A “Flawless” Stock? By Michael Salvatore, Editor, TradeSmith Daily The idea of a flawless stock sounds a little bit crazy. A stock that’s flawless, or at least as close as one can get, would be something that actually fires on all cylinders… Boasting big and growing sales numbers, expectations that continually fail to catch up to results, and astounding share price momentum. Whatever your definition of “flawless” may be, Luke Lango, senior analyst of our corporate partner InvestorPlace, has proven that it’s not impossible to find the rare stocks that hold these qualities. And after months of work building out a system that does just that, aiming to hold not just one, but 10 of them for only a month at a time and beat the market handily… finding stocks Luke considers “flawless” has become quite easy. I recently sat down with Luke to learn about what went into this system, which he’s dubbed “Auspex”… and how you can get your hands on it. We also touch on why the next four years will be all about embracing more record performance in stocks… but not without keeping your guard up. Read on.
Michael Salvatore, Editor, TradeSmith Daily: Luke, thank you for joining me today. I want to get straight into it. You’ve been working on something really cool lately. Something that exemplifies the kind of trading we love here at TradeSmith. It’s a unique strategy that involves holding a small portfolio of stocks and changing it every single month. At month end your algos scan the markets for the best stocks to own. Then, you hold them through that month and sell anything that doesn’t make the top brass. It takes all of five minutes to execute each month, but the results are incredible. For the five months you’ve been live testing this system, you’ve beaten the market every single time. That’s especially impressive coming off November, which was one of the best months for the stock market in years. We love this not only because you’re finding great stocks, but because this strategy mitigates so much risk of just owning the whole stock market. And it’s nimble – you only own what’s working at any given time. How did you come across this idea of what you call “Auspex,” and what factors is your system using to find these market-beating stocks? Luke Lango, Senior Analyst, InvestorPlace: The goal of Auspex is pretty simple: to find the best stocks at the best time. Not just the best fundamental stocks – stocks with growing earnings, rising sales, expanding profit margins, etc. Not just the best technical stocks – stocks with great charts and rising moving averages and strong technical factors. Not just the best sentiment stocks – stocks with a lot of buying pressure and where analysts keep raising their estimates. But the best overall stocks. The comprehensive best stocks. Stocks that are strong fundamentally, strong technically, and strong sentimentally. Stocks that are strong all-around with no flaws, if you will. You see, in our time as stock pickers and researchers, we’ve come across and used a lot of different investment strategies and systems. Some of them are aimed at finding stocks with strong fundamentals. Some of them are aimed at finding stocks with strong technicals. Some of them are aimed at capitalizing on strong sentiment. And we’ve found that these strategies, if executed properly, work – telling us that there are a lot of ways to make money in the market. There is no one right way. Fundamental investing works. Technical investing works. Sentiment investing works. It can all work. So why not combine all three methods of investing into one super tool? That’s what Auspex is – the one super stock-picking system that combines fundamentals, technicals, and sentiment to find the best overall stocks in the market at any given time. Specifically, the system looks at about a dozen different factors. Some of them are fundamental. We’re looking for stocks that having rising sales, rising profits, accelerating growth, profit margin expansion, etc. We’re looking for stocks with great charts, rising moving averages, strong technical factors. And we’re looking for stocks with increasing buying pressure and rising analyst estimates. When a stock checks off all those boxes… then it’s an Auspex stock. Michael: Tell me more about how this strategy mitigates risk. Lately you’ve been talking a lot about headline-induced “flash crashes” and other chaotic factors. Setting aside the fact that this system beats the market – and our backtest shows over the past five-, 10-, 15-, and 20-year periods, it’s beaten the market by 10x or more – why is it better to hold these 10 Auspex stocks each month instead of an index fund? Luke: The risk mitigation features of this system are twofold. One, by scanning for stocks with strong fundamentals, technicals, and sentiment, we’re getting into really strong stocks here. Stocks that have support from fundamental investors, technical investors, and sentiment chasers. That’s a lot of support. And it means these stocks should inherently be a bit less risky than other stocks. Though, of course, that isn’t guaranteed. All stocks are risky. But two, we mitigate risk in Auspex by essentially hitting the “reset” button every 30 days. We run Auspex at the top of every month. It produces a list of the best stocks in the market at that time, per our factors. Typically, the list is about five to 20 stocks, though there’s variance. That list gets vetted by us and then becomes the Auspex portfolio for that month – and only that month. Because at the top of the next month, we run the scan again, get a new list, and that’s our new batch of stocks. We dump the old ones and recommend the new ones. So, in essence, we reset our portfolio every 30 days, which allows us to constantly stay involved in the strongest stocks and not get attached to stocks that have weakened fundamentally, technically, or sentimentally. Michael: Let’s zoom out a bit. We’re a month out from the election and a month away from the start of the year. What’s your take on a Trump presidency’s impact on the stock market, thinking both long-term out to the next election cycle and a bit shorter-term just through 2025? Luke: I’ve got six words for the next four years: Embrace the boom, beware the bust. Because of AI and rate cuts, we’ve been in a big stock market boom. The S&P 500 is tracking for two straight years of 20% or greater gains – only the fourth time since the Great Depression it’s done that. And now, because of Trump, deregulation, and tax cuts, this boom is about to get “boomier.” It’s starting to really feel like the late 1990s now. We have a new tech paradigm shift in AI. Favorable legislation. Soaring earnings. Lots of positive sentiment. We got five straight years of the S&P 500 rallying more than 20% in the late 1990s, from 1995 to 1999. So I think this current stock market party continues. But, like all parties, it will end. All booms end in busts. And the bigger the boom, the bigger the bust. After the dot-com boom, stocks crashed 50% in the dot-com crash of the early 2000s. As they say, the better the party, the worse the hangover. So… embrace the boom, beware the bust. A lot of money could be made in the next 12 to 24 months. But only those who cash out before the crash will actually turn those paper profits into real profits. Michael: That’s a key insight… and I look forward to following your work through this exciting period. Thanks so much for joining me today, Luke. Luke: Thanks, Michael, talk soon.
If you’re like me, this approach sounds quite logical – but what’s most important is that it actually works. And in this case, Auspex beat the market in all kinds of backtests. Not just “beat” – crushed. If you’d simply invested in the S&P 500 for 20 years, for example, you’d still have done well. The cumulative return since 2004 is about 664%… if you’d held on tight through every bull and bear market, crash, and bubble along the way. Luke’s Auspex strategy, though, saw a cumulative return of 19,340% in the same timeframe: 
And that’s simply because when one of the top 10 stocks in this strictly managed portfolio got too volatile… Auspex rotated into the next fast-moving stock. Being in the right stocks at the right time is what’s difficult… for most of us. But not for those who set aside our human biases and follow a proven quantitative system. That’s what Auspex is all about. So to see how it’s done, click here to save your spot at Luke’s Auspex Anomaly webinar next week, Wednesday, Dec. 11, at 1 p.m. Eastern. To your health and wealth,  Michael Salvatore
Editor, TradeSmith Daily
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