Investing Strategies

This page shows the performance of investing strategies I recommend in The 3% Signal, and The Neatest Little Guide to Stock Market Investing, and The Kelly Letter.

The 3% Signal

Congratulations! You just found the stock market’s new best practice.

The 3% Signal plan (3Sig), explained briefly on page 119 of the 2013 edition of The Neatest Little Guide to Stock Market Investing, and thoroughly in my 2015 book The 3% Signal, achieves steady 3-percent quarterly growth in a small-company stock fund by skimming off excess quarterly profit into a safe fund that’s later used to make up shortfalls in weak quarters. This action, using the unperturbed clarity of prices alone, automates the investment masterstroke of buying low and selling high — with no z-val interference of any kind.

In Chapter 7 of The 3% Signal, readers follow three 401(k) investors at the same company, all earning the same salary and making the same monthly contributions to their plans. The only difference is what they do with their contributions. One of them, Mark, runs the signal plan and greatly outpaces his peers. Below are the annual returns of his plan, 3Sig, compared with dollar-cost averaging (DCA) his same contributions into two other investing plans.

Note that one of 3Sig’s primary benefits is the quarterly guidance it provides, which makes an investor more likely to stick with the plan through rough patches. DCA plans do not offer this, so most investors bail at the bottom. Also, because of high volatility that results from focusing an entire DCA plan on a single stock index fund as shown in the S&P 500 (SPY) plan below, almost all investors in the real world diversify their DCA plans across several different types of funds, most of which underperform the raw stock index represented here by SPY. Therefore, in the real world, 3Sig’s outperformance will be much higher than shown in the table below against a perfectly executed DCA plan using a raw stock index.

Finally, in Mark’s 3Sig, Mark skipped the call to add more cash in Q109, which crimped his performance. (See “March 2009” on page 263 of The 3% Signal for the story.) Therefore, this plan does not show 3Sig’s maximum performance potential, which is realized only when all calls for new cash are met. I use it here nonetheless because I believe few people run any investment plan perfectly and that Mark’s decisions closely match what other people would have done in those extreme times. Even so, you can see his plan beating other plans which themselves achieve better performance than most portfolios assembled and managed by supposed pros.

In sum: The table below pits an imperfect 3Sig implementation against perfectly executed DCA plans — one of which is run at the highest performance allocation — and 3Sig still comes out ahead. It will do the same for you.

Here are the three plans explained:

  • Mark’s 3Sig: Mark’s plan run with IJR and VFIIX as shown in the book, beginning at the end of the fourth quarter of 2000 with $10,000 and the salary history shown in the book, then his salary increasing 3 percent annually in the years after 2013 (where tracking ends in the book). His quarterly contribution to VFIIX in 2013 was $1,815; in 2014, $1,871; in 2015, $1,927; and in 2016, $1,983. Mark also contributed $13,860 in new cash during the subprime mortgage crash, per the signal’s guidance. Notice the low expense ratios: IJR 0.14%, VFIIX 0.21%
  • DCA SPY: The same $10,000 invested at the end of 2000 and Mark’s same salary history shown in the book, with the same quarterly contributions after 2013. The only difference is that all capital goes into the S&P 500 as represented by the SPY ETF. This is dollar-cost averaging into SPY with Mark’s quarterly contributions. Mark’s $13,860 in new cash is distributed evenly across the first 50 quarterly contributions (Q101-Q213). Notice the low expense ratio here, too: SPY 0.09%
  • DCA Medalists: Same as DCA SPY, but using a portfolio of Morningstar medalist actively-managed funds, initially allocated as follows: 30% Longleaf Partners (LLPFX) large-company stock fund, 20% Wasatch Small-Cap Growth (WAAEX) small-company stock fund, 20% Artisan International (ARTIX) international stock fund, and 30% PIMCO Total Return (PTTDX) bond fund. All are featured in the book, and all are still highly-rated. Contributions are divided by the initial allocation percentages; holdings are not rebalanced back to target allocations. Notice the high expense ratios: LLPFX 0.92%, WAAEX 1.21%, ARTIX 1.17%, PTTDX 0.75%

Here’s how the three plans have performed, with all dividends reinvested:

