Editor's note: As you may know, part of our job at Casey Research is to pass along interesting opportunities that come across our desks. Today, we're sharing a few details on a brand-new trading service from our friend Jeff Brown, editor of Exponential Tech Investor.
Jeff can't reveal all the details of his new trading strategy today… He’s saving it for a LIVE webinar next week. But Bonner & Partners’ editorial manager James Wells managed to snag some time with him to get a little backstory on what he’s been working on. Here’s the transcript of their chat…
James Wells (JW): Jeff, I know you’ve probably got about a hundred things to do while you’re here in town, so thanks for sitting down with me to go over what you’re working on.
But before we get to that, why don’t you bring me up to speed on what’s going on with Exponential Tech Investor? You just had some real big winners, didn’t you?
Jeff Brown (JB): Yes, we did, James. We’ve had four big winners in just the last few months, but the one I’m most proud of – the one most of my readers had an opportunity to enjoy – was our 97% gain on Impinj [PI]. In less than three months, we nearly doubled our money on this manufacturer of radio-frequency identification integrated circuits.
We also had a 73% gain on Imprivata [IMPR], a cybersecurity firm focused on the healthcare industry, in nine months. I was pretty proud of this one, too. I recommended this stock back in October of last year to subscribers. I also presented my investment thesis on the company at a large investment conference in Las Vegas. At the time, I publicly stated that I just didn’t see a scenario where the company wasn’t acquired. Based on my analysis, I didn’t see it remaining independent for much longer. Sure enough, in July, a private equity firm announced that it was buying out Imprivata. That provided the catalyst for even more gains on the investment recommendation.
JW: That’s pretty impressive. And I guess those are the kinds of big hits you can expect to see when you’re investing in small-capitalization, high-growth stocks.
So what I’m wondering is… are you always swinging for the fences when you invest?
JB: The underlying premise for each of my recommendations in Exponential Tech Investor is simple. Each recommendation has to show the potential for a double within 12 to 18 months.
Of course, many of my recommendations have the potential for far greater returns over a longer time horizon. The companies and the sectors that I analyze are some of the fastest-growing and have incredible potential, from an investment perspective.
These types of small- or micro-capitalization stocks are definitely riskier and more volatile than large blue-chips. But with the added risk comes the potential for outsized returns.
However, I think it’s important to mention that, from an asset allocation perspective, only a portion of someone’s investment portfolio should be allocated to these kinds of investments. It should be part of a larger investing strategy defined by each individual investor.
JW: That makes a lot of sense. Is that what your new service is about, or are you planning another “swing for the fences”-type strategy?
JB: To be fair to all the people who signed up for next Wednesday’s webinar, I can’t get into the finer details of what I’m working on, but I can say that it is not at all a higher-risk/higher-return investment strategy. Quite the opposite, in fact.
It is a completely defined-risk, income-generating trading strategy that can be used in any market condition. This kind of investment strategy is a strong complement to what I do in Exponential Tech Investor, from an asset allocation perspective.
It’s a trading strategy that I like to call “four-point trading,” and it’s something I’ve been doing using my own money off and on for the last 15 years.
It focuses on making a larger number of lower-risk trades. And these are relatively short-term trades, so as those modest gains build up over time, you can get some really remarkable results.
In my testing, I’ve had a win rate of 80%. And as all the gains added up, they had the effect of doubling my initial stake.
It’s a very compelling trading strategy for someone who likes to play a more active role in their investing and income generation. I build trades off interesting macro- or microeconomic trends.
JW: That’s interesting. I spent a number of years on Wall Street, working with hedge funds and investment banks, and this reminds me a bit of the idea behind high-frequency trading.
Those guys made lots of trades for relatively small gains. But when you added them all together, you were getting a huge return. Am I on the right track here?
JB: Well, yes and no.
High-frequency traders use super-powerful computers and complex algorithms to analyze the markets and execute literally millions of trades per day. They are not looking to make big returns on any single trade. They’re focused on collecting millions of small returns, which will add up to a big gain at the end of the day.
The whole high-frequency trading strategy is based on making trades faster than the other guy. Now, when I say “faster,” I’m talking about milliseconds, so it’s not something any ordinary investor can do.
The idea is to place the trades milliseconds before anyone else, so that you can buy and then quickly sell an asset for a fraction higher than you bought it. It is effectively a form of arbitrage trading (the simultaneous purchase and sale of an asset), just done in milliseconds.
That’s not what we’re doing, though.
We are focused on a few trades each and every month that have a very high probability for success… generate strong income… and have a surprisingly good return on investment, typically between 12%–20%, within just 45 days or so.
A number of people have tested it internally here using their own personal money. We even got Bonner & Partners co-founder Will Bonner to give it a try. So far they’ve all been really impressed with the results.
Over the last two months, we’ve gone five-for-five on the trades we’ve placed. Now, we won’t always have a 100% win rate. As I said before, I believe our success rate will be around 80% or higher, and we have the ability to structure the trades to have completely defined risk profiles. If something happens to the underlying asset that I don’t like, we just close out the trade, typically for a small profit, and we move on to the next interesting idea.
JW: It’s interesting what you say about risk, considering that Bill keeps warning Diary readers about the possibility of a market crash.
What do you have to say to that? Can you really call any investing strategy “lower-risk” with market conditions like we’re seeing now?
JB: In the kind of market conditions we are seeing right now, with volatility and uncertainty, having a risk management strategy for any investing style is critically important.
In the case of this trading strategy, you can define the maximum amount of risk that you take on any given trade. That means that, even if there was a complete market meltdown, you would know exactly what your maximum risk would look like. It would never exceed that.
While this kind of strategy is great for these kinds of markets, “four-point trading” is market neutral. It has the flexibility to be used in any market condition.
Now, what do I mean by that?
I mean it doesn't matter which way the markets are heading for the strategy to be successful. It works just the same, no matter what the market is doing.
I can’t really go into any more detail than that before the webinar, but if you listen in on Wednesday, you’ll see exactly what I mean, James.
JW: I definitely will.
Well, Jeff… I see you’ve got to run to your next meeting, so I guess that’s all we’ve got time for now. Thanks for sitting down with me, though. I’m looking forward to the webinar.
JB: Thanks, James. I’m really excited about this investment strategy and am looking forward to sharing it in a lot more detail.
Editor’s note: We will soon be conducting a pilot trial—a risk-free “beta test”—of Jeff’s new trading service with a small group of subscribers. And you can get all the details about the service and the trial by attending Jeff’s free webinar next Wednesday, November 2, at 8 p.m. ET.
During the webinar, we will open up 500 spaces to our risk-free beta trial, and we expect to fill those spaces very quickly. Regardless, the beta test sign-up will close that night, so there’s only a small window to join.