Roger on Avoiding the Biggest Risk

Jason and Roger in Fussen, Germany

Roger Crandell is my longtime research partner and friend. 

Our picture shown above was taken last September at the Musiktheater in Füssen, Germany. The castle in the distance over my right shoulder is Neuschwanstein.

If you have been reading The Kelly Letter for a number of years, you will recall Roger’s name from my background research on 9Sig, the introduction of the strategy in January 2017, and updates to the strategy thereafter.

I thought you would like to hear how the mind of a veteran subscriber and master Sig System investor works in times like this, so I called Roger last night. This note provides highlights from our conversation.

Before I get into them, here’s background on Roger. He:

  • grew up on a farm in Nebraska.
  • began trading commodity contracts out of high school. 
  • has a degree in electrical engineering.
  • is a registered professional engineer.
  • branched into computer science and worked in cyber security at a US Department of Energy national laboratory that you would know by name.
  • has extensive experience trading futures contracts and options. After years of experimentation, he concluded that a quarterly approach using broad-based leveraged funds is the best way for long-term investors to go.

He began our conversation by telling me that it took him a lifetime of investing to feel in his gut what data tells anybody with an analytical mind: the stock market goes up

It’s possible to achieve extra profits and short periods of market-beating returns from swing trading, but you will eventually realize that you cannot consistently time the market and that broad-based portfolios are the foundation of success.

The key to sticking with a plan for the long haul is learning to ignore financial media noise. They’re paid to make that noise. It’s their business model. Noise attracts and keeps an audience; an audience attracts and keeps advertisers.

“If turbulent times like these test your fortitude, stop looking at your portfolio,” he advises. “If you don’t look at it, it makes it easier.” It’s fun to watch when it’s going up, because it makes you feel good. It’s no fun to watch when it’s going down, because it makes you feel bad.

“Unless you believe the whole world is going to end tomorrow, it’s going to work out,” he says. “If the world does end, investing won’t matter, anyway.” Telling yourself this and then tuning out is a perfectly acceptable bear-market strategy. You know that all of the Sig plan funds are diversified, so it will work out. They are not going bankrupt.

Obviously, the time frame of your money matters. If you had grocery money invested in 9Sig in January, oops. But you didn’t. Nobody who subscribes to The Kelly Letter allocated their grocery money to 9Sig. It’s long-term money, and because  of that it can be left alone through anything that comes.

I asked Roger if he worries during this corona crash, if he experiences sleepless nights. 

“Not because of my portfolio,” he replied. He worries about the health of his family and community, but not his investment account. “The portfolio will take care of itself.”

As for sleeping well these days—definitely, because he’s “been working in the yard.” He says thank goodness he’s not old or the work might tire him out, but as-is he gets through it and sleeps just fine, knowing his investing plan is successful and on autopilot.

If you don’t stay invested almost all the time, you miss the big moves. I don’t worry. I know what I have is going to go up again. I’m not concerned about it.”

He has found from talks with people he knows, including some in his former investing club, that the biggest risk with leveraged-fund investing is not the market, but the investor’s risk tolerance. The biggest risk is that the investor will puke at the bottom, just when buying more or holding is key.

“My wife and I met a smart kid in New York City last autumn, an investor, who told us he lost a ton of money in leveraged funds.” Turns out, the young man owned them into the crash of December 2018 and sold at the bottom. Upon hearing this, Roger shook his head and said, “Look where they’re at today.” The young man replied, “I know, don’t tell me about it. I don’t need the lecture.”

Roger remembers the anguished look on his face. “He couldn’t take the pain. That was the risk. Not the market.”

Some people worry that leveraged long funds will go to zero in a big enough market drawdown, but they won’t. The funds we use are behaving perfectly through this current bear market, no dislocation in sight. “The worst that would happen is that they would halt trading, reverse split, and eventually recover. The math will not go to zero.

Of course the recovery in a leveraged fund will take longer than the recovery in its underlying index, but this has always been the case and the much ballyhooed performance degradation that leveraged funds exhibit is eventually overcome. The indexes hit full recovery, and keep going. Then the leveraged funds hit full recovery, and keep going much higher. The time to recovery is shortened if you can buy into crash prices, but even if you can’t the recovery in the funds eventually happens anyway.

I asked Roger if he has trouble remembering the results of our research, and his personal experience, when the VIX soars and fear pervades the market as it is doing now. 

“No,” he said. “I think back to 2008 when Treasury Secretary Hank Paulson said on television that our economic world was basically ending. Did it end? No.”

Occasionally, Roger’s wife worries about their money but she has come to trust her husband’s investing skills. He reminds her of his research findings and that they “don’t need the money in the foreseeable future. Two years from now this will be a faded memory.

Roger is confident that “the virus is not going to kill enough of the world to cause long-term economic trouble.”

He is sure that the virus will pass and that he and his wife will be able to enjoy the maiden voyage of their new recreational vehicle, a Reflection 337RLS by Grand Design. It’s a 35-foot fifth wheel that Roger says is big enough to cause people to get out of his way when he’s merging.

Main takeaway from our talk: 

This will pass, markets will recover, and so will our plans. The biggest risk to long-term performance is an investor’s inability to stay put through a crash.

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  1. Jan
    Posted March 19, 2020 at 9:45 am | Permalink

    Can I really expect leveraged funds like BDCL, CEFL, SMHB to recover to where they were 3 months ago ? They would have to go up 100% / year for for 4 years to get back to where they were.

    So far I’m not worried about TQQQ but we are not done with this downturn yet.

    • Posted March 19, 2020 at 10:46 am | Permalink

      There is no way of knowing the timeline, but recovery from a temporarily paused economy — not a structurally flawed one — should be dramatic, particularly when combined with stimulus.

      We can’t know. What we can know is that there’s no better way to benefit from the recovery than by owning broad-based index leveraged funds.

  2. Henry Mourad
    Posted March 19, 2020 at 4:46 am | Permalink

    Thanks Jason and Roger. Your message is: Stay healthy so you can enjoy spending money when the fruits of patience is delivered in abundance. Wishing you all health and wealth.

  3. Jerry Draheim
    Posted March 18, 2020 at 11:51 pm | Permalink

    Hi Jason,

    I have never been happier with my investment portfolio!

    When the coronavirus was starting to make the news, I sold a few of my stocks that had done well for me recently–financials, tech, and especially precious metals. When the market started to tumble I had sell orders (stop losses) ready so more were sold. I only lost money on some dogs I needed to get rid of anyway. Now I have lots of cash to put into my Signal Portfolios at the end of the quarter–coming soon.

    Thanks for keeping up with the real news so we can stay informed. We may be faced with a recession, but that’s no surprise. The market has been a bull so long that we should have been somewhat prepared by making sure we (I) have cash available. Most of my cash from recent sale will go into my 3 Signal Portfolios. I have about 70K$ in the Portfolios and will double that soon. I am now placing orders to buy AGG, SCHZ, and BND.

    Thanks for the great work! Keep it up and keep making me/us happy!

    • Posted March 19, 2020 at 10:43 am | Permalink

      Good work, Jerry. I’m happy to see you moving more of your investing to the Signal plans during this opportune time. You will one day be thrilled that you did.

      I’ll keep at it,


  4. jeff nabors
    Posted March 18, 2020 at 9:47 pm | Permalink

    You’re lookin’ good! Thanks for the insight.

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