Try a New Approach for the New Year

I love a good New Year’s resolution.

It’s not so much about specific goals, for me. It’s about the opportunity to reflect on what’s gone well in the last year, what hasn’t, and most importantly… what I’m willing to do to make the upcoming year even better.

The most pivotal resolution I’ve ever made was to become a systematic investor.

I made the switch in January 2010 – after a year of trading foreign currency markets on a discretionary basis, and after watching my clients’ buy-and-hold resolve fail them miserably the year prior to that.

I didn’t fully appreciate the impact that “going systematic” would have, at the time. But I now realize that one important decision freed me from the hamster wheel of decision-making that most investors are trapped in.

I’ve always struggled with making decisions. I guess it just doesn’t come naturally to me.

I blame it on my mother, who was loving and good-intentioned, but a little heavy-handed in the parental decision-making department.

My brothers and I never heard anything like, “What do you feel like for dinner tonight?”

Everything was always already decided for us. “Tonight’s spaghetti! Could you set the table for me?”

Needless to say, when I was grown and on my own, I had to figure out how to make decisions. And as I struggled through that process, I learned about the negative effects of what psychologists call “decision fatigue,” and how to overcome them.

The more I learn about decision fatigue, the more I’m convinced that it’s one of the primary reasons why most investors struggle to meet their financial goals – whether they (cough, you) realize it or not.

And I’m also convinced that systematic (“rules-based”) investment strategies are the perfect solution to the damaging effects of decision fatigue.

But before I make my case for systematic strategies, let me show you proof that decision fatigue is real (and really harmful)…

The most popular story used to explain decision fatigue is about hungry judges.

In 2010, Stanford researchers studied judges and their decisions to either grant or deny parole to prisoners coming before the court. They analyzed over 1,100 individual decisions, made throughout the course of a year.

In total, judges approved parole appeals in about one-third of the 1,100 cases studied – in line with known proportions. But the researchers discovered that time of day was a significant factor in the judges’ decisions.

Essentially, prisoners who appeared before the court early in the day tended to get more favorable parole decisions, while those appearing just before lunch were more often than not denied parole.

Then, after lunch, the number of paroles granted jumped back up to the early-morning levels. But then throughout the afternoon, the rate of paroles granted trended down, hitting a low by the end of the day.

Here’s the chart (with the dotted line indicating food breaks)…

Now, if judges were robots – unaffected by hunger, fatigue, or mood – this chart would not exist. Instead, you’d see one steady rate of favorable parole decisions, regardless the time of day.

But judges aren’t robots. Judges are people.

And even though judges are generally smart, well-intentioned, and ethical people… they still get tired, hungry, and moody, like the rest of us. And, clearly, those subtle “fatigue” factors have a dramatic impact on the decisions they make.

In the simplest terms, decision fatigue is the observation that people tend to make worse decisions the more decisions they make.

Decision fatigue affects everyone. It taints decisions we’re faced with in all aspects of our daily lives – everything from what to make for dinner and, of course, what to do with your investments.

The decisions you must make about your money are endless.

Do I spend or save? Cash or T-bills? Stocks or bonds? Passive or active? Diversified or concentrated? Growth or value? Google or Amazon?

Sell for a loss or hold?

Sell for a profit or hold?

You get the idea…

As an investor, every decision you make can be hugely consequential to your investment portfolio and to your family’s financial goals. And you’ll be up against decision fatigue every step of the way.

Now, to avoid the downside of decision fatigue… you’ve got to avoid decisions. Or, at least, you’ve got to greatly minimize the number of decisions you have to make.

And that’s where systematic investment strategies come into play.

Systematic, or “rules-based,” investment strategies minimize your role in the decision-making process. Therefore, they minimize the number of opportunities you have to make a foolish decision, caused by decision fatigue.

And that’s why I love systematic investment strategies.

I don’t have to make decisions all day long… I don’t have to face the same decision – “Do I buy? Do I sell? Do I hold?” – each and every day. I don’t have to second-guess myself.

