How We Returned 131.4% In 2.5 Years and How You Can Beat The Market Too

Our flagship small-cap hedge fund strategy returned 131.4% in its first 2.5 years, vs. 57.2% gain for the S&P 500 index ETF (SPY) during the same period. Our stock picks also managed to outperform the S&P 500 index by more than 10 percentage points in each of 2012, 2013, and 2014. Our monthly returns are presented below.

We aren’t one of those slimy newsletter marketers who try to part mom-and-pop investors from their hard earned dollars by touting the incredible returns of SOME of their recommendations. The majority of active fund managers can’t beat the market after taking into account the fees they charge.  In fact, the majority of investment professionals you come across can’t beat the market. If beating the market is so darn difficult, how did we do it?

Our research director has a Ph.D. in financial economics and he has been doing quantitative stock research for more than a decade. This doesn’t guarantee that he can beat the market but it means that he can at least do high quality research and understand the research done by other academics.

He analyzed the quarterly 13F filings made by almost all of the active and dead hedge funds covering the 10-year period between 1999 and 2009. His research revealed that ordinary investors could have outperformed the S&P 500 index by 18 percentage points per year during this 10 year period by imitating certain hedge fund stock picks. The stock market was flat during this 10 year period, yet our strategy returned an average of 18% per year.

Our thesis is very simple. Hedge funds are strongly incentivized to outperform the market. Some hedge fund managers make billions of dollars in a single year if they generate decent returns. They hire the smartest students graduating from the best universities in the world. They hire those students’ professors. They hire the top experts and consultants in the field to gain just a tiny edge over other investors – including you. And sometimes they cheat and get their hands on illegal inside information. However, we think that hedge funds are more likely to get an edge over ordinary investors in small-cap stocks because these stocks aren’t well-covered and well-researched by a lot of investors. So, we formed our thesis:

When several hedge fund managers buy the same small-cap stocks, those small-cap stocks should outperform the market on average.

This is a very simple and intuitive thesis. Think about it. If hedge funds can’t beat the market by picking under-researched small-cap stocks, they sure can’t beat  the market by picking large cap stocks that are followed by everyone.

We weren’t surprised that hedge funds’ most popular small-cap stock picks outperformed the market by 18 percentage points.

However, this is only the first step. The real test is measuring the performance of this strategy in real life. There are a lot of strategies that worked in the past that don’t work anymore.

We launched our quarterly newsletter at the end of August 2012 and started sharing the stock picks of our small-cap hedge fund strategy with our premium subscribers. In its first year our small-cap strategy’s stock picks returned 47.6% and beat the S&P 500 index by more than 29 percentage points. In its second year our strategy’s stock picks returned 35.8% and beat the S&P 500 index by more than 10 percentage points. Since its inception at the end of August 2012, this strategy returned 100.4% through the end of August 2014. Our strategy kept beating the market since August 2014 as well. Overall, our picks returned 131.4% through the end of February 2015, vs. 57.2% gain for the S&P 500 ETF (SPY). If you have been investing in Vanguard’s or Fidelity’s S&P 500 index funds, you are 74 percentage points behind our subscribers.

Here are the monthly returns of this strategy:

Best Investment Newsletter Returns

There aren’t any gimmicks. We pick 15 stocks every quarter and invest equal amounts on each position. In order for you to evaluate whether this strategy is the right one for you, we will share ALL of OUR stock picks in our first year.

Issue 1 (Published on August 31, 2012 at 1 pm. Returns are calculated starting September 4th through November 16th): Our Small-Cap Strategy outperformed the market by 7.1 percentage points in 2.5 months.

 

Small-Cap Strategy Return: 4.2%

S&P 500 ETF (SPY) Return: -2.9%

1. United Rentals (URI): 20.6%

2. Lennar (LEN): 11.5%

3. Amylin Pharmaceuticals (AMLN): This stock was acquired on August 9th by Bristol Myers and we weren’t able to buy this stock for our portfolio.

