The Only Investment Edge You Have Over the Pros

A $700,000 gig for crunching numbers... This approach is making it hard for you to win... The only investment edge you have over the pros... Two recent examples of this tool in action... A quick, double-digit opportunity that's shaping up today...

You don't need an investment background to land a $700,000 contract on Wall Street...

In fact, you can become a Wall Street pro with almost no financial knowledge at all.

That was the case for Alexey Poyarkov a few years ago...

You see, Alexey isn't your traditional Wall Street guy. He's a data cruncher... Or more specifically, he's what many folks call a "quant."

The Russian software engineer created a series of algorithms while working at tech giant Microsoft. These algorithms use math-based rules to sift through incredible amounts of data. The whole process takes just seconds to work.

These algorithms can rapidly sift through financial data as well...

And more important, hedge funds are willing to pay top dollar to someone with this skill.

Although Alexey didn't have a background in finance, he landed a job in 2016 with quantitative hedge fund TGS Management in Irvine, California. It wasn't just a regular deal, either... According to the Wall Street Journal, he could have earned up to $700,000 in his first year.

TGS wasn't interested in Alexey's financial knowledge, though... The company just wanted his ability to analyze the mountains of data in seconds using the algorithms he created.

This isn't a rare case on Wall Street anymore... Algorithms are used in many hedge-fund models around the globe. As of May 2017, research and consulting firm TABB Group said that more than a quarter of all U.S. trading used this approach.

Today, this quant approach gives the investment pros an informational edge on everyday investors like yourself. And it makes trying to compete in data analysis extremely hard.

You're not going to sift through more data than the quants. You don't have fancy algorithms that provide lightning-fast investment information like Alexey and his counterparts do.

Now, I (Chris Igou) am not saying you can't beat the pros...

But let me be clear: If you're trying to beat the pros at their own game, you'll likely come out on the losing end. This is what most investors fail to realize. They're playing a game that is fixed against them.

However, the thing is, you don't have to compete with these guys. You can still profit if you home in on the one thing that matters most... betting against the crowd at the right time.

In today's Digest, I'll explain how you can use that notion to gain an edge over the financial pros. I'll share one investment tool that you can use to tilt the odds in your favor. And I'll discuss one opportunity that this tool is highlighting for quick, double-digit gains right now.

Betting against the crowd at the right time is one of the best edges you can gain...

In order to know what the herd is doing in the market, you can't just rely on what other people are saying.

You need to know what the crowd is actually doing with its money. You need to see what the majority is betting on at the same time... And then, you need to do the exact opposite.

The best way to see this investor action is through what we call "real money" indicators. These numbers are hard to fake. After all, they show money being put to work by real investors in real time.

One of these indicators gives you a perfect picture of what the herd is doing with its money...

I'm talking about "fund flows."

It's exactly what it sounds like... This measure tracks the money going in and out of certain investments or countries.

When big sums of money start to move, it signals a major shift in overall investor action. It can be optimistic ("inflows") or pessimistic ("outflows"). As fund flows reach extreme levels, it's often worth paying attention to... It can be a fantastic signal of what the overall investment crowd is thinking.

And if you play your cards right, you can profit as the broad sentiment shifts. Consider this first example...

Fund outflows from European stocks hit a multiyear low back in July 2016...

These major outflows came as the United Kingdom voted to leave the European Union. The news spooked investors, and they started hitting the panic button...

As a result, billions of investment dollars flowed out of European stocks. But what happened next might surprise you... The market realized the so-called "Brexit" wasn't going to take place in a matter of months. And the outcome seemed less scary as a result.

If you'd have bet against the crowd in July 2016, you could have made solid returns. European stocks – as measured by the benchmark Euro Stoxx 50 Index – rallied 33% from their bottom to their peak in October 2017. You can see the rally in the chart below...

That's a significant rally in a little more than a year. But it isn't the only example...

We also saw incredible outflows in U.S. stocks last December...

As regular Digest readers know, the S&P 500 suffered a 6% loss in 2018. That was the U.S. benchmark index's first "down" year since 2009.

The trade war between the U.S. and China lingered throughout the year. (More on that in a minute.) Uncertainty surrounding the Federal Reserve's policy decisions also crept into investors' minds toward the end of 2018.

As U.S. stocks tumbled in the fourth quarter, investors once again hit the "sell" button in December...

Investors pulled $46 billion out of U.S. equity funds from December 5 through December 12, according to data and analytics firm Refinitiv. That's the biggest one-week outflow that Refinitiv has ever recorded.

Again, investors feared a deepening trade war and weren't sure what the Fed would do with interest rates. But within just a few weeks, the entire market shifted as Fed Chairman Jerome Powell switched gears and returned to a more "dovish" approach...

The trade war between the U.S. and China also got put on hold. The two global powers decided to stop raising tariffs and planned to hash out a deal in early 2019.

As a result, the S&P 500 rallied 25% from its December 24 bottom of 2,351 through its all-time high of 2,945 at the end of April. Take a look...

Betting against the crowd at the right time would have allowed you to make significant returns in U.S. stocks over the past several months.

And now, we're seeing a similar setup in another global market...