Truly, committing to systematic investing is one of the best things I’ve ever done for myself. It’s taken the monkey of continual decision-making off my back – and with that, I’ve seen dramatic improvements in both my wealth and health.

It’s my sincere hope that you, too, will join me in appreciating the many benefits of systematic investing. That’s really what my trading services – Cycle 9 Alert and 10X Profitsare all about.

We implement a “rules-based” strategy with discipline. And that allows us to avoid the pitfalls of decision fatigue, cognitive biases, and our tendency to make “irrational” decisions with money.

Is this approach right for you?

Well, that’s something only you can decide. But it’s a new year… and you have the opportunity today to try a new approach!

You should certainly give it a try. I’m pretty confident that once you get the hang of it, you’ll never go back to discretionary investing again.

I know I won’t!

Adam O’Dell
Editor, 10x Profits

P.S. My 10X Profits strategy is 100% systematic, 0% discretionary – and has generated a 94% total return since we went live in December 2016. Click here to gain access to our current position.

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Adam O’Dell – Economy and Markets ()

A Straightforward Approach to Investing

Pardon my language, but moving sucks.

We recently relocated from Florida back to Texas. My native Texan wife is ecstatic. And I’ve got to admit, the weather has been awesome for the past two months.

But almost nothing about the move was enjoyable, including the process of settling into our new home.

It’s not that we don’t like it. The house is fabulous. But there are things she – I mean, we – think need to be updated or remodeled.

That’s where the fight starts.

Not between the two of us, but between me and inertia. And I don’t always win.

It’s not like standing in front of the paint color wall at Home Depot. This is no metaphor; we actually stand there. As we do, I can feel each second of my life ticking away.

Are there really 97 shades of white? No, I don’t care which one.

I don’t care for paint. I don’t want to paint anymore. Please release me from this retail inferno!

Usually – or always – my wife will roll her eyes at my indecision and make a choice. Then we get the joy of stripping wall paper, prepping walls, taping and masking, and painting.

It’s a lot of work, and often I put off starting because I know how much it will take. But I’m always happy we did it, because the end result gives us what we want.

I think of investing the same way.

There are too many choices.

It’s hard to get started.

And once you’ve begun the process, stopping halfway can be disastrous, and it’s difficult to manage the details.

However, if you do it right, you’ll be happy with the results and sleep better at night.

But you’ve got to overcome the hurdles by using a process that you can live with – and use to sift through or cut out the choices, not to mention the noise in places like the financial media, or elsewhere.

I recently read that Amazon offers more than 1,100 toilet bowl brushes… and many of them have reviews. I don’t know if I’m more concerned with the number of choices or the fact that people take the time to review such a thing.

Either way, buyers have to make decisions. If you mess it up, you throw away a $ 5 piece of plastic and wire and start over.

With investing, if you do it wrong you have to make up for lost ground, which could take years, if it ever happens. Don’t become paralyzed by too many choices. It’s called paralysis by analysis.

Instead, find a body of research or investment selection process that allows you to narrow the choices from thousands of potential holdings to a manageable universe.

And don’t get married. At least not to an investment.

I often repeat the mantra that “I’m not married to anything but my wife.” If it’s time for an investment to leave your portfolio, let it go. Don’t worry about what could’ve been, or how high it might go after you sell it.

Focus on the security selection process that you have in place.

Investors often lose sight of the goal of investing. It’s not to bring about world peace or save the Delta smelt.

There are ways to work toward those goals, but investing is about earning superior returns and growing one’s wealth. If you like a cause but the stock should be sold, then sell the position and use some of your profits to buy a bumper sticker.

Finally, pay attention to the details… all of the details.

When your investment approach calls for buying, then buy. When it signals a sell, sell.

Too often we get lazy in our investments. Sometimes, when things haven’t gone our way, instead of reviewing the investment selection process to verify that we’re using the right one, we simply stop following the strategy.

That leaves us with the worst of both worlds – a strategy we don’t trust and no defined goals for what we own. Sometimes we lose focus simply because nothing has happened in recent weeks. Our attention drifts. We get distracted by life, or the news of the day.

