of beating the market, much less Wall Street's top investors.
But with the level of data processing firepower TradeSmith provides, you have everything you need to crush the markets and beat Wall Street in a way that simply wasn't possible until now.
Consider how Jason Bodner's institutional money flow algorithm helps you detect when a major fund is pouring money into a specific stock, leading to opportunities like Super Micro Computer (SMCI) or AMD (AMD).
TradeSmith is not registered as an investment adviser and operates under the publishers' exemption of the Investment Advisers Act of 1940. The investments and strategies discussed in TradeSmith's content do not constitute personalized investment advice. Any trading or investment decisions you take are in reliance on your own analysis and judgment and not in reliance on TradeSmith. There are risks inherent in investing and past investment performance is not indicative of future results.
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