Beating SPY by 77% at 3Q Mark
Prospero.Ai 3rd Quarter Results Review
After beating “the market” (S&P 500) by ~50% in 2022 and 2023, 2024 is our best year yet. We are beating the S&P 500 by 77% and our best win rate vs SPY Benchmarks - 61%. What makes that even more impressive is through 9 months we have made 757 picks vs 151 in 2023. The fact that we can improve while picking so many more stocks is a testament to the growth of our Technology and process!
We will expand on these themes below but want to highlight 4 main areas that explain our excellent year:
Timing Chips Stocks (such as SMCI, AVGO and NVDA)
Breaking our regular avoidance of Crypto / Blockchain for a big Event Driven win
Using Prospero’s signals and some good old fashion value analysis for a HUGE ASTS (AST SpaceMobile Inc) win
Playing stellar “defense” with our shorts
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Beating SPY by 77% at 3Q Mark
Timing Chips Stocks
We knew when to ride SMCI up and when Net Options Sentiment and Upside Breakout turned the other direction. That helped us time when to get out and switch primarily to AVGO and NVDA. We made 111 Tech investments this year and QQQ Net Options Sentiment gave us some conviction to load our portfolio heavy on Tech at the right times for big gains.
Bitcoin Event Driven
We pride ourselves on being signal driven. We don’t typically like bets on Cryptocurrency or Blockchain securities or any derivatives of their businesses. This is primarily because our metrics are driven by algorithms that analyze stock options markets. The leverage in crypto is not even in the same neighborhood of organization and transparency, which make them difficult to read.
But at a time when the market was incredibly volatile, we realized cryptocurrencies were our best bet. We added both COIN and CLSK to our portfolio only to learn CLSK was a Blockcain related asset. Seeing as they were our top Large and Smaller Cap stock respectively in our screeners, we thought there must be something to this. After seeing that Trump was speaking at a major Bitcoin conference, we gained further conviction because we knew he’d say something to the crowd wanted to hear and cause a move in the stock. The signals led the way for us, which allows us to being open to any strategy.
ASTS (AST SpaceMobile Inc)
This is a stock we got to know well over the course of the year because we playing more Smaller Cap stocks. This ended up being our biggest win of the season. We made the move because we saw Net Options Sentiment start to move up dramatically, with Downside Breakout moving down. We also knew qualitatively that the main concern around this stock was missing its satellite launch date, so when the company confirmed this would be on time in their conference call we pushed our chips in.
Playing Setllar Defense with Shorts
Even in a Bull year we have over 100 more Bear / Short picks than longs because we use them to play defense. In a great year for Tech, those stocks were both our highest concentration of longs and shorts because we made sure in riskier times we balanced our Tech exposure. It paid off in Tech and overall. 10 of 11 Sectors were winners for us on shorts vs 6 of 11 for longs even though our average Beat of the SPY was higher for our Bull picks. It exemplifies our ability to have a strategy and stick to it. This strategy allowed us to go for bigger, riskier gains on longs as we protected them with stellar effectiveness on shorts.
Bull / Long Picks
*See a chronilogical view of our Bull by letter picks at this link
Our Bull picks as we mentioned above are where we took our “bigger swings” ; there were less picks, and we held them for longer. This strategy has become the best one for us to manage risk in volatile markets because we can combine value principles with signal strength on indices and individual stocks to gain conviction for higher risk /reward.
Something we want to explain is a question we get sometimes - Why would hold times be so short for investing picks? The answer is pretty simple. This is our strategy and our strategy is highly signal driven to exemplify how to make moves by picking the very best stocks at any given time. This is not the same strategy we would suggest for everyone, but we aim to teach how to interpret signals for themselves and not have people simply copy all our trades.
An example of optimal usage. When we drop a stock like AVGO about a month ago ago to pick up LRCX, it wasn't because we think AVGO is a bad investment long term or because we want people with larger portfolios to follow us. In fact, in the longer term we prefer AVGO to LRCX. It is to show our process of making our high conviction picks that do churn fairly often based on inherent volatility in a short term signal like Net Options Sentiment. LRCX just at that moment looked like the better tech pick, it performed better in our Bull Screener. We are certainly not suggesting people follow every move we make but part of the reason we do so well is we are so particular about having the best stock in a Sector at a given time.
The biggest difference this year is our aggressive approach to Tech investments. While only investing in 9 picks all of last year at a loss, we have more than 10Xed that in picks this year. And our returns in this Sector are the primary driver big reason for excellent portfolio performance.
It is also worth noting that while not investing in Utilities at all last year that is our second best performing Sector this year. This really highlights the flexibility of our system. Making that point further - Consumer Cyclical was both our best performing Sector and our most frequently picked Sector in 2023. It is the 6th in number of picks this year. What was our bread and butter with Bull picks like TSLA last year not only has had a major shift but as you will soon see has become a big Bear target this year!
Bear / Short Picks
*See a chronilogical view of our Bear by letter picks at this link
We have explained the setup here pretty well. Our strategy with shorts has been largely to hedge/protect for our high conviction longs. A lot of the time heavily shorted stocks can “bottom out” so you have to be quick with the exit. That is where our new Momentum score has been particularly helpful to our ability to monitor more shorts. If you look at our shorts in 2024, a lot of them work on longer horizons too. That is because most shorts have good short and long term profiles, regardless of how we re-prioritize the positions. But when are looking at Momentum score we often see better candidates within a Sector or we see that we want to shift from being overexposed to Smaller Caps to target Larger Cap shorts. Regardless our shorts can have a short shelf life because when you play defense it is good to have a fresh strategy at all times. The market changes fast!
The standout on the Bear picks is the remarkable consistency we have through 9 months. We only lost to the market on 1 of 11 Sectors. Much like for the Bull Picks, the Tech Sector is our most frequent as well as the best performing Sector. This is a big reason this is our best year, it has been a great year for Tech with a lot of winners for us. But we have been very successful sniping losers in an otherwise great Tech market as well. This demonstrates the point we made with our Bull picks again. We are open to finding Bear picks in any Sector, so it enables us to pick our spots well and find winners across the board.