Whatever the reason, if you’ve strayed from your investment strategy, or find it too overwhelming to follow, now is the time to redouble your efforts and get back on track. The exact moment you find yourself off course is the time to take corrective action.

At Dent Research, we’ve been working for years to address these issues, and recently we’ve developed an elegant solution in the form of a brand-new service.

It’s called the Dent Cornerstone Portfolio.

Pulling from all of our economic and investment research, and spanning all of our investment solutions, I’ve built a portfolio of fewer than 20 positions for subscribers.

Our recommendations will be straightforward, with clear percentages and actions to take, eliminating the problems highlighted above. It streamlines all of the best Dent Research has to offer.

But no matter what investment strategy you choose, do yourself a favor. Follow through.

Your portfolio will thank you, your family will thank you, and it will give you more time for home renovation. Then you can join me in the paint aisle at Home Depot.

Rodney Johnson
Follow me on Twitter @RJHSDent

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Rodney Johnson – Economy and Markets ()

One Approach to High Healthcare Costs

In 2015, I thought my healthcare renewal statement was wrong.

The premium for my shrinking family of three (two adults and one child) was increasing by more than 30%, to $ 1,454 per month. My earnings place me out of the subsidy bracket, so these are real dollars out of our budget.

There were plenty of insurance companies to choose from. Shrinking availability was not a problem. It was just breathtakingly expensive.

Or so I thought.

In 2016, my premium jumped to $ 1,733 per month.

The galling part is that I had no control. I’d kept tabs for years. The insurance companies had never paid total reimbursements anywhere close to the premiums we’d paid, and our deductibles climbed even as our premiums shot higher.

This is not how insurance is supposed to work.

Insurance is a hedge against something unexpected happening.

The current system is glorified cost-sharing with a lot of middlemen.

With true insurance, I’d pay for small or ordinary medical costs like a broken arm or asthma treatments, and I’d pay for scheduled surgeries with savings or a payment plan. But big things, like car accidents or cancer, would be covered.

That sort of coverage isn’t possible today. Even if the proposed American Health Care Act allows it, I’m not sure how many insurance companies would offer such stripped down service.

I don’t claim to know how to fix the national problem.

Caring for everyone as we age will be expensive, but no one (including me) wants to ration care or tell doctors they simply earn too much compared to their peers in other countries.

But that doesn’t mean I sat still when I got my premium renewal notice last year.

I searched for alternatives… and I found them.

The Affordable Care Act includes a carve-out for health-sharing arrangements that existed before 2000. These organizations tend to have a religious component and work like mutual benefit societies from a bygone era.

I investigated several before choosing Christian Healthcare Ministries (CHM, There’s also Medi-Share and Samaritan Ministries, among others. Each one operates a bit differently, which is why I chose CHM. But they each have the same basic principles.

I contribute $ 150 each month per person, or $ 450. That’s $ 1,283 less than my cost would have been in the traditional market. It adds up to $ 15,396 per year.

The organizations ask that you affirm your faith, and that you live a responsible life. It’s not that you need to live a life of austerity or denial. You can still have one too many at the local barbeque from time to time, or ski the black diamond runs.

What you can’t do is expect your fellow members to pay for things outside the bounds. If you have an accident while driving under the influence, it’s not covered. If you get addicted to illegal drugs, it’s not covered.

In short, these organizations give you the opportunity to exchange responsible behavior for lower-cost healthcare.

This is not insurance. It’s health cost sharing. It sounds like semantics, but once you get into the details the difference becomes clear. Even though CHM mailed me a card, there’s nothing to show a doctor or hospital.

When we visit the doctor, we say one thing: “Self-insured.”

Last fall, while away at college, my daughter went to the hospital. She was short of breath due to an allergic reaction. She called from the waiting room. I told her to do everything necessary to get the care she needed, and, when it came time to settle up, to tell them she’s self-insured and to give them my contact information.

