Taming the Beast: A Better Path to Profitability

By: Adam O’Dell, CMT Chief Investment Strategist

Seriously… Think About it… Write it Down….

Why Are YOU Here TODAY?

Why Do We Invest?

• Narcissistic Personality Disorder

• Masochistic Personality Disorder (Self-defeating)

• Capital Gains > Employment Income

• Quantitative Analysis of Investor Behavior (since 1984)• Average investor earns much less than mutual fund

performance reports suggest • Through 2013: • S&P 500 (+9.22%) • Average Investor (+5.02%)

• Attempts to correct irrational investor behavior through education have proved to be futile.

Investors Underperform (DALBAR)

(d)evolution

Human nature…

…it’s in our DNA!

• Heuristics: Techniques for problem-solving which give solutions that are not guaranteed to be optimal• Mental shortcuts used to ease the cognitive load of decision-

making• Rules-of-thumb, educated guesses, stereotyping, intuitions

Limitations of the Human Brain

• Cognitive Biases: Patterns of deviation in judgment, whereby inferences may be drawn in an illogical fashion• Leads to perception distortion, inaccurate judgment, illogical

interpretations… or what is broadly called…Irrationality!

Confirmation Bias

Gambler’s Fallacy

Bandwagon Effect

Anchoring

• Availability Bias• Conservatism Bias• Clustering Illusion• Hindsight Bias• Narrative Fallacy• Sunk-cost Fallacy• Wishful Thinking

Many, Many More

• Cognitive biases affect EVERYONE!• (YES, even YOU)• (YES, even ME)

• Cognitive biases affect EVERY decision we make.• Every mental “calculation”• Every discretionary “choice”• Every “intuition”

The Bad News…

• Cognitive biases affect EVERYONE!• INCLUDING the investor on the other side of your order

• Collectively, investors’ heuristics, cognitive biases and irrational decisions… create and perpetuate:• Mispriced assets• Volatility• Persistent price trends (up and down)

The Good News…

• This IS the “way of the markets”:• Mispriced assets• Volatility• Persistent price trends (up and down)

It’s Your Mindset that Matters

• So it’s YOUR choice… either:

Fear and avoid itEmbrace and exploit it

Disarm Your Worst Enemy

You need a SYSTEM!

What’s the Solution??

•Decide… what you want to accomplish•Develop… strategy and tactics•Discipline… run YOUR play!

Investment Business Plan

•Do NOT… overthink, second-guess or shoot from the hip!

• A proven, rules-based investment system•Weekly Email (Tuesday)• 2 to 3 new Trade Alerts per month• Holding period: 2 to 3 months• Concurrent positions: 3 to 6• Limited-risk stock option purchases

Cycle 9 Alert

• Sector-specific strength

• Stock-specific strength

• Proprietary algorithm• Daily Scanning of 5,000+ stocks• High-probability entry signals• Risk-focused exit signals

Cycle 9 Alert

Cycle 9 Alert: Track Record

•19 months… 41 closed positions•Win-Rate: 76%•Average Trade Return: 39%

Cycle 9 Alert: Returns

The Question on Everyone’s Mind

What happens when…

…the market CRASHES!??!

S&P 500 (2011 Correction)

S&P 500 (2007 – 2009)

Dotcom Bubble (1999 – 2002)

S&P 500 (2013)

S&P 500 (2014)

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.“First I want to say great job! I finally went well into the black since starting with your service.” ~ David G.

“I would just like you to know, in the very short time I have become a Cycle 9 follower my retirement portfolio is just shy of having doubled.” ~ Jim T.

“I have been a Cycle 9 Alert subscriber for just a couple months and thanks to your advice I have been able to achieve hefty profits in that very short time!” ~ Tony D.

“Bought at $3.50 and sold at $6.80 for a net profit of $1,575 on an investment of $2,475. Hats off to you, Adam!”

~ Kevin H.

Subscribers on Cycle 9 Alert:

“I have just one word for you… FANTASTIC!” ~ Jim T.