Why Our Investment Strategy Works

The Wisdom Of A Lifetime

Have you ever wished that you could have all of the investing experience of a 70 year old veteran of the stock market? Can you imagine how valuable it would be to have already made every investing mistake in the book and to have learned how to avoid repeating them? Since you would have seen it all before, you wouldn't be so easily fooled by every breaking news story and each twist and turn of the market.

Think of how many times you would have observed the business cycle - how the stock market explodes as the economy accelerates out of the bottom of a recession; interest rates are lowered, jobs are created, and consumers begin to spend again - then how the stock market loses momentum as the economic expansion slows; consumers accumulate debt and spend less, business inventories grow, and interest rates start to rise in an effort to quell inflation - and then how the stock market, seemingly without warning, plunges as the economy slips back into another recession; jobs disappear, spending slows to a crawl, and bankruptcies accelerate. Can you imagine how much wiser you would be having observed this cycle a dozen times? You would have a much better understanding of the inter-relational aspects of world events. You would be able to focus on the truly important long term events and would be able to ignore the unimportant short term fluctuations of the market.

Not Quite As Good As It Sounds

Unfortunately, there are a number of reasons why all this experience probably wouldn’t help much in real life. First, by the time someone has the chance to accumulate a lifetime of investing  experience, there’s not enough time left to make a substantial difference in one’s net worth. Second, although the human brain is a marvelous creation, it is nonetheless fallible. The more time that goes by, the more things we forget. Some of our most valuable lessons in life fade away into the past and are not easily recalled to assist us in our present circumstances.

Furthermore, there are multitudes of hidden relationships in our modern economy that are extremely complex and hard for even the human mind to understand. The stock market, interest rates, money flows, demographics, and an endless number of economic variables are all intertwined in an extremely complex system of cause and effect.

For example, experts on the financial markets agree that as interest rates or inflation rates go down, stocks tend to go up. Why? Because during these times investments such as money market accounts, CD’s, real estate and gold become low yielding assets. So investors react by selling those and buying other investments with greater potential, such as stocks or mutual funds. That sounds good in theory, but is this always the case? No, not always. As the chart below shows, over the last 60 years there have been many exceptions to the rule.

Looking closely, you will notice that there have been many periods during which the well known "rules of thumb" do not apply. In fact, the stock market is interwoven with the global economy in such a way that any number of events can cause ripple effects that find their way into stock market prices. Most of these economic inter-relationships are hidden and are not easily observed for processing by the human mind. But computers that are trained to look for them can find them.

Gaining A Lifetime Of Experience - The Quick Way

Today, with the advent of computer technologies such as artificial intelligence, all of these problems can be overcome. It is now possible to acquire decades of wisdom in a relatively short time using an artificial intelligence computer program. Once an AI system is provided with historical data, it can be programmed to make stock market forecasts as it steps through time. As it steps through time it measures the errors of its forecasts and makes corrections to the weights (or synapses) in the neural network in order to reduce the errors. Essentially, the AI system "lives" through history over and over again until it is able to effectively forecast the future. 

By subscribing to the AI Stock Forecast, you can benefit from the wisdom of a stock market veteran’s experience coupled with a computer’s memory, speed and diligence.

So How Well Does Our AI System Forecast The Market?

To date, no human or computer program has yet been able to forecast the future of stock prices with certainty. There are simply too many uncontrollable variables in the world. Events such as natural disasters, terrorist attacks, and financial meltdowns in foreign countries are just a few of the types of global occurrences that are for all practical purposes unpredictable. Yet these events can have dramatic effects on the US stock market. As a stock investor, you simply must accept these risks.

That being understood, the goal of our forecasting systems has always been to use as much pertinent data as possible from the global economic environment so that the artificial intelligence system's forecasts will be right most of the time. Therefore, keep in mind that each individual 12 month forecast should not be considered as a definite target to be hit. Instead, the 12 month forecasts are used to rank the investment choices that are available so that we will most likely be in the best industries and the best stocks at the right time.

Since we do not know what future stock prices will be, there is only one way to measure a system's ability to forecast the future - past performance. To date, the historical performance of our artificial intelligence systems have been very good. The models were developed through rigorous back testing prior to 1999. No optimization techniques were used to artificially boost the performance. Since 1999, the models have consistently beaten the overall stock market and have proven themselves to be robust.

To keep an eye on the ongoing predictive performance of our computer models, take a look at the chart on the Performance Score Card page. The performance chart shows the running hypothetical values of the AI Industry Portfolio and AI Stock Portfolio sections of the AI Stock Forecast.

For more information on why our investing strategies are beating the competition, click on What Strategies Don't Work.