She left without paying a nickel, and then I waited for the bill.

Five weeks later, I received her statement. The hospital had reduced her bill by 71%.

The CHM gold plan we have covers costs outside of tests and transportation, with a $ 500 deductible per condition. We pay for our routine doctor visits.

The plan includes a prescription drug benefit, but I’ve found that GoodRx, a free app that anyone can use, is better. I recently filled a prescription that would have been $ 39, but GoodRx directed me to a large chain grocery store where my coupon provided by them brought the cost down to $ 8.

Clearly this approach won’t work for everyone. I’d imagine there are pitfalls to these programs that will come up as time goes on. But, so far, it seems to be working just like insurance used to work.

And the basic tenets seem solid enough to help all of us achieve lower costs.

As a consumer, I’m asked to be responsible for my health, to do my part to keep my costs down, and I ask for the best price a vendor has to offer when services are rendered. In return, my health cost sharing premium stays in the reasonable range. That seems like a fair trade.

I’ve had two friends sign up for similar programs in the past six months, as they ran into the same astronomical costs that I did. I imagine these organizations will attract many more users in the months and years ahead as costs continue marching higher.

If you end up looking into these programs for yourself, check them all out to find the best fit. And if CHM ends up the top choice, tell them I mentioned it… because they also have a referral program.

Rodney Johnson
Follow me on Twitter @RJHSDent

P.S. I mentioned last week the special Q-and-A that Lance was holding about his Treasury Profits Accelerator service. If you missed that – and his soon-to-end two-for-one subscription offer – check it out here.

The post One Approach to High Healthcare Costs appeared first on Economy and Markets.

Rodney Johnson – Economy and Markets ()

Who’s Buying And Why? — The Transactions Approach

Theory turns toxic when institutionalized.

Need an example?

Just look at modern economics.

Economists surround themselves with models that are supposed to predict everything from inflation growth to GDP.

But do they work?

Eh… not usually.

These models wind up failing because they try and take a perfect, fitted theory and apply it to a messy and often times random world. Think about the basis of all economics. It assumes that each player is “rational”.

Ha! If only these economists could meet a few of my ex-girlfriends…

Just the other night our team met up with one our friends on her way to earning a PhD in the field. Her most recent project involved inflation forecasting. She’s spent hundreds and hundred of hours on this research. Her conclusion? Well she wouldn’t admit it until we got a few beers in her, but she found that the best inflation forecasters in the world (our friends at the Fed) were no better than random. Only rarely did they predict a result slightly more accurate than random. Any economist outside of the Fed actually did worse than random.

So much for experts being better than dart throwing monkeys right?

Here’s the thing, if our friend realized this in her schooling, you can bet the economic PhDs sitting in their ivory towers know this fact too. But it doesn’t exactly benefit them to admit to it. Not after an entire economic institution has been built around the “success” of forecasting. You can’t come out and say it’s mostly BS. You would be out of a job. And so the farce continues.

Now if these forecasting methods continue to persist, you can bet the theories backing them are heavily guarded also. This is where economic theory turns “toxic”.

As an example, take the classic view of supply and demand:


This is taught to every single Econ 101 student around the world. It’s the basis for most economic theory.

But unfortunately, it’s grossly inadequate (for reasons we’ll discuss soon). Do our PhDs know this? Maybe. Either way, they sure as hell aren’t going to change it now. Why try and pull the Jenga block that’ll make the entire institutional tower come down? It’s in there self-interest to just keep on, keepin on.

But that doesn’t mean you have to stick to this sorely lacking economic model. We don’t. Instead, we prefer to use legendary hedge fund manager Ray Dalio’s Transactions Approach.

Here’s how it works.

The first thing you need to understand is that the economy is really just made up of a bunch of transactions. A transaction is simply the exchange of money (or credit) for a good, service, or financial asset. Now combine all the transactions for a particular good and you get a market. For example, there’s one market for oil and another market for cotton. An economy is created when you combine all these different markets and their transactions.

