NEW HOME SPRING 2017

From Note 18, Sent May 14, 2017

It came out that Trump requested a pledge of loyalty from Comey in January. On Friday, Trump tweeted that “it is not possible for my surrogates to stand at podium with perfect accuracy!” prompting critics to say that the president admits his spokespeople’s comments cannot be trusted. Then, Trump tweeted that Comey had “better hope there are no ‘tapes’” of their conversations.

This Nixonian turn for the Trump administration in the wake of its feckless first 100 days further crippled the president’s agenda, which includes pro-growth policy desires that are important to investors, such as reduced taxes. …

The rising possibility of impeachment, Trump’s declining credibility, and his historically low presidential approval ratings combined to reduce the odds of his pro-growth agenda getting passed. This weighed on smaller stocks last week, which stand to benefit the most from tax reform.

From Note 14, Sent April 7, 2017

Pundit warnings of bond-fund trouble in the face of rising interest rates were wrong. According to Morningstar’s first-quarter recap: “Although the Fed hiked rates for only the second time in more than 10 years, all fixed-income Morningstar Categories were in positive territory over the first quarter.” Yes, all.

Low inflation and a low neutral real rate of interest have created a near-zero world. Probably the last thing to worry about is a bond crash due to soaring inflation and interest rates.

From Note 14, Sent April 7, 2017

Almost all market movement is clustered around the no-change line. The media and our collective psyche are fixated on famous moments of short, sharp price change, but they are not the norm.

We will experience them again, though, and our plans will manage them as specified. Both 6Sig and 9Sig will do their jobs when run correctly.

The biggest risk to their performance is not from the market or their predefined responses to it. The biggest risk is an emotional mistake, such as abandoning them at the very moment they’re about to deliver their greatest over-performance. When is this? From the bottoms of crashes.


In this video, you’ll see the effectiveness of my Signal system.

Starting with $10,000 in 2001 and making employee contributions to a 401(k) account, The 3% Signal system (3Sig) returned far more than dollar-cost averaging into the S&P 500 (SPY), and dollar-cost averaging into a portfolio of Morningstar medalist actively-managed funds, as follows by year-end 2016 balance:

$332,091 in 3Sig
$263,874 in DCA SPY
$209,070 in DCA Medalists

This shows 3Sig beating both the unmanaged stock market and top-quality managed funds…

From Note 18, Sent May 14, 2017

The low VIX of 1993 and a study by Deutsche Bank remind investors that a low VIX is not a reliable sign of trouble ahead. …

Besides, the recently low VIX will not last and these discussions about the danger of a low VIX will disappear in the rearview mirror, like all the other frets du jour.

Volatility will rise, ranges will break, the market trend will change, and our systems will thrive because they prefer wild lines to smooth ones.

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From Note 15, Sent April 16, 2017

Lost in the manufactured drama of a little volatility showing up is that one of the very things causing current drama — bond yields at their lowest since the election — is the opposite of what media used to craft drama in December and January.

Back then, they warned about rising interest rates and the end of the bond bull market. Remember that?

If they were worried about rising bond yields in December, and are worried about falling ones now, do you get the idea they can always find something to worry about?

From Note 15, Sent April 16, 2017

Our preference for small- and mid-cap stocks is closely tied to Trump’s proposed tax cuts.

He’s discussed reducing the corporate rate to 20% from 35% in conjunction with the GOP-dominated Congress. Smaller companies would benefit more than larger ones because they lack the resources to reduce tax rates in other ways, such as parking profit in overseas locations.

The difference in reaction among small-cap stocks and larger-cap ones is evident in the returns of our IJR in Tier 1 and the S&P 500 via SPY.

From Note 14, Sent April 7, 2017

Two of the letter’s past holdings made headlines last week. Seadrill is going bankrupt, with its stock down 96% from our cost basis. Panera is being acquired, with its stock up 696% from our cost basis.


End Notes

Life Reflections From The Letter

  • May 14
  • Drink coffee all day long? Keep it in an insulated pot. More…
  • April 30
  • Attention nature-lovers: Sometimes pharmaceuticals beat home remedies. More…
  • April 16
  • Leaf-rolling young people on motorbikes are not always what you might assume. More…
  • April 9
  • To survive Saigon on a motorbike: rent a powerful model, don’t show fear, start moving before the light turns green, honk randomly, never let people in, assume they will invade your space, rely on peripheral vision, and use larger vehicles as shields. More…
  • April 2
  • The only difference between your relationship with past and future versions of yourself, and your relationships with other people, is that you’re closer to yourself. Or something like that. More…
  • March 26
  • You can’t read every book. It might be time to learn how to talk about ones you haven’t read. More…

I’m Jason Kelly.

You probably know me through one of my books, such as The Neatest Little Guide to Stock Market Investing or The 3% Signal. I also write The Kelly Letter for delivery to subscribers every Sunday morning. I run an automated portfolio that reacts to stock price changes alone. It beats the market with no stress from indecision.

This page collects story excerpts from recent letters, along with free stories. For more from me, join the free list at the top left of this page. To turn your portfolio into an efficient quarterly machine running my 3Sig, 6Sig, and 9Sig plans, join The Kelly Letter. Enjoy!


In this video, you’ll learn how my signal system works to change the way you see the stock market.

Instead of listening to pundits commit the narrative fallacy of weaving news into a story explaining why the market went where it went or, worse, why they think it will go a certain way in the future, you’ll come to see the market as a meaningless series of changing numbers.

This controls emotion and allows for rational reaction to price changes. You won’t care why the numbers went up or went down, you’ll just react in a predetermined manner to the change by selling fluctuations above a signal line and buying fluctuations below it.

In this manner, you will beat the market with no stress from indecision and no more time wasted listening to pundits make up stories from the news.


From Note 15, Sent April 16, 2017

The geopolitical issues bothering markets most involve Syria and North Korea.

The American missile strike on Syria’s Shayrat Airbase on April 6 is reverberating. Russia, Syria, and Iran warned against additional attacks. The Russian foreign minister said the strike was a “flagrant violation” of international law.

The US accuses the Syrian government of carrying out a chemical attack on its citizens on April 4. Russia counters that the victims were killed by chemicals released from a rebel arsenal struck by Syrian war planes, and is calling for an independent inquiry.


From Note 15, Sent April 16, 2017

Recent data led American investors to conclude that the economy is experiencing slow growth with little inflation. Reports include consumer sentiment, consumer spending, and retail sales.


Even Fed Ignores Uselessness of Valuation as a Timing Indicator
Published on Mar 28, 2017

The Federal Reserve published the minutes of its March 14-15 FOMC meeting, when it increased the fed funds rate by 25 basis points to its current range of 0.75% to 1.00%.

The part that caught the stock market’s attention was this: “Some participants viewed equity prices as quite high relative to standard valuation measures. Some measures of valuations, such as price-to-earnings ratios, rose further above historical norms.”

Quick reminder: Valuation is not a reliable market timing indicator. There are no reliable market timing indicators. For more on the 50/50 odds of this one, see my recent video, “Are Stock Prices Too High?”

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