Valuentum Exclusive Analysis for the Discerning Investor

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Image: President of Investment Research Brian Nelson, CFA

By Brian Nelson, CFA

A new book, “The Man Who Solved the Market,” hit bookshelves last year, and thus far it has been a hit. The text goes into the story of quant hedge fund Renaissance Technologies and its hedge fund, the Medallion Fund, which has put up mammoth returns since inception.

Though the book focuses more on the life and times of founder Jim Simons and dedicated only a page or two to the fall of Long-Term Capital Management (LTCM), another quant fund that went belly-up during the late 1990s, it was nonetheless a thoroughly interesting and enjoyable read.

But why I am bringing up one of the most successful quant hedge funds that has generated average annual returns close to 70% before fees since 1988? Well, in some ways, to let you know of one of the greatest investment-runs out there, but more pointedly to provide some context as to what types of success rates one of the best hedge funds in finance history generated. Here’s an excerpt from the book:

Medallion still did bond, commodity, and currency trades, and it made money from trending and reversion-predicting signals, including a particularly effective one aptly named Déjà Vu. More than ever, though, it was powered by complex equity reads featuring a mixture of complex signals, rather than simple pairs trades, such as buying Coke and selling Pepsi.

The gains on each trade were never huge, and the fund only got it right a bit more than half the time, but that was more than enough.

“We’re right 50.75 percent of the time…but we’re 100% right 50.75 percent of the time,” Mercer told a friend. “You can make billions that way.” – page 272

The returns that Medallion put up weren’t fueled by a system that "solved” the market, per se, but rather one in which the success rates were but a little better than half. Even just a sliver of an advantage can translate into big bucks. If you recall, when we set out to do the Exclusive publication, here’s what I wrote: “Depending on the time horizon set forth with each idea, fantastic performance might mean a success rate of 60%, great performance might be 55%, average performance might be 50%, while anything below that mark may constitute a poor showing." As I wrote in my book, “Value Trap: Theory of Universal Valuation:”

I sometimes get the feeling that new investors believe they have to get every idea correct, and every idea should work out immediately. This, unfortunately, is just not how the markets work. If one is a good investor, the winners will outperform the losers, and you’ll make money. If one is an excellent investor, there will still be a lot of losers, but you’ll end up beating the market’s return, or achieving your long-term investing goals, whatever they might be. Even the investment greats such as Warren Buffett have had many disappointing investment propositions over time (e.g. IBM).

With that said, expectations are running high with the Exclusive, seemingly even higher than the success rates on trades of even the best hedge fund of all time, and I must say, it is our honor to continue to deliver. Out of the 42 capital appreciation ideas released in full thesis form in the Exclusive publication since inception, 35 of them have worked out or are working out, good for a success rate* of 83.3%. Out of the 42 short ideas released in full thesis form in the Exclusive publication, 35 of them, too, have worked out, good for the same success rate of 83.3%. Importantly, the success rates of the short ideas have come in one of the strongest bull markets in history.

We’re knocking the cover off the ball in the Best Ideas Newsletter portfolio and Dividend Growth Newsletter portfolio (two features of the regular membership), and the performance of high-yield ideas in the High Yield Dividend Newsletter hasn’t been too shabby, but if you are looking for more from Valuentum, including brand new ideas for income, capital appreciation, and short idea considerations each month backed by the experience and hard work of the Valuentum team, add the Exclusive to your membership here. The Exclusive success rates have trumped those of even the best quant hedge funds. Spread the word.

We're not resting. Let’s keep the ball rolling in 2020!

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Tickerized for holdings in the SPY

* Success rate: The percentage of ideas highlighted in the Exclusive that have moved in the direction of our thesis (i.e. up for capital appreciation ideas and down for short idea considerations) through the current price or closed price, with consideration of cash and stock dividends. Success rates do not consider trading costs or tax implications. Trading is simulated. Past results are not a guarantee of future performance.