How to Beat the Market With the Power of AI

Editor's note: There's a common misconception on Wall Street that you can't beat the market. But according to Keith Kaplan, CEO of our corporate affiliate TradeSmith, that's simply not true – you just need the right tools. In this piece, adapted from the October 11 edition of the Stansberry Digest Masters Series, Keith reveals how his firm is using AI to empower investors to make market-beating returns.

It was billed as an academic debate, but it felt more like a heavyweight bout.

On May 17, 1984, Columbia University marked the 50th anniversary of Security Analysis by Benjamin Graham and David Dodd – the bible of value investing – by hosting a debate between two different perspectives in investing.

At one podium stood Michael Jensen, a rising star from the University of Rochester. He carried the weight of a near-unanimous academic consensus: the efficient market hypothesis ("EMH").

It claimed markets were unbeatable... that what looked like investor outperformance was nothing more than statistical noise.

On the other side was one of the world's most successful investors, Warren Buffett.

Nineteen years earlier, he'd taken over a failing New England textile mill called Berkshire Hathaway. By applying Graham and Dodd's principles, he'd transformed it into one of the world's most successful investment firms.

Jensen spoke first. He cited studies showing that, taken as a whole, the pros weren't beating the market.

To support his point, he used the example of a national coin-flipping contest in which folks predicted whether their coins would fall on heads or tails. If 225 million people did this, he argued, a few would guess correctly 20 times in a row. There's no skill required – just the law of large numbers at work.

Then it was Buffett's turn.

"Let's accept Professor Jensen's coin-flipping contest," he began. He walked through the same logic: millions flipping coins, losers dropping out, and a tiny remnant surviving 20 rounds.

Then he reframed the question.

"But what if those survivors all came from the same place?" He let the pause hang... "Graham-and-Doddsville."

Buffett was referring not to an actual place – but a school of thought. He showed slides of nine funds, each run by Graham disciples, all with years of outperformance. You can dismiss one streak among this group as chance... but not nine.

For decades, academics like Jensen told investors that beating the market was impossible. At TradeSmith, we've set out to prove otherwise – not with luck, but with discipline, data, and world-class software tools.

Our latest breakthrough takes the core math behind the EMH and turns it on its head – creating a system with a real, lasting edge.

Don't Settle for Average Investment Returns

In back tests, our system delivered an average annual return of 374% over five years – a period that includes the pandemic, the 2022 crash, the ongoing trade war, two wars, and wild swings in interest rates.

And it's powered by something investors in 1984 could only imagine in science fiction: artificial intelligence ("AI").

You're probably familiar with ChatGPT, Gemini, and Copilot. They're called large language models because they're trained on massive datasets of words.

Think of our AI-powered trading system as a "large numbers model."

We trained it on more than 100 billion stock market data points – including odd jumps and volatility spikes. It learns patterns hidden in the noise, then projects where stocks are likely to move next.

You may be wondering how accurate these projections are. We monitor it daily and see surprisingly consistent results.

Some stocks hit their price projection more than 90% of the time. That covers more than 700,000 projections a month since we introduced the model in 2023.

And we consistently see 70% accuracy or higher. That's even more impressive than residents of "Graham-and-Doddsville."

For instance, on July 27, 2023, our model predicted Opendoor Technologies (OPEN) would soon hit $4.87 a share.

Twenty-four hours later, the stock hit that price... and my team booked a 9.4% gain. That's like growing your money 34 times in a year.

And you could have boosted that gain to 244% in just 24 hours with a special kind of trade.

Another example is restaurant chain Wingstop (WING). On June 4, our AI projected a 74% chance of it rising over the next 21 days to hit $384.87.

Wingstop reached that price within 24 hours. You could have booked a 3.6% gain... and boosted it to 156%.

Or take Tesla (TSLA). In May, our model projected it would hit $302.89 in 21 trading days.

It reached that price even faster than expected. We booked a 5.2% gain in 24 hours, which you could have boosted to 310%.

These gains are great. But my team and I wanted to make this technology even more accessible to everyday investors and even more powerful. That's where our EMH math breakthrough comes in.

It turns the core mathematical concepts of EMH against itself.

The math is called mean variance optimization ("MVO"). It's mostly used to minimize risk while holding a broad, market-based portfolio.

Our research team used the same formula not to spread bets, but to concentrate capital into a handful of stocks with the highest potential payoff.

The chart below shows what happened when we applied our MVO model to the tech-heavy Invesco QQQ Trust (QQQ).

The blue line shows $10,000 invested in QQQ since January 2018. The orange line shows $10,000 put into the top five QQQ stocks selected by our MVO model on the same date.

The MVO-selected five stocks outperformed QQQ by 3-to-1.

But our team is never satisfied. And impressive as this was, it still wasn't good enough. We then found a way to apply our MVO model to the stock projections our AI makes. The result is our "AI Super Portfolio."

As I mentioned, it returned 374% a year on average in a five-year back test. But that's just an average.

Last year, it returned 602%.

That's more than 30 times the return you'd have gotten holding the S&P 500 Index for the year. And it's more than triple the return of Nvidia (NVDA) over the same time.

Even better, our system is easy to follow. You hold the five top stocks based on our AI's projections. Then, you rotate into a new set of five stocks when the AI says it's time to sell.

That's it... There's nothing more to it. It takes no more than a few minutes, on average, once a week to maintain.

It never sat right with me that Wall Street and the index-fund industry peddle the myth that the market is unbeatable.

But the sad truth is that millions of regular investors are happy to settle for average returns. This allows fund managers to sit on their hands and get rich on fees.

That's great news for folks on Wall Street. It's also one of the biggest scams in the market today – one my team and I at TradeSmith are on a mission to combat.

The markets aren't unbeatable. You just need the right tools.

Regards,

Keith Kaplan

Editor's note: A powerful new form of AI could soon transform personal investing and usher in one of the biggest wealth transfers in history. Soon, everyone will be using it to find stocks. This year alone, you could've already doubled your money eight times using this system... And for a limited time, you can try it free of charge.