How To Get The Most From Your Inner Circle Membership

A Never-Ending Post.

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Raise Your Game.

by Alex King, CEO, Cestrian Capital Research, Inc

I'm writing this in early October as a first incarnation of what will be a regularly updated page on our website. We have a number of new joiners to our premium Inner Circle service at present all asking the same question which is, how do I get the most from my subscription? So this note is in answer to that. As the service develops over time - it's not quite two years old and much broader and deeper in scope than when it got started - I'll update this page. As I realise all the stuff I missed - I'll update this page. And if anything isn't clear? Ask me and I'll update this page. You get the point.

What If I'm Not An Inner Circle Subscriber?

Well, you can learn all about the service here and decide if you'd like to change that. You can also read everything below and that may help you decide if you’d like to join.

Let's Get Into It.

There are many ways to invest and trade successfully and anyone that claims their own approach is the Way The Truth And The Light is at best (a) convinced that temporary success = permanent edge, which it doesn’t, and at worst (b) delusional.

I am a longtime professional investor - at the time of writing I am in my 25th year - and that comes with a whole lot of accumulated experience, opinion and prejudice. Some of which is helpful and some of which isn’t. Public securities investing and trading is a never-ending story, an endless journey deeper into the rabbithole, because if you do it right, you never stop learning, never stop trying to improve, and indeed, just never stop. Why would you? Making money from money is the apogee of capitalistic endeavor. The most efficient form of work there is. The Inner Circle service is designed to help you make more money from money.

Inner Circle is designed for people who treat investing and trading as a serious endeavor, a business like any other. We believe investing and trading can be treated exactly as that - a repeatable, long-lived business - not like gambling or sports or entertainment. There’s nothing wrong with gambling or sports or entertainment, but it’s not how we think about investing and trading, and it’s not how we’ve built this service.

I can say with confidence that whoever you are, whether you're a career professional or a new investor, whether you manage very large funds or more modest accounts, the service can help you raise your game. You will learn something new regularly as a member, and over time you will learn how to use that incremental knowledge and skill to your advantage in markets.

If It Was Easy, Anyone Could Do It

Why do we believe investing and trading can be operated as a business?

Because investing, by which I mean longer-term holds, and trading, by which I mean shorter-term holds, is difficult. Very difficult. Everyone wants it to be easy, but it isn't. Everyone wants a quick-fix route to success, but there isn't one. You have to work at it. You have to be focused, calm, unemotional, execution-oriented - just like in business.

Now the reason most people find investing and trading difficult is because most people treat investing and trading as an exercise in outwitting the market. Finding an information or an execution edge; discovering an unknown company; developing an automated trading system; discovering a new kind of security class; and so on. Now, all these beat-the-market things can work in the short term, but not in the long term, because the market realises the edge that has been found, and arbitrages it to zero.

“The market" consists of a relatively small number of people investing large amounts of capital - these people are price-setters to a degree - and a relatively large number of people investing small amounts of capital; these people are price-takers. Who are the price-setters? Market-makers in the short term and the largest asset managers in the medium term. Everyone else is at the mercy of the market; whether you manage $10bn of other people's money, or $100k of your own, the market is the boss of you; no matter what you do, you are not the boss of it.

Trying to outwit the market is why this happens:

If you're reading this and you want to invest the easy way, I have yet to see a better method than that promulgated by Mr. Buffett; his view is that for most people, dollar-cost-averaging into a low-cost S&P500 fund, re-investing dividends, and never selling, is the best way to compound wealth from generation to generation.

But can the market be beaten?

It can. Not by any of the fancy tricks people think can be used to beat the market, but by simply learning the rules of the market, and playing the game according to those rules. If you set yourself the goal of outperforming the S&P500 total return, in the short, medium and long term, and you actually achieve that goal, you will be in the rare upper echelons of investors. For all the derring-do you'll find in fundraising pitchbooks or plastered all over X/Twitter, most investors fall by the wayside at some point.

I don't believe that is a necessary outcome. I believe that the rules of the market game are fairly constant over time, and that one can use the market to beat the market. And that is the core principle at the heart of our Inner Circle service.

Core Principles

These are the principles upon which Inner Circle is built:

• The price of a security is primarily a function of the past price of the security - which is to say that the stock chart is the primary driver of direction and price.
• Within the service we cover only liquid, institutionally-traded securities, because one can move large or small sums of capital into and out of those instruments, and because the price of these securities tends to move according to somewhat predictable patterns. We are not looking for the “next big thing”; we are looking for opportunities to play the market using the market’s own rules. That means playing according to institutional rules; those rules don’t work with microcap stocks or obscure ETFs.
• Fundamental valuation does matter, but only in the limit. If Meta Platforms is trading at 7x cashflow, that is cheap and likely a buyable opportunity (this happened in 2022). If no-name microcap is trading at 100x revenue, that is expensive and will likely correct. Aside from extremes, we don’t believe fundamental valuation analysis is a useful driver of buying or selling decisions.
• Underlying fundamentals do matter, but as a risk management method not a determinant of price. Microsoft stock is not going to halve overnight, in part because the company has a hugely safe balance sheet and very predictable revenue and cashflows. The same cannot be said of whatever bright shiny object is currently fascinating market magpies.
• We do not believe that buy and hold forever is the optimal way to invest. Per Mr. Buffett’s advice above, buy and hold forever in the S&P500 has since inception been a successful strategy for those lacking the time or interest to invest and trade more actively. But if you do have the time and interest to invest more actively, then …
• We believe that rotation is the most successful strategy. Specifically to use the method we lay out below to rotate into sectors or stocks at pattern lows, to ride them up if the opportunity affords it, then to sell at pattern highs, then to re-use that capital and its profits to rotate into another such opportunity. Risk can be managed with position sizing, stop orders and/or hedging.

