Smart Signal System Update for January 2025
Note: this is a print version of the information emailed on February 11th for people who prefer reading over video.
System Performance Overview
Looking over the last 15 years through January 2025, the SmartSignal System* has maintained a compounded annual growth rate of 10.6%. The five-year return stands at 7.8%, impacted by the tough market conditions of 2022 when both stocks and bonds declined. That year disrupted many investment strategies, not just ours.
Over the last 12 months (January 2024 to January 2025), the system performed exceptionally well, returning 17.3%. The one-month return reached 2.7%, a nice short-term gain but not something to focus on much. Long-term performance matters most.
A 10%+ return over time represents a solid investment target. Following a system with that kind of return potential means you could quadruple your initial investment over 15 years.
*yes, this name is new and updated from the Growth Guardian System. I’m getting some of the branding worked out now. You will likely notice a few other minor changes in the coming weeks.
Clarification on Position Entries
This month, I realized I needed to clarify the entry timing and position changes thanks to a conversation with my system development partner, Bill at Applied Finance Research (AFR).
I had emphasized the importance of entering near the open in the morning on the last trading day of the month. Now, I would like to explain more clearly what’s actually best. First, let’s take a look at the “math” behind the position election process in the system.
How the System Determines Positions:
The system makes its decision at the closing prices of the last trading day of the month.
The system then shifts positions (if needed) based on those same closing prices.
In practice, no one can execute a trade at the exact closing price—not even a computer. The market closes at that price, and no trades occur after that moment. (Yes, technically, after hours trading is possible but that’s something for retail investors to avoid generally.)
The research and testing platform treats the decision price and entry price as identical, but this exists only in theoretical backtesting. While unrealistic, the approach still provides useful information.
Bill developed a workaround that closely mirrors system-tested performance. He has tracked results in two of his own live trading accounts for many years using similar decision/entry processes from the same testing platform as SmartSignal. In 2024, one of his accounts outperformed the system by 0.5%, while the other came within five basis points (0.05%) of the system’s results. These live results match systems results in previous years with similar ranges of difference.
How We Execute the System in Practice:
We get the system’s decision based on the closing price of the next-to-last trading day of the month.
The following morning, the last trading day of the month, I send you the instructions.
You execute the trade before lunch if possible—but by the end of the day at the latest.
Why aim for the morning? The last trading day of the month has a slight upward bias compared to the other trading days in the month. On any given day, the market rises 54% of the time and declines 46%, a slight upward bias already but not far from a coin flip. In the grand scheme, entering in the morning, midday, or afternoon makes a minor difference overall over time.
From month to month, we can expect to see minor variations (~.1% to 1.5%) compared to the official system generated performance but when averaged over a year or longer, these differences shrink into insignificance and are likely to align very closely.
Bottom line?
Get the system’s trade (if any) done on the last day of the month. Aim for the morning if possible but don’t stress if it happens later. Over time, the difference remains negligible.
Additional Note: The long-term live results track record compared to multiple system-generated results from AFR provides us great confidence that we – and you – can achieve with your live accounts effectively the same results of the SmartSignal System. Also, I opened a live tracking account with real money for the SmartSignal System on December 31, 2024. I will report on those results moving forward.
Market Update and S&P 500 Insights
Now, let’s talk about the market.
After hitting its 57th* new all-time high for 2024 on December 6 of 6,099, the market fell off for the next four weeks until mid-January. Rising again, the index hit its first new all-time high for 2025 on January 23 and then again on January 24 at 6,128. After a few weeks of sideways action, the S&P is again near its latest all time again in mid-February.
The 20 Year Chart with monthly prices for the S&P 500 Index
That seems really positive for the market and economy, right? Well, there’s more to the story.
For many years, many professionals have referred to the S&P 500 as "the market," however, that description has become less accurate. Right now, seven massive tech companies continue to have an outsized effect on the S&P 500 index. These seven companies dominate a significant portion of index gains, causing a gap between the market-cap-weighted S&P 500 and the equal-weighted version (where each stock carries the same weight).
Two Year Relative Performance Chart, S&P500 Index in red, Equal Weighted S&P500 in blue, and the NYSE Index in green
Looking at the equal-weighted S&P 500 and the New York Stock Exchange Index, we see a clear trend. The equal-weighted index has moved in sync with the broader market while the S&P 500 benefits disproportionately from gains in seven big stocks.
Right now, the index hovers near an all-time high, driven largely by those seven stocks. Meanwhile, the other 493 stocks in the index remain well below their collective high from three months ago along with the broad market as measured by the NYSE index.
What does this mean?
Nothing urgent—just something to keep in mind as you hear about any new all-time highs in the index and interpret that information with some context. That may be more about a few companies pushing the index higher rather than representing any robust health of the broader market. If interested, pull up a chart of the equal weighted S&P ETF with the symbol RSP for a better idea of what the broader market looks like
In any case, the SmartSignal System will adjust to market conditions as needed. Stick with the plan and let the system do its work.
*Just for reference, the S&P500 has hit an average of 16 new all-time highs a year since 1950, so 57 of them in 2024? Not too shabby.
Big Picture and Economic Risks
Let’s switch to a broader economic perspective. My dad mentioned an insightful interview with Paul Tudor Jones from two weeks back on CNBC. I consider Jones one of a few managers worth listening to given his exceptional track record.
Jones used the phrase “precariously perched” to describe the current situation and highlighted three major markets:
1. Fixed Income (Treasury Market)
When Trump first took office, U.S. Treasury issuance stood at $1.2 trillion annually.
Today, that number has surged to $2.7 trillion.
Key question: At what interest rate can the market continue absorbing this much debt? Higher debt issuance could put pressure on interest rates.
2. FOREX / Specifically Foreign Investment in the U.S.
In 2017, foreign investment in the U.S. totaled $8 trillion (40% of GDP).
Today, that number has doubled to $23 trillion (80% of GDP).
On the surface, this seems like a positive trend, but if tariffs or political issues slow this growth even slightly, capital inflows into the U.S. could drop significantly let alone what might happen if foreign investment starts getting withdrawn.
3. Stock Market
In 2016, the market’s price-to-earnings (P/E) ratio stood at 19.
Today, it sits at 25— very high. (For reference, the "normal" range for P/E ratios historically falls between 10 and 25. During the late-90s dot-com bubble, it peaked at about 30.)
If the market corrected by 30%, it would still remain slightly overvalued rather than moving into “cheap” territory.
Takeaways?
Jones made no predictions; he simply shared his observations of where things stand – precariously perched. We don’t know what will happen but we do know market conditions can shift rapidly.
That’s why we rely on a structured, rules-based system instead of reacting emotionally to market shifts. The system tracks market signals—we follow the system.
Closing Thoughts
Thank you again for your business. If you have any questions, feel free to reach out. The best way to contact me is at help@ggletter.com.
That’s it for this month—stay disciplined, and we’ll talk soon!
RJ
PS – What are you doing next Friday morning, February 28? Be ready for a system update email!