Investors Seize Opportunities in Defense-Related Industries Amid Global Tensions

A 25-Year-Old Secret to Making Unreasonable Returns

For 26 years, I have employed a process that has yielded significant results in the markets. It's not a formula, but rather a distillate of what I've used to achieve success. Perhaps some of you can benefit from this information.

Growing up, I was an expert on war and military history, particularly World War 2 and the Iraq-Iran war. I even wrote a 500-page fictional book, "Zero Edge," on how America reverse-engineered the Japanese Zero Fighter plane and created the Grumann F6F Hellcat. I also built a scale model Sukhoi 7 that flew on a 2.5 cc engine purchased from India Hobby Centre in Little Russell Street, Calcutta.

My fascination with war and espionage led me to read authors like Ken Follett, Ludlum, Jack Higgins, and Frederick Forsyth. On the night of February 25th, I was unable to sleep due to the sound of fighter jets flying overhead. I went down to the 50th floor of my penthouse apartment and started reading war history, including military balance sheets of the upcoming war in Iran.

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Iran's history, particularly their war with Iraq, and their technology caught my attention. I read about the Fattah 1 & 2, Mach 10++, and the Shahed 136. I was impressed by their capabilities.

I then shifted my focus to the war in Yemen, where Saudi Arabia and the UAE, with the help of the US, France, and the UK, fought against the Houtis. The Houtis employed an asymmetric war strategy, which gave me an idea.

The Houtis' asymmetric approach was a template for me. I realized that a conventional war would not yield quick results, and I needed something more powerful.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

I built the SS- Agreement in Motion (AIM) system, which gave me a 98-99 bull run and helped me navigate the 2000 market crash. The system was built in 1999-2000 and perfected by 2001. It was a result of my learning from a career-ending trading loss in 1997, where I shorted Indian IT stocks trading at 60x PE.

However, the stocks doubled their PEs, and I got cleaned out. I read a lot, thought a lot, and built the SS-AIM system. Today, it's still effective, with some amazing AI overlays from our engineers at Gquant.

The SS-AIM system uses a "Weight of Evidence" framework, which has many spark plugs, pistons, and propellers, including the famous Lake of Returns Theory. The "Agreement" in the AIM is a sub-system that spots consensus in the world.

Using a multi-factor and multilayered framework, the Agreement spots the most significant consensus areas in the world. I built this component because of my learning in the 1990s that where consensus is maximum, maximum money will be made when consensus breaks.

I needed something stronger than my favorite grape, Shiraz, to power up the SS-AIM. I ambled up to the fridge and got a keemam paan from Ved Prakash behind Wilson College. With the keemam hitting me, I powered up the SS-AIM, and the screen lit up: "Extreme Consensus Spotted."

That was oil. The system reeled off the data: extremely low volatility, IVs had collapsed, the OVX was hugging 5-year lows, 10-year low Open Interest, and analyst consensus was clustered around the $60s.

25 years ago, when my e-commerce analyst at First Global had tiptoed into the boss' cabin and said, "Amazon has had a surprising number: it's turned FCF positive as per its 10Q," my very first question to him was: "Check Bloomberg for analyst ratings on the stock." It was uniformly negative.

Excellent. Exactly what I wanted to see: extreme consensus. Extreme "Agreement." The trade that made my first dollar 150x-er was born.

Epiphany hit me stronger than the keemam. I aimed a spittle, and it landed like a Jordan 3-pointer. I was in the Zone. I know it when I see it. I feel it.

I closed the SS-AIM. The city was waking up languorously. This 4 AM had come, along with a 4 AM trade. February 28th, it began. But in places where we never expected: across the Gulf.

Monday evening, March 2, Oil opened a few percentage points up. The "Consensus-Agreement" was breaking. The Trade was born. And I was re-born.

Postscript: My enduring belief, based on 37 years of active data-based experience, is that you make the biggest alpha by getting bear markets right. In the month of March, my global fund was up around 15-16%. In that month, almost all global hedge funds lost a lot.

The SS AIM has been tested continually in war and peace for 25 years. At every single major turn in Markets since '99, it's kept me the first in line for entries or exits: the dotcom boom and bust; the 04-07 boom & 08 bust. The going all in on March 23rd, 2020: all documented history.

It's helped me earn unreasonable returns in unreasonable times. Lastly, this piece is simply about the methods I use. It's to convey that models, systems, and processes beat brainwaves.

In fact, I have found all the time that my so-called brainwaves come out of these very steps. They never are actual brainwaves. You can only teach the teachable. You can only inspire the inspirable.

To the rest, you can only be inhospitable. As I always am. Don't draw wrong conclusions from this post. It's not about arrogance. It's exactly the opposite: if you are humble, curious, self-critical, analytical, you can fight your way out of a financial hole, no matter how deep.

I have done it. So can you.