4. Gen-Probe Inc (GPRO): This stock was acquired on August 1st and we weren’t able to buy this stock for our portfolio.

5. Visteon (VC): 5.2%

6. Hologic Inc (HOLX): -0.7%

7. W.R. Grace (GRA): 8.0%

8. American Eagle Outfitters (AEO): -10.7%

9. Louisiana-Pacific Corp (LPX): 18.0%

10. Owens Corning (OC): -3.5%

11. Ariba (ARBA): 0.2%  (Ariba was acquired by SAP on October 1st)

12. Lear (LEA): 4.7%

13. US Airways (LCC): 10.3%

14. Corrections Corp of America (CXW): -1.6%

15. Walter Energy (WLT): -11.0%

Issue 2 (Published on November 16, 2012 at 1 pm. Returns are calculated starting November 19th through February 15th): Our Small-Cap Strategy outperformed the market by 13.4 percentage points in 3 months.

 

Small-Cap Strategy Return: 25.7%

S&P 500 ETF (SPY) Return: 12.3%

1. United Rentals (URI): 40.9%

2. Visteon (VC): 16.5%

3. TripAdvisor (TRIP): 16.8%

4. W.R. Grace (GRA): 17.7%

5. Marvel (MRVL): 27.2%

6. Medicis Pharmaceuticals (MRX): 2.3% (MRX was acquired by VRX on December 10th)

7. Chicago Bridge & Iron (CBI): 45.6%

8. Ocwen Financial (OCN): 18.6%

9. Lear (LEA): 37.3%

10. Six Flags (SIX): 16.9%

11. Dollar Thrifty Automotive (DTG): This stock was acquired by Hertz on November 19th

12. Sally Beauty Holdings (SBH): 12.1%

13. E*Trade Financial (ETFC): 42.4%

14. Questcor Pharmaceuticals (QCOR): 16.5%

15. Dana Holding Corp (DAN): 32.5%

Issue 3 (Published on February 15, 2013 at 1 pm. Returns are calculated starting February 19th through May 16th): Our Small-Cap Strategy outperformed the market by 3.4 percentage points in 3 months.

 

Small-Cap Strategy Return: 12.6%

S&P 500 ETF (SPY) Return: 9.2%

1. United Rentals (URI): 4.8%

2. Gardner Denver Inc (GDI): 9.1%

3. MetroPCS Communications (PCS): 14.4% (This stock was acquired by T-Mobile on May 1st)

4. Visteon (VC): 13.6%

5. W.R. Grace (GRA): 7.5%

6. Lear (LEA): 7.9%

7. Owens Corning (OC): 3.1%

8. Genworth Financial (GNW): 17.1%

9. Abercrombie&Fitch (ANF): 5.1%

10. Allscripts Healthcare Solutions (MDRX): 25.1%

11. Brookdale Senior Living (BKD): 4%

12. Ocwen Financial (OCN): 8.4%

13. US Airways (LCC): 31.9%

14. Hillshire Brands (HSH): 14.9%

15. Sally Beauty Holdings (SBH): 13.8%

Issue 4 (Published on May 16, 2013 at 1 pm. Returns are calculated starting May 17th through August 15th): Our Small-Cap Strategy outperformed the market by 1.1 percentage points in 3 months.

 

Small-Cap Strategy Return: 2.3%

S&P 500 ETF (SPY) Return: 1.2%

1. United Rentals (URI): -5.9%

2. Visteon (VC): 10.8%

3. Lamar Advertising (LAMR): -9.7%

4. US Airways (LCC): -17.8%

5. W.R. Grace (GRA): 1.3%

6. MetroPCS Communications (PCS): This stock was acquired by T-Mobile on May 1st

7. Owens Corning (OC): -14.3%

8. CommonWealth REIT (CWH): 26.9%

9. Newcastle Investment Corp (NCT): -4.5%

10. Fortinet Inc (FTNT): 9.2%

11. Carter’s Inc (CRI): -1.2%

12. Genworth Financial (GNW): 16.7%

13. Lear (LEA): 19.1%

14. Dean Foods (DF): 8.6%

15. Community Health Systems (CYH): -7.4%

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Frequently Asked Questions

1. How many issues do you produce in a year, and when are they typically released?

Our primary premium newsletter is produced quarterly and is published around February 15th, May 15th, August 15th, and November 15th of each year.

2. Do you offer any other services besides the quarterly newsletter?

We have also started publishing a monthly mini-newsletter, which costs $50 per month or $300 per year with an annual subscription. In each mini-newsletter, a top-tier hedge fund manager is interviewed and/or analyzed, and 1-2 novel investment ideas are shared.

