Identifying Assets for Exponential Wealth Expansion with AI [Lesson 4/7]
Free 7 Lesson Course: How to Build Legacy Wealth with AI
Meet Your Instructor
Dan Castro
Investment Management Specialist (University of Geneva/Switzerland), graduated in Electronic Engineering.
Founder and CEO of Zurique Capital Research, an American company specialized in Data Analysis, Investment Portfolio construction, Investors Training and Consulting.
Guide of over 1.8K Investors in 55 Countries.
How to Build Legacy Wealth with AI [Lesson 4/7]
Identifying Assets for Exponential Wealth Expansion with AI
Welcome back to our course on "How to Build Legacy Wealth with AI." Today we're diving into the art of identifying asset opportunities using AI. This lesson will equip you with the tools and strategies to pinpoint lucrative investments by leveraging AI insights.
1. Shifting Mindsets: From Ownership to Strategic Investing
When discussing investments, the focus usually falls on the concepts of "buying" and "selling."
Traditional investing emphasizes ownership—purchasing a stock, holding it for a period, and eventually selling it to realize a profit.
However, to think like a systematic investor, we must shift our perspective. Rather than viewing investments as assets to hold onto, we should consider them as strategic positions to enter and exit based on thorough analysis and market trends.
1.1. Managing Positions with Discipline
A systematic investor's success lies in creating systems for when to enter and exit positions.
If an asset is trending in the right direction and the AI algorithm indicates a high probability of continued movement, allocate capital and enter the position. Focus on the current trend and future potential.
This systematic approach ensures that you’re not tying up significant capital in losing positions out of hope. Instead, you cut eventual losses early and reallocate funds to more promising opportunities.
2. Maximizing Returns with the AI Market Cycle Algorithm
In our last session, we discussed the emotional drivers behind market cycles. Today, we will delve into the quantified tools that can help you maximize returns, specifically through the Alpha Hedge Algorithm.
2.1. Mastering the Alpha Hedge Algorithm
The Alpha Hedge Algorithm is a beacon for navigating market volatility. It combines leveraged and protective assets to ensure that your portfolio thrives in any market condition. Let's break down the key components of this algorithm:
2.1.1 Alpha 1: Market Cycle Phase
Understanding the market cycle phase is crucial. As discussed in Lesson 2, identifying the phase of the market cycle helps determine the optimal times to enter and exit positions. AI algorithms excel at detecting these phases, providing a significant advantage over traditional methods.
2.1.2 Alpha 2: Historical Performance Comparison
While past performance doesn't guarantee future results, it provides valuable insights into Market behavior. The Alpha 2 indicator compares the performance of entries and exits against a Buy-and-Hold strategy. If the cyclical performance consistently outperforms the Buy-and-Hold approach, it suggests a high probability for future uptrends.
2.1.3 Alpha 3: Expectancy Ratio
The Expectancy Ratio is a cornerstone of the Alpha Hedge strategy. This mathematical principle calculates the probability of profit per dollar risked. A favorable Expectancy Ratio, combined with superior performance indicators, signals a green light for investment.
2.1.4 Bottom Line
A favorable Expectancy Ratio, superior performance over the Buy-and-Hold strategy during a Positive Cycle, and a clear understanding of the market cycle phase create a robust framework for portfolio optimization. This synergy of metrics ensures that your investment decisions are data-driven and strategically sound.
2.2. Case Study: NVDA 0.00%↑ Nvidia
To illustrate the Alpha Hedge strategy in action, let's examine the Nvidia NVDA 0.00%↑ .
2.2.1. Step 1: Identifying the Market Cycle Phase
As of December 2022, Nvidia NVDA 0.00%↑ was in Phase 2: Optimism, characterized by prices stabilization after a significant decline, indicating a potential bottoming process. If the month closes in Phase 2, investors should buy at the opening of the following month (beginning of Phase 3) to maximize returns, marking the start of the positive cycle.
In this case the buying price was $14.61 (adjusted for the 1/10 stock split in June 2024).
2.2.2. Step 2: Identifying Probability of Long Term Uptrends
Using the Alpha Hedge Algorithm on the Trendspider Platform, we analyzed Nvidia's performance. The results showed a Net Performance of the Alpha Hedge Algorithm of 87272.4%, significantly outperforming the Buy-and-Hold strategy's 42844.6% gain over 23.8 years (Feb/1999 to Dec/2022). Demonstrating an Alpha 2 of a 50.8% superior performance of the cycle strategy over the Buy-and-Hold strategy.
2.2.3. Step 3: Identifying Probability of Positive Return
The Expectancy Ratio for Nvidia was a positive 8.3 as December/2022, indicating a high probability of profit for this position.
2.2.4. Case Study’s Bottom Line
A favorable Expectancy Ratio (Alpha 3), combined with superior Alpha Hedge Performance (Alpha 2) during a Positive Cycle (Alpha 1), made the Nvidia an attractive investment.
At the moment I write this lesson (07/17/2024) is in Phase 4: Euphoria, and generated a 794% return in 1 year and 6 months. This phase requires attention for potential reversion in the next months, where investors must close this position.
This case study demonstrates how the Alpha Hedge Algorithm can guide investors in making data-driven investment decisions.
The Nvidia case is not an isolated incident; we’ve conducted a 50-year study that supports these data:
The image presents data on the Alpha Hedge Strategy's stock performance over a study spanning more than 50 years and analyzing 675 stocks.
The strategy's performance is divided into four categories: stocks with returns from 5001% to 130642% (65 stocks), 501% to 5000% (236 stocks), 0% to 500% (242 stocks), and those with negative performance (132 stocks).
Overall, 71% of the stocks showed positive performance while 29% were negative. The strategy achieved an average win of 46% and an average loss of 15%. The visual data highlights the significant gains achievable through this strategy and its historical effectiveness.
Next Steps
Today, we've explored the principles of AI-driven opportunity identification and the Alpha Hedge Algorithm. By adopting the mindset of a systematic investor and leveraging AI insights, you can maximize your returns and build a resilient investment portfolio.
In our next lesson, we'll focus on building an AI-optimized investment portfolio.
Thank you for joining me today, and I look forward to continuing this journey with you. If you have any questions or comments, please leave them below. Let's keep pushing the boundaries of what's possible in wealth management.