How We Identify Rotation Opportunities

First up, you can assume that any single-stock name or ETF that we cover in the service is underpinned by a company or companies with solid fundamentals, and you can assume that the stock or ETF itself is institutionally traded. We cover 60-80 single name stocks and ETFs at any one time; each quarter we provide earnings analysis of each and every one of the single name stocks, so we can all keep an eye on those underpinnings.

Buying: we look for sideways price action at local lows, with high volume. This is often a breadcrumb trail indicating institutional accumulation of positions. We consider this to be a buying opportunity, particularly because protective stop loss orders can be placed not too far below the entry range. During this period, the news and public narrative about that security will typically be negative.

Holding: we look for securities in an uptrend, usually at lower volume than during accumulation. The uptrend is usually driven by momentum investors and then by retail. The narrative and news about the security is usually positive during this period.

Selling: we look for securities that are close to a peak in the trading pattern and/or which are trending sideways at typical pattern peak levels, at high volume. This is often a breadcrumb trail indicating institutional distribution of positions. The news during such periods is usually euphoric.

In general we find that the “longer term” timeframe from accumulation through markup and distribution is in the months-years range. The market determines that timeframe - we don’t place an arbitrary template on top. There is no moral high ground to be had by holding securities longer than needed; ultimately if executing a rotation strategy correctly, tying capital up in a security doing nothing much is simply an inefficient allocation of that capital (even if it pays a dividend).

We provide model portfolios, driven by sector rotation, which we create according to the principles above. These portfolios are built from simple common stocks and ETFs - no complex instruments, no options, nothing that carries structural risk.

For short-term trading ideas, we use simple technical analysis tools to determing high-likelihood entry and exit points. We use less volume analysis for shorter term opportunities, because the volumes over a number of weeks are less informative than volumes over longer timeframes. We include stop-loss levels and price target levels with all the short-term ideas we publish in the service.

We also include hedged index- and sector ETF trading ideas and methods, which can be used in levered and unlevered ETFs alike.

How We Communicate Our Ideas

Members of the Inner Circle service receive our work in the following ways:

• Daily analysis of the S&P500, Nasdaq 100, Dow Jones 30 and Russell 2000 equity indices; these indices offer multiple securities (ETFs, futures, and so on) that can be used in the rotation method above - delivered by email and available on our website.
• Daily analysis of oil, bonds, volatility and key sectors - again these segments offer multiple securities suitable for the rotation method - delivered by email and available on our website.
• Earnings reports of each and every covered single-name stock, covering fundamental financial assessment, valuation analysis, and stock chart analysis. Again delivered by email and available on our website.
• 24/7 access to the Cestrian team of analysts within our Slack Workspace - our Slack environment also hosts extensive high quality discussion amongst our investor and trader community.
• Real-money trade disclosure alerts - in Slack and sent out via configurable alert to email, phone, etc - whenever Cestrian staff personal accounts are about to place orders in covered securities.
• A weekly live, open-mic webinar - Mondays after the New York close - discussing the prevailing issues of the day on an ask-us-anything basis. The recordings are available in Slack and on our website thereafter.
• Model portfolio analysis updates, again delivered by email and available on our website.
• Continuous and extensive investor education material - the goal of which is to help everyone raise their game.

How To Get Started

When you join Inner Circle we suggest you go slow. Spend time reading new reports as they come your way, ask as many questions as you can think of (we absolutely 100pc welcome questions of all kinds - this is my personal favorite part of our work, because the questions are always good questions) in chat and in webinars. Watch the trade disclosure alerts and the ad-hoc chart updates we post. When a new model portfolio is set up, consider whether it would work for you to draw inspiration from its construction.

Joining the service is, we believe, akin to joining a group of committed lifelong investors and traders. It’s nothing like joining an investment firm, though. Because unlike an investment firm, nobody is competing for a bonus or an equity allocation, nor a corner office nor favor from above. This means the community truly works together to help one another achieve better outcomes.

Whether you run big money belonging to other people, modest sums of your own, or anything in between, we believe you can raise your game by using the service to its fullest extent.

Have Questions?

Questions? Reach out anytime. In the Slack Inner Circle main chat channel if you’re already a member, or using this contact form if you’re yet to join up.

Alex King, Cestrian Capital Research, Inc - 4 October 2024.