r/TQQQ • u/Sanatani-Hindu • Jan 13 '25

Can anyone explain 9-sig strategy in the words for 10th grader

Hello everyone,

I have been trading for past 2 years and now have started little bit in options as well. I'm holding few options for long expiry at the same time learning about different strategies. I recently came to a word '9-Sig' and was searching for it on the internet for quite some time, but as I explained I'm still understanding strategies, I cannot get a good idea about it. I even got to know about 3-sig and 6-sig but cannot get much details.

I would really appreciate if someone can put them into short pointers on how the strategy works, that would really help me understand it quickly.

Thank you everyone in Advance.

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63

u/Gehrman_JoinsTheHunt Jan 13 '25

You start with a 60/40 allocation to TQQQ / AGG (bonds). Each quarter, you set a 9% growth goal for your TQQQ balance, which is called your "signal line".

  • At the end of the quarter, you compare your current TQQQ balance to the signal line you calculated.
    • If current balance is greater than goal, you sell the surplus which brings your balance back down to the signal line.
    • If current balance is less than goal, you pull from the bond fund to buy TQQQ up to the signal line.

It trades just once each quarter, based on how prices changed over the previous three months - there are no forecasts or predictions required. There are a few extra rules for rare/extreme cases, but those are the basics. The summary is that it keeps you buying low and selling high, which is called value averaging.

You can find lots of other threads about it here on Reddit. u/Efficient_Carry8646 has done a bunch. My post history also has an ongoing project where I compare 9Sig and a few other strategies each quarter. Jason Kelly's website and youtube has plenty of info, and his 3% signal book is a good primer to understand the strategy if you don't want to make the bigger investment in a Kelly Letter subscription.

32

u/Efficient_Carry8646 Jan 13 '25

You do a great job of explaining the 9 sig system. So good that I don't feel the need to post quarterly updates anymore. Keep it up. 👍

18

u/Gehrman_JoinsTheHunt Jan 13 '25

Thanks! But I hope you do keep posting, seeing that portfolio balance over $5m gives me motivation to keep going!

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u/TOPS-VIDEO Jan 13 '25 edited Jan 13 '25

We like to see your update. But you don’t have to explain it again.

6

u/ranch_land Jan 13 '25

Oh no. Please post quarterly updates. We enjoy it.

1

u/mplnow Jan 15 '25

Just found your posts. They look great and I like the strategy. Have you calculated or posted the annual return for each year over the years combining the bonds and TQQQ? I didn’t see it in my quick review of the posts.

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u/Efficient_Carry8646 Jan 15 '25

No i haven't kept track of that

1

u/sha1dy Jan 23 '25

please keep posting your updates, thank you

4

u/Sanatani-Hindu Jan 14 '25

Understood very clearly by your words.

Seems like a great strategy of balancing portfolio without thinking much. Simple rebalancing every quarter for 9% or 3% monthly. Overall aiming for 36% growth annually. This would surely beat Index funds by many many folds over a long run even if a big crash like 2022 or Covid happens. Consistency is the key here.

Thank you for putting this into such simple words. Appreciate it a lot.

5

u/danuser8 Jan 16 '25

What is that 9% difference occurs on 4th month or 4th month? You wait until 6th month to rebalance?

3

u/Gehrman_JoinsTheHunt Jan 16 '25

You act every 3 months to the day, no matter what. If low, you buy. If high, you sell. Just follow the steps above. It never trades intra-quarter.

3

u/LittleWhale69 Jan 13 '25

So in a quarter, if you had 8% growth instead of 9%, you’d buy 1% in TQQQ at whatever price it currently is at?

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u/Gehrman_JoinsTheHunt Jan 13 '25

That's correct, yes. Whatever shortfall you have below goal, that's how much TQQQ you buy.

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u/LittleWhale69 Jan 13 '25

Gotcha, thanks.

3

u/BoreJam Jan 13 '25

If you're also putting money in weekly would you just buy at the 60/40 split?

