Hello reader, welcome to the latest issue of HX Weekly!

Each week we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Market

Patriotism On Memorial Day

This coming Monday, May 25^th will mark the 158^th time that America has observed the Memorial Day holiday.

It was first established way back on May 5,1868 to honor fallen Civil War soldiers. Back then it was known as “Decoration Day.” It wasn’t actually created by the government, but by General John A. Logan who was the leader of an organization of Union army veterans.

At the end of that month, on May 30, we saw the first large-scale observance held at Arlington National Cemetery. Flowers were placed for both Union and Confederate soldiers.

Late May was chosen for the observance because that is when spring flowers would be blooming nationwide.

Over the next century, the observance became more widely recognized. This led to the federal government officially naming it “Memorial Day” in 1967. The change culminated in 1971, when Congress made it an official federal holiday and moved it to the last Monday in May to create a three-day weekend. It has been celebrated in this form ever since.

Most of you already know this, but many may not: Memorial Day is a day set aside to mourn and honor the U.S. military personnel who died while serving in the United States Armed Forces.

While it’s never a bad time to thank a veteran for their service, that message is most appropriate for Veterans Day on November 11. Memorial Day is a good time, however, to talk with your family and with veterans about those who gave the ultimate sacrifice for our country.

Here in the small town of New Milford, CT where I live with my family, we will likely be attending the local Memorial Day Parade. There are many such events throughout America.

If you feel compelled, we highly encourage attending one, and especially with children. While we spend record dollar amounts on education in this country, we spend very little on our cultural history.

That is one of the many reasons that the concept of “patriotism” has declined over the few decades. One recent survey in 2023, showed just 40% of America’s reporting patriotism was very important to them or they held extreme pride in being an American.

 Those numbers are not bad but they fell by nearly 30% in just 25 years. They have almost been cut in half.

Why is this happening?

There are many reasons that are contributing, but one of the first is the evolution of our educational system.

When I was in school forty years ago, there was a tremendous amount of focus on not only American history, but also the history of Western Civilization. This began with Bible and went through the Greeks and Romans, through the Dark Ages and into the development of the Great European Empires.

Particular focus was put on the signing of the Magna Carta in England and the French Revolution. Those were both pivotal events in establishing modern Western democracies.

There was some time spent discussing other major cultures of that era, such as Persia, the Ottoman Empire, India, China, and Japan, but they were not a major focus. Growing up in Arizona, though, there was some discussion about the role native peoples played in the history of our region.

There was also a lot regional history taught in Arizona. The class was “Arizona History” and you took it for a full year with two major field trips. Arizonans got know their state.

If I had to put numbers on it, we were taught 70% Western World/US History, 10% native peoples, 10% rest of the world and 10% Arizona.

Sure, every state is different today but guessing those ratios look a LOT different today.

In our classes, there was considerable acknowledgment of the terrible mistakes made throughout these periods. They were recognized, but not dwelled upon or deconstructed in much depth.

The goal of the teaching was to take responsibility by appropriately and respectfully acknowledging the errors, while devoting the vast majority of the time to what was actually built and how it worked.

Again, guessing the system is balanced differently today.

Another factor is the number of people who have actively served in the military.

Here is a good chart from the Pew Research Center showing the percentage of the total U.S. population in the armed forces from 1940 to 2010…

Remember that when looking at these numbers, the actual number of people impacted by military service is probably two to three times higher than the number of those actively serving. This includes parents, spouses, children, siblings, cousins, and others who are all exposed to the realities of service life.

During World War II, it would not be hard to argue that half the United States population was in close contact with someone in the service. Today, that number might be 15% to 20%.

This is another way that patriotism has died down. We simply are not exposed to the folks that are serving our country and don’t have any perspective for them.

The changing educational system along with decreasing exposure to military service has then combined with our increasing political polarization. That polarization is partially a reflection of the educational system and all of it is amplified by social media.

While we have had anti-war and peace movements in the United States going back to the early 19^th century, it was not really until the 1960s that we began to see it become more aggressive. The massive protests of the Vietnam War era were primarily peaceful, but we began to see more violent movements emerge from them.

Here is another Pew Center study showing “negative” versus “positive” views by different age cohorts in America…

Overall, 60% of Americans are positive while 30% are negative.

You can also see a distinct age difference with the youngest being the most negative. This is pretty logical as they would be the first to have to go serve if there was a draft.

Interestingly, if you go back to 1939, only 35% of Americans approved of a military draft. In 1940, 96% of Americans opposed going to war with Germany.

However, after the fall of France in 1940 it changed quickly and by December 1940, 78% of Americans favored the military draft. After Pearl Harbor in 1941, 97% of Americans supported declaring war against Japan.

We are not saying that we would see those kinds of turn arounds in the number in Modern America, but we think an attack on our doorstep would likely change opinions very quickly.

As we approach America’s 250^th celebration this summer, it might feel like our PATRIOTISM is dying down. Factually, it has in many ways.

Our view, though, is that it doesn’t mean it is gone. Nor that it will not come back.

We think there are deep patriotic threads still woven into the American core and they will re-emerge in our times of need.

On this 158^th observance of Memorial Day, we hope you get a chance to honor those in your life who served.

Last year when we introduced our STP Algo Trader software, we shared a series of note going through our methodology in intense detail. Here is one of those notes and the one we think is the MOST important.

Enjoy.

HX Weekly Redux

Growth = Winning

Today, we are going to discuss the first of the measurements where we are looking for this positive trend. That measure is GROWTH.

The concept is simple and one of the most powerful in the stock market. Companies that grow see stocks that go higher.

