+23%/Year Since Inception: A Short Commentary on Our Smart Whales Model

Since inception, Eight Ventures’ Smart Whales model has returned an annualized 23%.

*The table details performance for the four-year period ending February 17, 2024, benchmarked against key comps.

The rarest commodity in investing is a strategy that beats the market, while at the same time reading as a plausible strategy to beat the market going forward. If an investment strategy fails the latter, let’s call it the “plausibility test,” no reasonable person should place money at risk in it.

For example, you might backtest to learn that last year’s best performing strategy was to buy small cap banks with names beginning with “C.” This may have notched big returns, but it reads as bizarre for an investment strategy, a clear fail on the plausibility test. More to the point for our purposes, this type of pattern is almost certainly not predictive as you could not expect alphabet exercises such as this to work well over time. If backtesting identifies it, it identifies only noise picked up in the rearview mirror. This type of information will entertain and confuse onlookers; it will not help them invest well.

Utilizing voluminous market data and AI models, would-be investors can now backtest to find trading patterns that worked (that is, would have worked if someone could have dreamed up the thesis) while being simultaneously bizarre and uninvestable. Google stock market backtesting anomalies to see just how odd some of the patterns have been.

One cottage industry boasts university studies of market data to bear out their trading-strategy claims based on full moons, moon phases and lunar cycles. These strategies ask you to, for example, “leverage moon phases for maximum trading profits.” Leaving the celestial and taking one step toward plausibility, on a daily basis, you hear about calendar-based strategies at outlets like CNBC. These seasonal strategies are often summarized by adages such as “sell in May and go away.” To my mind, the two most consistent features of seasonal strategies are these:

1. They undercut the one foundational feature of almost every proven strategy (high frequency trading excluded) which is to buy and hold
2. Related to item one, they ensure tax inefficiency as you are always paying ordinary income taxes on short-term gains (provided you have them)

Again, as stated at the outset, when you evaluate an investment strategy, you want to see strong real and risk-adjusted returns from a strategy that passes the plausibility test.

Smart Whales is that rarest commodity that passes both tests. The annualized returns of 23% since inception are 99^th percentile and risk-adjusted returns, when measured by the Sortino ratio or Jensen’s Alpha, are equally rare. The plausibility test is a bit more qualitative, but I am confident that the strategy passes. Asked if Smart Whales is a good investment strategy to follow, I might invoke the great Alan Ladd, whose Shane character once told little Joey this concerning his pistol-holstering method: “what I’m telling you is as good a way as any, and better than most.” Simply put, Smart Whales  represents my one best idea for achieving market-beating returns over time and, for that reason, I have a lot of my own personal money invested here.

Smart Whales begins in the right place, as a buy-and-hold strategy that embodies the investor-as-owner ethos, making a limited number of high-conviction bets. The model copycats some of the most efficient wealth creators in the investment universe with long track records of outperformance, trusting that they will continue to do smart things with their money. Smart Whales leverages their best ideas, their research teams, and their large budgets to bring great investment ideas out from behind seven-figure minimum investment requirements, 2% annual fees, and arrangements that extract 20% of your profits.

Every investor is looking for a strategy, or strategies, they believe can deliver strong returns. My advice is to begin your search by posing two questions:

1. Has the strategy delivered strong returns?
2. Is it plausible that this strategy will deliver strong returns going forward?

If you are interested in investing in Smart Whales, let me hear from you.

[1] Performance figures are time-weighted return figures for 2/18/2020–2/17/2024, provided by Interactive Brokers’ Portfolio Analyst. Past performance is not indicative of future results. Equity investments risk loss of capital. Would-be investors must consider the suitability of investments in light of their personal financial situation.