Lesson #5 of 7:

"True Diversification - Part 2: Beating the Bears, the Bullies, and the Black Swans”

From: Dan Murphy

Corona Del Mar, CA

(Missed some of the prior Lessons? Click the links below to get caught up.)
Lesson #1
Lesson #2
Lesson #3
Lesson #4

When we left off Part 1 of this lesson yesterday we learned what “True Diversification” was. 

It’s a bit different from the standard type of diversification most people talk about. We learned how it can help us get the most out of a diversified portfolio.

Today I really want to dive into the biggest benefit of “True Diversification” for the one-man hedge fund. 

The bulletproof vest that keeps you safe from bear markets, bullying traders and bigger hedge funds, as well as protecting you from dreaded Black Swan events.

It’s like if you could store your money in a special bank account inside a Brink’s safe. 

Except this Brinks bank account is capable of yielding 66% per year or more.

That’s about 100X what most savings accounts yield.

Here’s how it works. 

By this point, you should be pretty familiar with the buckets system (if not, click here for a refresher on Lesson #2.)

Each bucket is seen by the Meta ML as a separate entity …

And, each bucket has a different set of strategies … trading different assets. 

We’ve also carefully removed any duplicate strategies that are too closely correlated to each other from all the buckets.

Essentially it’s like the Meta ML is incapable of trading in a vulnerable manner. 

Even if something absolutely crazy were to happen …

Say hyperinflation, like in the Weimar Republic, or even an asteroid hitting New York. 

If you were trading following a “one-man hedge fund” system, I would bet that you would be better off. Than almost anyone alive.

That’s the easy stuff, though. 

Everyone thinks it’s these big unlikely Black Swan events that are going to wipe out their portfolio. The type of things that happen once in a blue moon. 

The bigger dangers are the little things. Like structural changes to the way the market runs.

This can be anything from an official change of the rules to a larger hedge fund taking advantage of a weakness they found. Bullying the market into a new pattern.


Real Life Example: When a change in pit trading structure led to disaster for my “Smart Money” strategy. 

When most people imagine trading, pit trading is what they think of. 

A big open arena, with brokers shouting …


And so on. 

Well, it used to be this was the way most trading happened. More and more though trading has switched to being done all electronically.

In 2010, modernization came for the futures market. 

They switched to an electronic version.

Pit trading for futures shut down, almost all at once.

Instead of humans in a room trading, it was done online. 

This meant that the trading data was no longer coming from the same source.

Suddenly the buy signals and the sell signals on the “Smart Money” campaign completely reversed.

Eventually I wised up to what was happening, and it was a real learning experience. 

But if I had these “one-man hedge fund” techniques, it would have just been a flash in the pan. 


A two part defense.

There are two reasons that something like the pit trading change above would never cause an issue for a “one-man hedge fund.”

That’s right, I believe that this strategy is practically immune to the worst dangers a portfolio faces.

From the dreaded “black swan” …

To the far more insidious (and common) structural shifts, that can ruin a good strategy if left unchecked.

First …

Thanks to “true diversification” the strategy would have been one of many strategies in one bucket.

Best case scenario, the Meta ML would have caught the issue and started trading other strategies. 

Worst case scenario, only one section of my portfolio would have been trading a bad strategy. The other 75% would still be trading winners. 

The bad performance in one bucket would have been immediately obvious as something to look into.

Something that would have been lost as noise in a portfolio with regular diversification. 

Second … 

One look at the strategy through a matrix powered by some “weird math” and it would have jumped right out on the screen. 

DTW Matrix


Tomorrow we’re going to send another free strategy to your email. After that we’re going to press on with the last two legs of this training. 

We’ll see how to do the kind of weird math that can save you from even the most subtle structural changes.

Not to mention improve your trading that you would never have thought to even look for. 

And before that you’re going to discover the techniques I used to supercharge EVERY aspect of my portfolio to the Nth degree.