Mark’s 3Sig DCA SPY DCA Medalists
25.2% in 2016
15.7% in 2016
7.3% in 2016
2.0% in 2015
4.9% in 2015
2.7% in 2015
9.9% in 2014
17.8% in 2014
7.1% in 2014
35.7% in 2013
38.9% in 2013
25.6% in 2013
19.6% in 2012
23.7% in 2012
23.1% in 2012
10.8% in 2011
10.1% in 2011
5.8% in 2011
37.8% in 2010
25.5% in 2010
23.8% in 2010
36.4% in 2009
43.7% in 2009
48.6% in 2009
5.5% in 2008
28.8% in 2008
26.5% in 2008
10.7% in 2007
16.8% in 2007
19.2% in 2007
24.4% in 2006
31.7% in 2006
28.9% in 2006
20.1% in 2005
22.9% in 2005
22.4% in 2005
37.3% in 2004
34.6% in 2004
30.7% in 2004
66.5% in 2003
70.8% in 2003
58.2% in 2003
20.9% in 2002
17.8% in 2002
26.4% in 2002
62.2% in 2001
48.3% in 2001
72.2% in 2001
$10,000 $10,000 $10,000

To join others who are following the signal system in The Kelly Letter, please subscribe.

The Neatest Little Guide to Stock Market Investing

The 3% Signal, Double The Dow, and Maximum Midcap, the permanent portfolios from The Neatest Little Guide to Stock Market Investing, are proven winners. You saw the power of The 3% Signal above. Below, notice the power of Double The Dow and Maximum Midcap on a simple buy-and-hold basis. They perform even better when coupled with dollar-cost averaging, and better still when reactively rebalanced with modified permutations of The 3% Signal. Maximum Midcap is managed for you with the signal system in the Tier 2 section of the letter. In the table below, notice the impact of years like 2008 — and the opportunity they present to react intelligently by putting more money to work. The signal automates this process.

Please buy the book or subscribe to The Kelly Letter to see how the portfolios work.

Growth of $10,000 (dividends not included):

The Dow
Page 124
The 3%
Page 119
The Dow
Page 132
Page 136
13.5% in 2016
29.9% in 2016
38.5% in 2016
2.2% in 2015
4.4% in 2015
8.6% in 2015
7.6% in 2014
16.0% in 2014
7.7% in 2014
29.7% in 2013
61.6% in 2013
70.8% in 2013
4.7% in 2012
17.1% in 2012
32.5% in 2012
5.4% in 2011
9.1% in 2011
13.2% in 2011
11% in 2010
22% in 2010
50% in 2010
19% in 2009
37% in 2009
66% in 2009
34% in 2008
63% in 2008
68% in 2008
6% in 2007
7% in 2007
6% in 2007
17% in 2006
29% in 2006
10% in 2006
1% in 2005
4% in 2005
19% in 2005
3% in 2004
5% in 2004
29% in 2004
24% in 2003
51% in 2003
60% in 2003
$10,000   $10,000 $10,000

On page 187, I conclude the 15-year IBM Value Line example with this: “How about a real-life test? Decide now whether you would have held your position or sold it. Then, check IBM’s current price to see how you would have done. To help with your calculations, write down that IBM was $193 and the S&P 500 was 1,361 on February 17, 2012. Since then, which performed better?” Find out here.


  1. Chaz
    Posted March 14, 2017 at 12:18 pm | Permalink


    Thanks for everything you do! I have read the 3% signal and think it’s great. However, I have a question about the leveraged system, 9 sig in particular. From some research that I have done it looks as though a triple leverage S&P 500 etf would out preform a small cap 3x leverage. Is this true? Lastly, any funds in particular that you prefer for 9 sig?

    Thanks again!

    • Posted March 17, 2017 at 7:27 pm | Permalink

      Thank you, Chaz.

      Which 3x fund would do better depends entirely on the time frame. In most longer time frames, a small-cap fund will outperform the S&P 500, but for example in this year’s run-up the S&P and Dow have done better.

      Keep in mind that 9Sig doesn’t use a small-cap index, it uses the Nasdaq 100, which is even more volatile, and the system thrives on the higher highs and lower lows of greater volatility. In some time frames, however, the Nasdaq 100 will also trail other indexes. With its focus on technology, for instance, its vulnerable to a sector sell-off, such as the dot-com crash of 2000.

      All my best,

  2. Marcial Navarro
    Posted May 12, 2017 at 9:29 am | Permalink

    Hi Jason,
    I was wondering what happens with TQQQ/9Sig during a market crash like 2002 and 2008, when the general market crashes like 80%, then with the 3x leverage the drop would be ~240%. Does the index go bankrupt and we lose our money, or does it reach a level where each share is worth pennies?
    The answer is probably simple but this has worried me today and haven’t been thinking straight lately, so I could sure use your clarification.
    Thanks in advance!

