What Is The “X-Factor” Advantage? [Keith Kaplan]

Keith Kaplan recently sat down with Rachel Pierce, a former news anchor, to discuss his latest investment strategy.

It is based on a system that he says “hacks Wall Street’s BILLION-dollar plays to deliver EXPLOSIVE new stock ideas.”

In this article, we will be exploring how the system works as Keith explains it and learn more about the newsletter he is promoting.

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What is The “X-Factor” Advantage? (The Pitch)

The presentation is done in the interview format, where Rachel Pierce takes Keith to task to explain how his new system works.

The X-Factor Advantage

He presents The “X-Factor Advantage as a tool that takes emotions out of trading, which he sees as the main reason investors underperform the market:

“You’ve probably heard of the famous study by Dalbar, conducted over a 20-year period, that concluded the average investor, on their own, vastly underperforms the market.

The main reason being that investor behavior is often illogical and based on emotion, rather than logic.

Folks get caught up in the frenzy of rising markets and buy when the stocks are high… then panic as they begin to correct — and jump out when stocks are low.”

He says that both retail investors and professional money managers suffer the same fate of allowing their emotions to influence their decisions.

His solution is to use the “X-Factor” Advantage, which is based on something he calls “factor-based investing.” He explains it as follows:

“Factor-based investing, at its core, is nothing more than defining and then following a set of rules to identify high-potential, high-impact stocks for your portfolio.

The individual factors are often hidden characteristics of stocks, that when understood in the light of day, explain performance — and can lead to above average gains.”

So, what he does is he observes these factors and finds an “X-Pattern” to identify the companies that are likely to do well.

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What factors does he use in his system?

He uses a few MSCI-standardized ones:

The X-Factor Advantage

Here is how he explains how he uses these factors to judge stocks:

  • Value: He finds stocks that are undervalued and can be bought cheaply before the market prices in their value.
  • Low size: Stocks that are in the small-cap category. Although the definitions of a small-cap can vary, Keith defines them as between $300 million and $2 billion. These stocks are affordable and responsive to market changes.
  • Momentum: When it comes to momentum, he uses the Volatility Quotient, which we’ve seen him use before in the presentations like The Portfolio X-Ray and The 4X Stock Booster Summit. The crux of it is that each stock is unique in the way it moves. Each stock, particularly those coming from different industries, has unique volatility. So, he says that he observes the Kinetic VQ, which means that he observes how the VQ of a stock is changing. If the stock’s VQ is higher than the historical average, it is becoming more volatile, and thus has a kinetic VQ meaning that it has momentum.
  • Low volatility: Stable stocks expose you to lower risk and they still take advantage of market improvement and rise along with it.
  • Dividend yield: When a stock meets those other factors and also pays a dividend, it becomes even more appealing.

How the X-pattern works

Keith uses the X-pattern to qualify stocks. The pattern is made up of three elements:

  1. Stock must be in a healthy state.
  2. Stock must be guaranteed to be in an uptrend
  3. It has to have multiple factors (the five listed above) converging at the same time.

Since we have explained the third element above, how does he check for the other two?

One thing he does is observe how rich people are investing. He calls it a “conviction pattern”:

“By concentrating on stocks owned by billionaires, you already have almost a 2:1 advantage over the S&P 500…

However, when you add more than one billionaire to the mix, you have a chance to raise the stakes, potentially beating the S&P 500 by as much as 457%.

Another great aspect of this strategy is that you get to take advantage of multiple “factors,” because the billionaires run the spectrum of being “value” investors, “growth,” or income-seeking “dividend” hunters.”

Another indicator that Keith uses is the health indicator. He describes it as a “green-light/yellow-light/red-light system of knowing at-a-glance, the health of any stock.” Its purpose is to determine when to close your position.

And another one he calls “Low Risk Runners” for knowing when to re-purchase a stock that had gone into correction:

“But beyond that, they figure prominently into this third strategy that I like to call, Low Risk Runners.

At its core, what you’re looking for are healthy, upwardly mobile stocks that maybe have pulled-back a bit, even had a small correction in price.

As long as they are healthy, and have begun a new upward trend, this slight adjustment, makes them more affordable, so you get in for less — and have the opportunity of positioning yourself for a wild ride to a new high.”

This works for stocks that Keith had recommended you sell but then determines you need to buy again.

He also observes how the sector ETFs are doing and if they are doing well, he concludes that the best-performing stocks within them have the potential to be profitable.

All those steps add up to the x-pattern. To access Keith’s insights (that are guided by the x-pattern), you have to subscribe to a product he launched called “Ideas by TradeSmith.”

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Who is Keith Kaplan?

Keith Kaplan is the CEO of TradeSmith.

Before he joined the firm, he had been a software expert. His job was designing, building, and administering technological models. He uses a similar approach to investing and trading, which he has been doing for over 20 years.

He is a big fan of technical analysis, which involves using mathematical models to analyze and understand the market. At TradeSmith, he develops investment research tools that are targeted at everyday folks who want to make money in the stock market.

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What is Ideas by TradeSmith? (The Newsletter)

Ideas by TradeSmith is an advisory service that Keith Kaplan heads up at TradeSmith. He claims that it is a one-stop-shop where investors can make their decisions based on what they see at a glance on an elegant dashboard.

It comprises of:

  • That Markets page: It covers the 12 global markets, including multiple S&P indexes, the Dow, NASDAQ, Russell 2000, and many more. You can learn about the health of those indexes at a glance on the dashboard.
  • Articles that cover various aspects of the markets.
  • The Pure Quant Portfolio Builder. It enables you to cobble together a list of stocks that are likely to earn returns.
  • The Screener. It enables you to design your portfolio using your selection criteria.
  • The Gurus tab. Here, you find the top-ranked stocks from other newsletter gurus from the likes of Banyan Hill, the Oxford Club, InvestorPlace, Likefolio, and many others.

Keith says that by following his recommendations, you instantly diversify your portfolio because he draws them from a wide variety of markets. He also sends you a special report that explains how the factor-based strategy works.

How much do you pay to join Ideas by TradeSmith?

$999 per year.

Does Ideas by TradeSmith have a Refund Policy?

There are no cash refunds. They give you 30 days to cancel your subscription for a credit refund that you can then use towards any other service provided by TradeSmith.

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Closing Remarks on The “X-Factor” Advantage

Keith Kaplan uses The X-Factor Advantage presentation to present his investment strategy. Although he insists that he relies on technical indicators, there are elements of fundamental analysis in there.

Since this isn’t the first time I am reviewing his work, I noticed that there are some similarities with other investment strategies he has fronted before. For example, the Volatility Quotient, Low-Risk Runners, and Traffic Light System have featured in both The Portfolio X-Ray and the 4X Stock Booster Summit.

Considering that, you can argue that signing up for Ideas by TradeSmith gives you the same recommendations you get in his other newsletters, albeit with small discrepancies.

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