System Overview... Investment Allocation

MEMBER'S PAGE

The following two tables are samples. Members and those registered in our free trial receive information in this format each night after market close. Right now we'll use them as a training tool to explain how the system works and help get you started.

YOUR INVESTMENT PROFILE

The Stock-Optimizer provides investment allocation advice for five different type investors. These are referenced in the above tables. Eventually you will need to decide which Investment Profile below best fits your personality. For now just assume you are an Average Risk Investor as that fits our training examples which will follow.

Gigantic Risk...You are the river boat gambler type, you like to risk everything and thrive on the excitement. This brings frequent periods of very high reward but is also accompanied by periods of very high losses. Investors in this class will usually hover around 130% invested but infrequently find themselves as much as 200% long or 200% short. If you are willing to take gigantic risk be prepared for an occasional margin call.

High Risk...You like to ride the river boat but you don't necessarily want to live on it. You like big gains occasionally and are therefore willing to accept occasional periods of high loss. Investors in this class will usually hover around 115% invested but infrequently find themselves as much as 175% long or 100% short.

Tangible Risk...Riverboats can sink and you'd rather not go down with the ship if things go wrong. You'd like a shot at above average gains knowing there will be the occasional above average loss along the way. Investors in this class will usually hover around 105% invested but infrequently find themselves as much as 150% long or 50% short.

Average Risk...You are the more conservative type who likes the idea of a shot at better than average reward in return for average risk. Investors in this class will usually hover around 80% invested but infrequently find themselves as much as 125% long or 25% short.

Low Risk...You hate losses and want the deck stacked heavily in your favor at all times. Consequently you don't mind watching and waiting until the time is right to play. You understand that you won't get rich but you will most likely always do a lot better than your great grandmother who kept her money under the mattress. Investors in this class will usually hover around 55% invested but infrequently find themselves as much as 112.5% long or 12.5% short.

INVESTMENT INSTRUCTIONS

Each night the neural network provides a single Investment Instruction for each Investment Profile above. Low Risk Investors don't want their portfolio to be 175% invested or -75% invested. Gigantic Risk Investors will at times find themselves at these levels or even wider extremes. See the Investment Instructions table below, it assigns different Investment Instructions for each Investment Profile. A single row of these Investment Instructions is inserted into the Seven Day Cycle table each evening (second table from the top of the page).

Example: In the table below note the Instructions for a neural network prediction of 2... (-1.00, -.50, -.25, -.125, 0). In the Seven Day Cycle table these same Instructions appear on 2/8/07 when there was a 2 neural network prediction.

SEVEN DAY MARKET CYCLE

The neural network predicts the change in the S&P 500 seven market days out. Consequently, by design, each night the system suggests a 1/7th reallocation of your entire portfolio for the next market day. It does this by providing you with a single number, Your Optimized Portfolio Level. You will find this number in the table at the top of the page. For this example we are assuming you are an Average Risk Investor, therefore Your Optimized Portfolio Level for 2/10/06 is 64%.

THE FAST WAY TO START OUT

Assume you are an Average Risk Investor and you log on the website after market close on 2/9/2006. You are presented with the information at the top of the page. Per our Optimized Portfolio Level table, your Optimized Investment Level is 64% for 2/10/2006. 64% is the sum of the seven Investment Instructions found in the Seven Day Cycle table (second table from page top) divided by 7. See the Average Risk Investor column in this able...

2/9/2006, +.75
2/8/2006, -.125
2/7/2006, -.25
2/6/2006, +1.125
2/3/2006, +1.125
2/2/2006, +1.125
2/1/2006, +.75
........................
Total = 4.50... We then divide by seven, 4.50/7 = 64%

The next morning, 2/10/06, you would then revise your portfolio so that 64% is invested in your favorite stocks. That night, 2/10/06, you will get the next recommendation. Perhaps your Optimized Portfolio Level recommends an 80% investment level. The next morning, 2/11/06, you should purchase more stock, bringing your investment level from 64% to 80%. It's really very easy, each night you will get your Optimized Portfolio Level and then you adjust accordingly the next morning. One or two nights a week the suggested Optimized Portfolio Level will not change, it will be the same as the previous night. If so, no action will be required on your part. You won't be trading everyday.

If you are the inquisitive type you are most likely wondering why the above method works. The method is simple to understand, you are really only getting one number each night but the logic behind that number really isn't intuitively obvious. Therefore, below, I'll explain a slower way to start out. Both methods wind up getting you started but the method below provides a deeper understanding of what is actually happening.

THE SLOW WAY TO START OUT

Let’s assume you have $70,000 in your brokerage account, it's all invested in cash and you are an Average Risk Investor per our Investment Profile descriptions above. Since this is the slower method to get started you'll start out on 2/1/2006 instead of 2/9/2006.

Market Day 1 (2/1/2006): Looking at the Seven Day Cycle table we see the neural network prediction is a #3 on this day. Since we've assumed you are an Average Risk Investor your specific Investment Instruction is .75. This implies that you should go long 1/7th of your entire portfolio times the Investment Instruction, 1/7*$70,000*.75 = $7,500. The next morning you should move $7,500 from cash to your favorite stocks. Your total investment in stock is then $7,500.

Market Day 2 (2/2/2006): Our neural network prediction is a #4. Your Investment Instruction requires an $11,250 investment, 1/7*$70,000*1.125 = $11,250. You now have $18,750 invested in stock, $7,500 + $11,250 = $18,750.

Market Day 3 (2/3/2006): Our neural network prediction again is a #4. You invest another $11,250, you now have $30,000 invested.

Market Day 4 (2/6/2006): Our neural network prediction again is a #4. You invest another $11,250, you now have $41,250 invested.

Market Day 5 (2/7/2006): Our neural network prediction drops to a #1. 1/7*$70,000*(-.25) = -$2500, you now have $38,750 invested.

Market Day 6 (2/8/2006): Our neural network prediction is a #2. 1/7*$70,000*(-.125) = -$1,250, you now have $37,500 invested.

Market Day 7 (2/9/2006): Our neural network prediction is a #3. As on Day 1 you invest another $7,500, 1/7*$70,000*.75 = $7,500. The seven day cycle is now complete and you have $45,000 invested.

$45,000/$70,000 = 64%. Both methods get you to the same place, 64% invested. Once you are in full cycle mode, seven market days of investments made, the oldest Investment Instruction and corresponding investment becomes obsolete as the next one is added. You in effect replace it with the newest Investment Instruction. For those of you mathematically inclined, your Optimized Portfolio Investment Level is calculated in the same manner a seven day moving average is calculated.

IN SUMMARY

Our neural network makes a prediction how the S&P 500 will perform over the next seven market days. On Day 1 you invest 1/7th of your portfolio in that prediction. At the end of the seven market days that money is reallocated, invested in the next seven day prediction. Each day you are investing 1/7th of your funds in an optimal manner by following the neural network prediction.

If you are currently a frequent trader you won't notice much difference from what you are already doing, trading most every day. The only difference is our neural network will be telling you what your Optimized Investment Level should be each day. Over time you will start to notice that most of the time you will be more heavily invested when the market is moving up and lightly invested or net short when it is moving down.

One really great benefit is you'll never again have to worry about overall market direction. Stock-Optimizer does this for you. It's a great stress reliever... :-)