The NFL season “kicked off” Thursday, and there’s one particular newcomer we all need to keep an eye on this year.
Luke Downey.
Yes, that Luke Downey – my business partner, fellow TradeSmith investment analyst, and friend.
To be clear, Luke has not traded in his quantitative analysis skills for shoulder pads or a clipboard. But he is a rookie.
For the first time, Luke joined 30 million other people as general manager of his very own fantasy football team.
I’m not one of those 30 million. I follow football casually – hockey is my sport – but I also know I would get completely obsessed with data if I joined a fantasy league.
I’m so used to quantitative analysis stock picking that I can’t imagine having to draft players without a similar deep dive into important data. And with football I’d have to start from scratch, because unlike with stocks, I don’t know what data is most predictive of future performance.
I have to tell you, though, that I did manage to beat Luke on a football-related gentlemen’s bet. It was back in 2007, and I had just hired Luke to work for me at Cantor Fitzgerald. We started getting into football stats, and he seemed to know his stuff. I did not.
That was the year the Miami Dolphins were historically bad – so bad that it looked as if they might not win a game. I asked Luke if he thought the Dolphins would go winless, and he said 100%.
I was head of derivatives trading, so I spent my days making and analyzing complicated trades. I may or may not have used this to my advantage when I offered Luke a little wager.
I structured the bet at $10 per percentage point and put the odds that the Dolphins would be winless at 75%. Confident that they wouldn’t win, Luke bought that 75%, leaving me with the remaining 25%. I stood to lose $250 if the Dolphins laid nothing but eggs while Luke stood to lose $750 if they managed even one win.
As Luke describes it, he happily accepted “like a pig led to slaughterhouse.” Unfortunately for him, the Dolphins won their one and only game on Dec. 16 that year, making me the winner.
I don’t think he fully understood the bet’s structure because he asked how much he owed. When I told him $750, he was more than a little shocked. We laugh about it now.
I expect Luke will do a lot better at fantasy football. He’s smart and an outstanding data analyst. He can use that to his advantage because sports are increasingly data obsessed. It’s crazy what stats they keep, like measuring the spin rate on a quarterback’s pass. And yes, footballs now have chips in them to measure that and more.
Unfortunately, I think more people use data when it comes to sports than they do with investing. We use quantitative analysis all the time to build our own “fantasy team” of all-star stocks that are the best performers in the market.
Actually, it’s not a fantasy team at all. The profits are very real.
Stacking Our Roster
The stock market is a lot like a sports league, and my Quantum Edge stock-picking system is based on that fantasy-league concept – “own the best.”
Each team (investor) has a full roster of players (stocks), and those players run the gamut in terms of skills and performance. You’ve got backups, role players, and starters.
But we all want a team full of the best players in the game.
If you’re the general manager of a sports team or a fantasy team, you’d want to load your team with as many super performers as you can. But you’re limited by “rights” – each player can only be on one team at a time.
As investors, we can load our portfolio with super-performing stocks. It doesn’t matter who else owns them.
“Superstar” companies have better business models, better products, and stronger brands than their rivals. They grow their sales faster, have bigger profit margins, bring more money to the bottom line, and have stronger balance sheets than the companies they compete against.
Their stocks are superstars, too.
To identify these all-stars, we need to follow thousands of publicly traded stocks. That’s impossible, of course, which is why we also use technology – technology that’s a lot more sophisticated than chips in a football.
These are powerful algorithms that retrieve and analyze data. And best of all, they put you on more even footing with Wall Street’s increasing reliance on algo trading.
Following All to Find the Best
I built my system to sift through 10,000+ publicly traded stocks, eliminate the illiquid and riskiest of the bunch, and then “scout” the remaining 6,000 or so to whittle our team down to the best of the best.
NFL scouts measure everything from the 40-yard dash to how much a player can bench press to the size of his hand. We measure stocks for fundamentals, technicals, and Big Money inflows.
These are the qualities our three decades of data clearly show are most predictive of future performance.
And in this age when algorithms control most Big Money trading, what really matters in this is where the money is flowing.
The top 500 asset managers now control a record $131 trillion on any given day. All told, about $558 billion moves through the stock markets every single day here in the U.S. alone. That means the computer algorithms direct the flow of as much as $447 billion – per day.
I used my time on Wall Street overseeing these trades to design a sort of master algorithm that tracks where all this big money is flowing. I want to know where these institutions pour their billions next… down to the ticker symbol.
Here’s what it looks like with one stock we recently added to Quantum Edge Pro. I can’t share the name, but you can see all those green lights. They are the Big Money buy signals we look for – and you can see the price (blue line) rising with them.
Source: MAPsignals.com
This ability to see where the money flows is a critical part of our scouting report for each stock. It’s like having an x-ray or MRI machine for money flows. And it gives you a powerful edge.
Wall Street relies heavily on algorithms for a reason, and to build our portfolio of all stars, we need to as well.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends
P.S. I go into more detail on in a special briefing on “Project Greenlight.”
The goal was to study how algorithms (including AI) are taking over Wall Street… and to show folks how to prepare and profit.
The recently released video bulletin reveals our findings and includes a six-step strategy you can use to turn the AI-trading revolution into stunning gains, like my father did.
I also share an AI stock – down to the ticker symbol – that is instrumental in powering the whole U.S. economy.
Click here now for all of the details and to gain access to my strategy and this incredible stock.