3. What would I get if I were to subscribe?

Premium newsletter members will receive access to our small-cap hedge fund strategy, which has outperformed the market by 18 percentage points in back-tests covering a 10-year period; this strategy beat the market by more than 74 percentage points in its first 2.5 years of availability. More than 70 pages in length, the premium newsletter also covers billionaire investors’ best stock picks, and offers an additional ‘secret’ strategy.

4. Does your newsletter give alerts on when to buy and sell and the position percentages of one’s portfolio?

Each quarter we show our subscribers what to sell, what to buy, and what to maintain in their portfolios, within the confines of our strategies.

5. Is there a trial period for your services?

All premium members receive a partial refund if cancelled within 30 days of purchase.

6. Can I cancel after 30 days?

After the 30-day trial period, membership is final for four quarterly issues, i.e., one full year.

7. So how many issues do I actually receive? Does a membership include past quarterly reports too?

Yes. If you are subscribed to our quarterly newsletter you will receive access to all archived issues and 4 new issues over the next 12 months. If you are subscribed to our monthly newsletter you won’t have access to our archived issues.

8. What sized companies do you focus on?

In our market-beating small cap strategy, the name speaks for itself. The list of stocks we focus on has market values between $1 billion and $10 billion.

9. How can I pay for Insider Monkey’s premium services?

Premium subscribers may pay via Paypal, check or credit card (over the phone).

Who are we?

Insider Monkey is one of the fastest growing financial research websites on the web, read by 1.5 million people every month.

Our research is headed by Ian Dogan who is a former fund manager, holding a Ph.D. in the field. We partnered with Marketwatch and created the Marketwatch/Insider Monkey Billionaire Hedge Fund Index.

Our content has appeared on:

The Wall Street Journal Marketwatch The Motley Fool Seeking Alpha The Street NASDAQ

Here is what you get

  • The Small Cap Strategy Picks
  • The 'Secret' Strategy Picks
  • In-Depth Analysis of 22 Billionaire Hedge Fund Managers and their Portfolios
  • Most Popular Stocks Among Hedge Funds
  • Stocks dumped by Hedge Funds
  • FULL REFUND If Cancelled Within 30 Days

Still not convinced?

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Testimonials
  • I've been an Insider Monkey subscriber for a couple years now and the flagship strategy is one of the best strategies in my portfolio. Because the strategy is small cap you will see some major short term swings, but if you can follow the strategy and rebalance only once every quarter you will see some really strong results once you hit the 12 month time frame and beyond.
    David L.
  • I initially became aware of Insider Monkey when Meena was interviewed on Business News Network (BNN) in Canada. The idea of mimicking the best ideas from the best fund managers was appealing (as I have met many smart managers on Bay Street in Toronto). While I have only had the newsletter for one year, the Insider Monkey allocation has been the best performer in my equity portfolio. I look forward to continued outperformance in the future.
    G. Chin
    Toronto, Canada
  • I first came across Insider Monkey (IM) nine quarters ago (1/2013) and since then have enjoyed exceptional returns. Last year (3/2014) I traveled to NYC to meet the founder because I was thinking about doubling down on their strategy. I left favourably impressed and proceeded. It was a smart move. At the beginning of this year I decided to double down again. There are no guarantees but preliminary results are promising.

    Why do I recommend IM?
    1. It's easy: 15 picks every 90 days. Most picks are repeated at least once, some more than eight times.
    2. It's flexible: if a pick goes bad you only hold it for 90 days.
    3. Time saving: the IM team vets hundreds of HF SEC reports every 90 days and produces a list of 15 SC picks from the best stock pickers in the world. A world-class research department for less than a dollar a day.
    4. It works. Need I say more?

    One admonishment: have faith in the model, hold all 15 picks for ninety days.
    Tommy
  • I want to thank you and the team for the great results this past year. Many of my friends and colleagues use profesional financial advisors and annually pay 1% to 1.5% of their portfolio value for mediocre results. Insider Monkey's performance is outstanding for a mere fraction of the cost. I am an analyst for a utility and have always wanted to invest in high growth small cap stocks, but I have never had the time, expertise or access to the information needed to effectively research them, and was never comfortable with casual stock recommendations from magazines, blogs, and television. I had never subscribed to a premium publication but was immediately impressed with the Insider Monkey team’s analysis and the proven results of the 15 Stock Small Cap Strategy.

    Keep up the great work. Thus far, the Insider Monkey team’s approach has enhanced my investment portfolio and I look forward to future issues and following the team’s investment strategy throughout the foreseeable future.
    Jim T.
    New York