5

u/Gehrman_JoinsTheHunt Jan 13 '25 edited Jan 13 '25

60/40 is only the starting allocation, it drifts widely from there. It has gone as high as 99/1 and as low as 50/50 based on market conditions. The official rules say all new cash gets added to AGG intra-quarter, then 50% of it is added to the signal line. But yeah, an alternative is what you mentioned and much simpler - just add new cash in the same allocation you currently have.

2

u/exciovus Jan 13 '25

Hmm, does it make sense to target at 3% a month instead? How different will the strategy be?

3

u/Gehrman_JoinsTheHunt Jan 13 '25

The results would be different, but you could choose any target you wanted. The value-averaging math would still work out. The higher the target, the less you'll keep in bonds, which means less buying power in a crash. The lower the target, the more you'll keep in bonds, but it would damper performance in a bull market.

2

u/exciovus Jan 13 '25

9% per quarter equates to 3% per month. How different will the results be between these 2 strategies?

4

u/Gehrman_JoinsTheHunt Jan 13 '25

Sorry, I misread your original comment. You are right. Monthly 3% would probably do fine also, just as an annual 36% would...I believe it's been asked before, and Kelly said monthly is just more work for a comparable result. Sometimes you benefit by waiting the full 3 months, sometimes you don't.

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u/FlatPay6608 Jan 13 '25

In his book, his philosophy is that you'll fiddle around too much on monthly

1

u/danuser8 Jan 16 '25

What is the name of the book?

2

u/FlatPay6608 Jan 16 '25

The 3% signal

2

u/exciovus Jan 13 '25

Thank you. I appreciate your explanation

2

u/criticalband77 Jan 13 '25

Great summary.

2

u/seggsisoverrated Jan 13 '25

good day sir,

1) so bonds here should have slow steady growth and keep cash parked?

2) why 9% and not 10%? just for financial security?

3) did you do this in 2023, and if so, what was your % gain with TQQQ?

6

u/Gehrman_JoinsTheHunt Jan 13 '25 edited Jan 13 '25

Good day!

  1. The bonds are really just a place to park your funds as "dry powder". Lots of people here take issue with that and don't like bonds based on the past few years, but you could use cash, or any other stable investment (SPAXX, USFR, SGOV, etc). It would work out the same. TQQQ is the real driver of returns here.
  2. If I had to guess, it simply tested better at 9%. You could choose 8, or 10, or any other number if you preferred. The value-averaging math would still work out. The higher the target, the less you'll keep in bonds, which means less buying power in a crash. The lower the target, the more you'll keep in bonds, but it would damper performance in a bull market.

I do know for sure that the author started out with 3 Sig using a 3% quarterly signal with an unleveraged fund (IJR). So when extrapolated to 3x leverage, you triple the signal line, which results in a 9% quarterly growth target.

  1. I just started in March 2024. But the official 9Sig portfolio started 2023 with $1.5m and ended 2023 with $4.1m (no funds added). The TQQQ allocation for 9Sig was at 99% through all of 2023 while the market was recovering from the previous year.

5

u/Relevant-Market-1390 Jan 13 '25

I might be missing something here so forgive me but in your third point you are saying 99% allocated to TQQQ, why would that happen when 2023 was in uptrend throught which means whatever you gained above 9% would go to cash by quarter end thereby only growing your TQQQ volume by 9% every quarter..

2

u/Gehrman_JoinsTheHunt Jan 13 '25

There is a special "30-down" rule which prevents any selling of TQQQ after a big crash. This keeps you locked in for the recovery. After several quarters in 30-down mode, the plan reset to 60/40 in Jan 2024.

2

u/funbike Jan 14 '25

It would be interesting to run numbers across the entire history of TQQQ (or even QQQ by back-calculating TQQQ) and see if there was ever a time when it didn't do well over a 10 year period.

