MARKET BRIEFING
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From blue chips like American Express... to high- flying growth stocks like Tesla... to tiny gold miners like Northern Dynasty Minerals. The VQ just tells you how volatile a stock is, and then calculates the exact price to sell it, based on its current price and volatility. To put it another way, it helps show you how much “wiggle room” you should give a stock before it’s time to sell. And on the flip side, it can tell you the perfect price to buy back in... which would have seriously improved my returns on Advanced Micro Devices. More conservative stocks like Johnson & Johnson have a lower VQ... whereas more volatile ones like Tesla or Advanced Micro Devices tend to have a higher VQ. Let me show you another example from the 2020 COVID crash. Airlines took a huge beating. And Delta Air Lines was no different... In early February, Delta was sitting at an all-time high of $60. But by the following month, the stock crashed 65%... absolutely crushing investors, even the mighty Warren Buffett who owned Delta shares. However, let’s say you were monitoring your Delta position with a VQ trailing stop. You knew that Delta’s VQ was 19 – which classified it as medium risk. Medium risk means that some swings are normal. But “normal” is not what we saw in March 2020. If you were following a 25% trailing stop, you would have exited the stock on March 9th... not bad. Certainly better than the 65% loss that many people suffered. But if you’d known out right here, on February 26th. A week before the stock started to crash. That would have turned a catastrophic 65% loss... into a much more manageable 8% loss. AMY: Delta’s VQ, you would have acted much sooner, getting So, the VQ is essentially a “smarter” trailing stop that could help protect your gains and minimize your losses when a stock starts to fall?
KEITH: Yes. But that’s not all... The VQ could actually help you make money – by making sure you don’t sell too soon and miss out on a massive runup. PORTER: Keith, I have one question. Obviously, there’s some proprietary math going on to determine what the VQ is. And there’s a whole lot of stocks and funds in the market. You guys must have pretty big computers that are running a lot of numbers. KEITH: Absolutely. We’ve invested over $22 million in our infrastructure over the years, and we actually cover, Porter, 150,000 different securities in the market. PORTER: That’s incredible. The question I’ve got for you is: What period of time do you study to understand what the VQ for each security is? KEITH: That’s a great question. So, we have a very big historical look back on stocks. We have all of the data in the markets. And typically with the VQ, we’re measuring at a minimum the last 18 months if it’s a newer stock. But we go all the way back to its history to understand how the VQ, the volatility of that stock, has changed over time. Every single week, we adjust the VQ based on all of our mathematical models. PORTER: Every week? KEITH: Every week. PORTER: That is an enormous compute that’s going on. That’s incredible. KEITH: Yeah. Actually, if you don’t mind Porter, I’d like to borrow you for a back-tested example.
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