As a practical matter, if you can find a company earning $1 today and earning $5 or $10 in the future, that stock will go up!

It may go up a lot or it may go up a little. It may go up as much as the growth, or it may go up more. It may go up sooner, or it may go up later. In all scenarios, though, it is going higher.

For example, look at the stock of Alphabet Inc. (NASDAQ: GOOG) or, as we all know, Google.

Here is the growth in EPS over the last decade…

Here is the price of the stock over that same period…

This is not an exception. It is the overwhelming rule.

The academic view of this relationship is that when you buy a share of stock, you own a share of the company. This means you own a share in the assets, operations, and – most importantly – future cash flows.

When you buy the stock, the academic argument is that the company's current assets and cash flows should be "discounted" into the price. This means that the stock is fairly priced based on the available market information.

This is referred to as the “efficient markets hypothesis.”

This idea implies that it is impossible to "beat" the market by identifying stocks that will go up more than whatever the overall stock market will go up.

As you can imagine – we do NOT agree.

There are many ways we could deconstruct this idea and show how it is both empirically and theoretically incorrect.

In this issue, though, we want to focus on the idea of growth.

While the hypothesis would argue that a stock should discount future growth, do we think a stock with earnings going from $1 to $5 will REALLY stay flat?

Sure, there are times when this could happen.

It could be that that $5 of future EPS is not sustainable for business reasons. This happens with highly economically sensitive or capital-intensive industries referred to as “cyclicals.”

For this subset of stocks, it is common for the share price not to move higher as the EPS grows.

When the stocks, though, go from losing money to making money, the share prices soar.

The market does a poor job of discounting the impact of periods where cyclicals lose money. We think the reality is that humans react emotionally and panic when they lose money.

Another instance could be that the stock trades at an elevated multiple. As the growth is realized, the multiple comes down towards a more average multiple. This also happens frequently.

What happens almost always is that if the company really posts extreme growth, the multiple does not compress nearly as much as the earnings growth. This means the stock goes higher.

Again, the market seems to do a poor job of discounting the impact of high growth.

We think the reason comes back to simple math and where, eventually, the real cash flow of a company will begin to intersect with the stock price.

At some point, if a company grows a massive amount, then it will produce a large amount of cash. They could return this cash to shareholders via buybacks or dividends if the stock price doesn't move.

This creates incremental demand for the shares (with the assumption of no increase in supply) and drives the price higher.

Eventually, growth intersects with the real world.

Ultimately, though, these are all academic arguments. Why do WE think that growth really matters?

It matters because the majority of the participants in the stock market have DECIDED that it matters.

One of our differentiated views of the stock market is the idea that stocks are NOT companies.

While you legally own a stake in the company, shareholders rarely see the benefits of the company's cash flow.

It doesn’t matter, though, because the market participants have decided this is the metric that counts.

Companies that GROW have stocks that go HIGHER.

For Signal Trader Pro, we are looking to identify stocks with strong market demand. We buy them when they get materially oversold.

High growth creates high demand for the shares, making them interesting to our system.

One last note – a concept we mentioned last week – is that the market primarily focuses on EPS. Companies that can post growth across all three of these measures, however, are showing the best fundamentals.

This creates the most interest amongst stock buyers and makes them the most interesting stocks for our system.

Identify growth and buy the stocks when they stumble, and you can change your financial future!

Market Wizard’s Wisdom

The Gridiron American Hero

In this week’s issue, and with the upcoming Memorial Holiday observance, we are going to recognize a different kind of hero.

His name was Pat Tillman.

Many of you may recognize the name, and for those from the native state of Arizona he was always a hero.

Pat was born in Fremont, California in 1976 as the oldest of three sons. He excelled at baseball and football and eventually earned a scholarship to attend Arizona State University.

While playing linebacker at ASU, he earned first team All-American honors. He helped ASU go undefeated his junior season and make it to the Rose Bowl. He also was voted the Pac-10 Defensive Player of the Year.

He excelled in school and graduated in just three and a half years with a 3.58 GPA and a degree in marketing.

Tillman was then drafted by his home state, the Arizona Cardinals, as a safety and quickly became a starter. He made it to the 2000 NFL All-Pro team and quickly began building his career.

He was fast, smart, tenacious and unquestionably one of the team leaders.

Then, the September 11, 2001, attacks changed everything. After completing the 15 remaining games of that season, Tillman turned down a $3.6 million three year contract to enlist in the U.S. Army.

Tillman and his brother Kevin enlisted on May 31, 2002. They completed basic training along with the Ranger Indoctrination Program and were assigned to the 2^nd Ranger Battalion in Fort Lewis, WA.

Tillman participated in the invasion of Iraq as part of Operation Iraqi Freedom and was later deployed to Afghanistan.

On April 22, 2004, he was reported to have been killed in a firefight there. While initially it was reported to have been from enemy combatants, eventual investigations discovered that it was most likely from friendly fire in the intensity of the fight.

There was a considerable amount of controversy around the circumstances of his death. Tillman himself, while a strong patriot, had his own doubts about the war in Afghanistan.

He was man of high conviction and strong opinions. Many of which did not fit the norms. He lived his life in that same manner.

Pat Tillman was cremated and his ashes were scattered in the Pacific Ocean.

There is still a Pat Tillman charity today called the Pat Tillman Foundation. They provide scholarships for military families. You can access them here.

While Pat was not an investor, he embodies the intelligence, passion and independent thinking that make up the greatest investors.

He also embodies the spirits of patriotism and sacrifice that have made America great.

He wasn’t a man of many words but here are a few quotes from Pat about life…

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].