To understand any economy or market, all you need to know is the total amount of money (or credit) spent and the total quantity of goods sold. Divide the total spending by the total quantity of goods sold and you get the market price.

In markets there are number of different buyers and sellers, all with different motivations. It’s impossible to identify them all, but isolating the biggest buyers (largest drivers of demand) is easy. The reason these buyers (and not sellers) can be evaluated is because much of their demand is based on how much credit and money is available in the economic system. More credit and money leads to more demand, while less credit and money leads to less demand.

The concept of money vs credit goes much deeper, but we’ll save that topic for another discussion. For now, it’s important to understand that the transactions approach does take the difference between these two into account. The approach reveals that changes in total buying have a much larger impact on prices than changes in total selling. This is due to the fact that the supply of money and credit is far easier to adjust than the supply of goods.

Buyers in an economy can be split into two categories. They can either come from the private sector or the government sector.

The private sector is made up of households or businesses, both domestic and foreign.

The government sector is made up of both the Federal Government and the Central Bank. The Federal Government produces demand through public spending and the Central Bank produces demand by creating money and spending it on financial assets.

You can see a model of the transactions approach below:


The transactions approach lets us do two things:

  1. Establish market prices by dividing total spending by total quantity of goods sold.
  2. Identify the biggest buyers in the market.

Now compare this to the traditional economic model:


The standard model doesn’t look at the economy through the lens of transactions. Instead, it measures supply and demand through a single quantity. This model completely fails to identify the amount of spending, which buyers the spending comes from, and their motives. It groups all buyers into one and focuses on quantity bought instead of how much was spent. It also doesn’t distinguish between money and credit.

These are all extremely important pieces of the puzzle that deeply impact the relationship between quantities exchanged and the resulting change in price. Without these factors, it becomes very difficult to predict future prices. No wonder standard forecasts are so far off…

But again, this theory is baked into every level of economics. It’s not going to be changed by the institutions promoting it.

Now one of the most interesting aspects of the transactions approach is the disaggregation of buyers in the economy. This can be done on both the macro and micro scale. The approach is useful for both.

Recently in the Macro Ops Hub Comm Center, Operator Jamie took us through his process of identifying buyers in equity markets. He broke them up into 5 categories:

  1. Dumb Money: Mom and pop investors that buy on good news after prices have already run up. Jamie anticipates their thinking by running through the headlines of major financial publications (Time, Businessweek, Yahoo Finance, etc.) and also by evaluating various sentiment indicators like the AAII. Dumb money usually serve as a contrarian indicator. “When good news about the market hits the front page of the New York Times, sell.” – Bernard Baruch
  2. Dumb Funds: These are large retirement and mutual funds such as Fidelity, Vanguard, American Funds, etc. The managers of these funds aren’t necessarily dumb, but they’re trapped in a system that forces them to always be long and fully invested. These restrictions have the effect of turning them into dumb money. It’s important to watch these guys because they make up a large part of the big money flows in the markets.
  3. Technical Players: This group ecompasses everyone from classical chartists, to trend followers, to breakout (IBD / William O’Neil) style traders. These players don’t necessarily cause turning points, but instead serve to amplify a trend that’s already started. You’ll see them jump into an asset after a major technical break. Their actions are easy to see by just looking at a chart.
  4. Smart Hedge Money: This group combines many types of analysis including fundamental, technical, quant, sentiment, etc. These are guys like Stanley Druckenmiller that pay attention to things like macro liquidity, business cycles, and the actions of the Fed. Many of them don’t speak in public too often, so a good way to see their holdings is through 13F filings.
  5. Smart Value: This is the pure fundamental group you can piggyback off of to find the best deals in the market. They’re focused on value with a margin of a safety. You can follow value investors like Seth Klarman right through their 13F filings.

This is just one example of buyer profiles you can create in the market. Being able to identify buyers and establish their motivations is very useful to determine liquidity and capital flows. These flows are what drive prices.

So the next time you want to understand why an asset’s price is moving, just use the transactions approach and everything will become a lot more clear.



Macro Ops