The Juggling Unicyclist Who Beat 1,000 Mutual Funds

You probably wouldn’t think much of a juggling unicyclist. Other than the circus must be in town.

Especially one that played inventor in his spare time with such innovations as flame-throwing trumpets and rocket powered Frisbees.

Claude Shannon was anything but your average juggling, unicycling inventor. He also happens to be one of the greatest mathematicians and computer scientists of a generation.

Born in Petoskey, MI in 1916, Shannon loved to tinker with things. As a child, he fixed radios for the locals. He even converted a barbed-wire fence into a telegraph line.

So it’s no surprise that he landed as a research assistant at MIT after graduating from the University of Michigan in 1936.

Eventually, he moved onto the famed Bell Labs where he changed the world as we know it.

In 1948, Shannon published a paper “A Mathematical Theory of Communication.” In it, he introduced the concept of the “bit” in digital communication. That allowed for virtually error-free communication at full speed.

With that paper, Shannon created the field of information theory and ushered in the digital age. He revolutionized the way we communicate.

Without Shannon, we wouldn’t have things like cell phones, digital data storage or even the internet.

What Shannon showed in his work was that any communication channel has two characteristics: bandwidth and “noise.”

Bandwidth is the range of frequencies you can use to send a signal, or message. “Noise” is anything that can disturb that signal.

Ultimately, the problem he solved was how to ignore the noise. He proved that if you designed a system the right way, it could reduce or eliminate that noise. Meaning less interference.

While Shannon was a brilliant mathematician, he may also be one of the best investors you never even knew existed. He took his concepts from information theory and applied them to his portfolio.

He took anything he thought to be noise in the markets and immediately threw it out. He shunned price charts and technical analysis. And focused on what he thought mattered most: the underlying business of a company.

From the late 1950’s through 1986, he grew his portfolio by about 28% per year. Meaning Shannon doubled his money about every two-and-a-half years…for decades.

More than that, he beat more than 1,000 mutual funds over that period.

It was no easy feat. Yet Shannon figured something out about the markets that he realized about communications networks: there’s a lot of noise. The more you can filter out the noise, the better off you’ll be in the long run.

Today, there’s almost an infinite amount of noise out there. We’re constantly bombarded all day, every day with information from all sorts of places. On TV. On the internet. Or at the touch of a button on your phone.

You almost can’t get away from it. And ironically, it’s Shannon’s principle’s laid out in his 1948 paper that enabled all of these modern sources of noise to flourish.

Investing in general is hard. It’s hard to ignore all the loud voices pulling you in one direction. And the louder voices pulling you in the other. It leads to indecision. And ultimately it’s all that noise that can affect your results.

But if investing is hard, speculating – especially in our favorite tool at Strategic Trader, warrants – is even harder. There’s far more noise in the stocks of the small companies we focus on in Strategic Trader.

And because of that, they’re far more volatile. Something that can test your nerves.

There’s almost no better example of this than one of our Hall of Fame trades in warrants of Blink Charging.

When Strategic Trader launched in February of 2019, one of our first ever recommendations were the Blink Charging warrants.

The reason we recommended the warrants was simple. Electric vehicle sales were on the rise at the time. Yet the charging infrastructure across the country was still far behind. Blink was already one of the leaders in the space so we bet on a speculative boom in the company’s shares.

We didn’t get off to a great start with the recommendation. In fact, at one point, we were down 83% when the warrants traded for $0.17 about nine months after recommending them.

There was a lot of noise in those early days in the trade. And as long-time premium members know, it can take a lot of patience trading warrants. But things can also change in a hurry.

So we ignored the noise and held on.

Fast forward about eight months from the bottom and things looked far different.

Shares – and the warrants – started to take off slowly at first…then all at once. That’s when we sold half of the position to lock in some profit while holding the remaining position to play for a bigger prize.

It’s what we call a Free Ride, and it’s a big part of how we manage risk here at Strategic Trader.

It also helped manage the noise that showed up a month after taking that Free Ride in August of 2020.

With momentum clearly on the company’s side, an anonymous short seller released a report as an attack on the company’s shares. The goal was for this short seller to profit on shares falling.

After reviewing the report, it was clear this short seller was using a “Short and Distort” strategy. This is when they establish a short position, then release a report to the public in hopes of a big reaction so they can profit.

It was more noise but far louder than before with the stock surging up to that point. Again, we ignored it.  

That call was spot on. It didn’t take long for shares and warrants to recover and by the end of November 2020, we sold the remaining position for a 29x gain.

In fact, I know of many premium members who bought those warrants for far less than our official $1 recommendation price. Then sold for far higher gains than 29 times their money. Some for more than 50 times their money.

And it was all because we took a page out of Claude Shannon’s brilliant mind, ignored all the noise in the trade and cashed out for a spectacular gain.

The point is, when it comes to your portfolio or even individual positions, it may be best to take the Claude Shannon approach. Turn off the TV. Silence your phone. Shut out the noise.

In the end, you’ll probably make far better decisions. And as our long-time premium members know, you’ll have a better shot at far higher profits.

Regards,

Editor, Strategic Trader