Regular readers know the first few months of this year saw increasing hope for a trade deal between China and the U.S. But then, things took a turn for the worse last month...

President Donald Trump sent out a barrage of tweets in early May, putting a potential agreement in jeopardy once again. In the following weeks, both the U.S. and China implemented new tariffs... further escalating the trade war.

What seemed to be the final stages of a deal now appears further from grasp. And investors have bailed on Chinese stocks as a result. This recent headline paints the picture perfectly...

Again, the herd is giving up on an entire market. And it is doing so by removing billions of dollars from Chinese stocks. That's setting up an incredible opportunity for investors...

This will likely be a major tailwind in the coming months. As this money gets injected back into Chinese stocks, we could easily see 20%-30% gains in this sector.

Now, you must understand one more thing before putting this strategy to work...

Do not invest a penny until the trend is back in your favor. Situations can always get worse before they get better. And downtrends can always last longer than you expect. I urge you to never bet against the trend... no matter how good or safe the opportunity seems.

But once the downtrend in Chinese stocks reverses, we will likely see massive gains.

In short, if you want the best chance to beat the quants on Wall Street, stop trying to play their game. You aren't going to gain more information than these number crunchers.

Instead, you must focus on the one thing that matters – understanding what the crowd is doing with its money and betting against it at the right time.

Using fund flows to gauge what the investment herd is doing is one of the best ways to put this strategy to work. And we're seeing this play out in Chinese stocks today. Thanks to the recent record outflows, Chinese stocks will have a huge tailwind when the uptrend returns.

Of course, this isn't the only potential tailwind for Chinese stocks...

As my colleague Steve Sjuggerud has explained, two huge catalysts (see here and here) are set to drive trillions of dollars into Chinese stocks over the next several years.

And recently, he discovered a third catalyst...

But unlike the first two, this one could play out in a matter of months, rather than years. In fact, Steve believes it could cause a particular group of Chinese stocks to soar triple digits starting as soon as June 15. Get all the details on this time-sensitive opportunity right here.

New 52-week highs (as of 6/3/19): Axis Capital (AXS), Hershey (HSY), Nestlé (NSRGY), Nuveen Municipal Value Fund (NUV), Vanguard Inflation-Protected Securities Fund (VIPSX), W.R. Berkley (WRB), and Aqua America (WTR).

In today's mailbag, Steve responds to a subscriber who is skeptical of the transformation that's taking place in China. As always, you can send your thoughts, comments, and observations to feedback@stansberryresearch.com.

"Dr. Sjuggerud is very bullish on China, especially so given the soon-to-happen influx of new money into the Shanghai stock exchange, and new ability for Chinese companies to be able to trade on said exchange. While I can see the potential of such a change, I am still very hesitant to directly invest in any China-based company. The Chinese system is very different from the so-called capitalist system in America, Europe and Russia. It is different in that, at any time, the Chinese central government can nationalize any company it wishes, thus rendering the stock worthless in a day.

"Therefore, I cannot, and will not, commit any of my capital to direct China investment, but, rather, continue to do so in the form of ADRs, when the price action and charts make it a good investment. My main question is, will the Bosera MSCI fund (KBA) still be pretty much the best way to go?" – Paid-up subscriber Richard L.

Steve Sjuggerud comment: You're certainly not alone, Richard. Your false perception of China is exactly why our opportunity is so good...

Many Americans still consider China to be little more than a risky, third-world nation. They think of China as the world's sweatshop, producing knickknacks and cheap T-shirts. That was true 15 years ago. But anyone who holds that belief today is simply behind the times.

Today, China is an economy based on consumption, not exports. And the exports the country does have tend to be high-tech manufacturing. Shenzhen has become the Silicon Valley of global hardware. It produces iPhones and drones, not the junk you'd buy at the dollar store.

Your concerns about China's political system are another case where perception doesn't meet reality.

Last fall, I sat down with legendary investor Jim Rogers. In addition to having one of the most impressive investing track records in modern history, Jim's as "small government" as anyone I know. But even Jim sees China as more capitalist than most believe. Heck, he told me that Massachusetts and California are more communist than China.

China calls itself communist, and it is a one-party system. But anyone who has studied the country over the past decade knows the reality... Millionaires and billionaires spring up from China's small villages. Businesses start. Some succeed and some fail. That's capitalism.

You might think I'm crazy for saying this, but I think it's just as likely that the U.S. government seizes Facebook as it is that the Chinese government seizes Alibaba. This isn't Venezuela we're talking about. The perception of Chinese communism simply doesn't fit the reality of how the country works today.

That said, if this is truly a fear you have, then please don't own anything China-related.

If you own a U.S.-listed ADR or an exchange-traded fund, you have the same liability as owning shares of a company trading in Shanghai. If the Chinese government did start taking over businesses, do you think a fund like KBA – which holds locally traded Chinese stocks – would be OK?

I certainly understand your concerns. And a lot of folks in the investment community hold the same perceptions as you. That's why our opportunity is good. And it's why the basket of companies I've built in my China product can soar so much in the coming years.

Good investing,

Chris Igou
Jacksonville, Florida
June 4, 2019