    • Posted May 15, 2017 at 6:48 pm | Permalink

      In the case of a prolonged bear market, leveraged funds would steadily work lower. They would not go to zero unless the market crashed enough in a single session to crater the fund that day, which it has never done. It could theoretically happen, though. However, in a long enough bear market, even if they didn’t go to zero, they would get very low.

      This is why it’s important to manage them carefully. My system includes a quarterly pace that prolongs buying power, a buying power throttle that does the same thing, automatic resets at allocations too high, and so on. The goal is to balance enough exposure to benefit in rising markets while going into bear markets with enough buying power to lock in at the bottom for the recovery to follow.

      So, funds invested in the leveraged ETFs during the drop would fall significantly, but the full cycle would probably see a net gain. We can’t say for sure in advance, but the system is built on market history and extensive simulation, instilling confidence.

  3. Jack Sam
    Posted June 7, 2017 at 6:49 pm | Permalink

    Hi Jason,

    Are you coming out with a book like 3Sig about 6Sig and/or 9Sig? Where is the best place to currently read more about these two strategies?


    • Posted July 3, 2017 at 4:41 pm | Permalink

      Hi Jack,

      I don’t have plans for such a book yet. The best place to read about the strategies is the Kelly Letter User Guide, but it’s on the subscriber site only. I should get some material on the free site, too, and will make a note to do so. Thank you for the interest.

      My best,

  4. Marty
    Posted October 9, 2017 at 5:03 am | Permalink

    I’m loving the book and I definitely see how it is a great, robust plan to most likely beat the market.

    However, I’ve noticed that in the book you almost exclusively focus on 2000-2013, which has two major crashes. Major crashes highly favor the 3sig approach as opposed to a buy and hold strategy.

    I would really like to see the data running 3sig on up to a 100 different cases throughout the 1900s, perhaps starting each case at the beginning of each year and seeing how it compares to buy and hold of the S&P500. Or even just running it starting in 2003 or 2009 to show how it compares to buy and hold or DCA.

    Have you crunched those numbers? Even just using the S&P500 and cash GE the S&P500 buy and hold or DCA would be very helpful to see.

    • Posted October 11, 2017 at 1:02 pm | Permalink

      Thank you, Marty.

      I stuck with the recent time frame in the book because it’s (A) one people are immediately familiar with, (B) contains those two scary crashes you mentioned which are the main reasons so many people are sidelined now and missing all the recent profit, and (C) it includes real data for funds that actually exist, as opposed to simulated data. Nothing wrong with simulated data, but I wanted to keep the history in the book immediately applicable.

      As for bigger lessons from history, back-testing of the past 50 years or so using indexes only shows that buying and holding with a lifetime’s worth of capital in the very beginning of the lifetime is the best approach.

      Too bad people who inherit their lifetime’s worth of money are the only ones who can do it, and they would probably end up panic-selling at the bottom of a crash anyway.

      For everybody else, there’s stock-picking (advocated by media and brokers), DCA, my Sig systems, and other automated approaches.

      Stock-picking always loses, so don’t do that.

      Then, it’s a toss-up between DCA and 3Sig (plus its 6Sig and 9Sig permutations) depending on the specific stock index used and time frame examined. But — and it’s a huge but — in real life 3Sig almost always beats DCA because the DCA comparisons depend on perfectly executed plans with 100% allocation to the stock indexes used. Nobody does this. Everybody pukes at the bottom and blows up their DCA plans that were begun in better times. The Sig systems are built to address real-life emotions of people through the ups and downs, and deal with them, as explained in the book.

      So, in raw numbers, longer time frames show 3Sig beating perfectly executed and fully allocated DCA in some time frames, but not all. When the impact of emotions is simulated (i.e. a percentage chance of making the wrong decision at key inflection points), then 3Sig always wins.

      Many analysts reject this means of comparison because it introduces subjective factors, but emotions are subjective, and real, and ignoring them costs a lot both in portfolio performance and life enjoyment.

      My best,

  5. Kaleb Markey
    Posted November 11, 2017 at 4:59 am | Permalink

    Is IJR still the best small cap index fund to use for 3sig? What about VFIIX for the bond portion?

    • Posted November 14, 2017 at 10:14 am | Permalink

      Yes, it’s still my favorite. VFIIX is fine for the bond fund, but the ones I use in the letter are AGG, BND, and SCHZ. Any low-cost small-cap index fund and low-cost general market bond index fund will work.

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