I Stuck With My System and It Paid Off Big Time

We’re closing in on the fifth iteration of our annual Irrational Economic Summit in Nashville, Tennessee. Like every year, it’ll function as an escape, a time to put our heads together and make sense of what’s been going on, and an opportunity to try to figure out what the future has in store.

There will be good conversations, cocktails, and, well, work – I’m on the docket to deliver a presentation and a workshop, so my plate is full leading right into day one.

And, in a sense, all this prep work is a way to remove myself from day-to-day ruckus of the news cycle. A breath of fresh air, if you will – though I understand if the idea of work isn’t so refreshing to you!

It is to me, because it’s how I make sense of the world as a forensic accountant. Instead of headlines and punditry, I look at the data. Instead of running on emotion, I stick to my systems. And that might be one of the most important things to take to heart these days…

Stick to your system if you want to see it succeed. Don’t get suckered into the emotional seesaw. Short-term losses can give way to serious gains if you can stomach the ups and downs.

I should know, because my Earnings Insider Alert readers and I went through the same thing.

Earlier this year, I added a whole new component to my research service that specializes in shorting stocks. Yep, I added options recommendations. And, to a lot of regular investors, options are code for “risky” or even “only for the crazy.”

But I know my system and what it’s telling me about the markets. Yes, we’re still in a long-standing bull market, one that collected “all-time highs” like trophies on a shelf. But the data keeps telling me something else…

After a review of my short positions over this record-breaking bull market, I noticed that much of the profits on the shorts were from earnings-related announcements. Much of the losses were due to the same bull market that pushed expectations higher and higher.

And, so, after a bumpy start, we hit pay dirt…

My readers had a shot at gains of 250% and 208% in a short amount of time. That’s serious money right there.

I stayed with the system, and it paid off. Here’s what it’s telling me now…

As the broader market indexes continue to push to new highs (even with more nuclear-level brinksmanship between Trump and North Korea), aggressive short-sellers keep adding to their positions. Another 2.3% of assets was plowed into leveraged short funds not too long ago. Until they get wiped out, the markets could push higher. (These speculators are a contrary indicator.)

The bad news for the markets is that corporate buybacks have touched an eight-year low this quarter. Buybacks have been a key driver of stock returns in this bull market since 2009. The slowdown in corporate activity ultimately will make it very difficult for the market to sustain recent gains.

At IES, I’ll talk about how I look at the data and what sort of factors jump out at me. If you’re not planning to go, I highly recommend opting for the livestream. You’ll be privy to an incredible amount of expertise from the comfort of your own home. Actually, the thought leaves me kind of jealous…

You’ll hear me go into detail about some of the most critical data points in my system. You’ll learn about how companies manipulate their income statements; how receivables, inventories, and payables factor in; and how I determine if earnings are translating into cash flow.

Cash is king. It always has been, and, if I may employ another dusty axiom, you’ve got to follow the money. That’s what I do, day in and day out. I think it’s worth a listen…

I hope to see you in Nashville!

Good investing,

John Del Vecchio
Editor, Hidden Profits

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Categories: Investing

About Author

In 2007, John Del Vecchio managed a short only portfolio for Ranger Alternatives, L.P. which was later converted into the AdvisorShares Ranger Equity Bear ETF in 2011. Mr. Del Vecchio also launched an earnings quality index used for the Forensic Accounting ETF. He is the co-author of What's Behind the Numbers? A Guide to Exposing Financial Chicanery and Avoiding Huge Losses in Your Portfolio. Previously, he worked for renowned forensic accountant Dr. Howard Schilit, as well as short seller David Tice.