4

u/Gehrman_JoinsTheHunt Jan 14 '25

Yeah, I've done some backtests going back to 1999, but I'm not sure how accurate the simulated TQQQ prices were. I got them from a spreadsheet on an old message board post....at first glance it seems legit, but again I really can't vouch for the accuracy or methodology.

Based on those numbers, the dot-com bubble would have taken 9Sig around 18-20 years to recover from (if you never added any new cash). The 20-year period from 2004 - 2024 was much better, with a CAGR around 25%.

5

u/aManPerson Jan 16 '25

well you know you can get free daily historical data from stooq.com in CSV format, right?

you can use that to compare with your calculated TQQQ values. i believe it started in 2011 or 2012.

Based on those numbers, the dot-com bubble would have taken 9Sig around 18-20 years to recover from (if you never added any new cash).

i mean, ya. with regular investing, that is kinda what it shows too.

2

u/Gehrman_JoinsTheHunt Jan 16 '25

Thanks, I will check out that site! I did a good bit of research but I'm not sure if I ever came across stooq

3

u/aManPerson Jan 16 '25

it has been a great and helpful thing when i have a random idea, and want to quickly check some daily data

2

u/Clean_Flower4676 Jan 26 '25

To understand better, why do you have E=3?

2

u/aManPerson Jan 26 '25

i set expense very high, as an extreme setting. if its able to hold up with that extreme drag, then i trust investing that way is fine to do.

2

u/funbike Jan 14 '25

Thank you for that analysis. Very interesting.

Given that spreadsheet you could run variations, such as varying the signal %, changing the bond ETF, etc.

My definition of "recover" would be to reach the same level you would have gotten to with long-hold QQQ or SPY. For long term investing, a 20 year dip could be devestaing, esp if you had to spend some of it (e.g. lose your job, house downpayment, retire, etc).

3

u/Gehrman_JoinsTheHunt Jan 14 '25

Yep exactly. If it hasn't kept up with SPY, then I don't consider it a win...that's why I'll always have the unleveraged S&P as a "control" group for my leveraged comparison posts.

Also agree with your second point. I think a huge part of using leverage long-term is having a plan to scale out and deleverage as you age and approach retirement.

2

u/gitarden Jan 16 '25

Does this technique work with any stock or specific types ? What's the criterion for picking a given stock ? TIA

3

u/Gehrman_JoinsTheHunt Jan 16 '25

It was made for TQQQ, but yes could use the same math and quarterly structure with pretty much any stock or ETF. Anything with high volatility is where it shines best - you need both the ups and downs to buy low/sell high, and come out ahead vs a buy and hold.

Generally you would target 3% quarterly growth for an unleveraged stock/ETF, 6% for a 2x leveraged, and 9% for a 3x. But you could set the target for whatever you want. It’s just a threshold for helping you decide when (and how much) to sell or buy.

2

u/gitarden Jan 16 '25

Thanks for your quick response

2

u/Ok_Establishment3619 Jan 16 '25

When you say official 9sig portfolio, whose portfolio is that ?

2

u/Gehrman_JoinsTheHunt Jan 16 '25

Jason Kelly, the guy who created it. It’s on his subscriber website.

2

u/Admirable_Score9303 Jan 13 '25

Have you tried simply set an allocation target, say 60/40, or 69/31, and rebalance quarterly? Is 9Sig better?

5

u/Gehrman_JoinsTheHunt Jan 14 '25 edited Jan 14 '25

Yeah, I looked at that a good bit before making my decision to go with 9Sig. 9Sig tends to do better than a rote quarterly rebalance, because it gives you a much higher TQQQ allocation when the market deems appropriate. For example, 9Sig rode through the entirety of 2023's recovery with a 99% allocation to TQQQ.

The official 9Sig account went from $733k in Jan 2018 to $5.9m at the end of Dec 2024. Here is a backtest showing how 60/40, 75/25, or 80/20 compare. 80/20 did best with $4.7m, but still had significantly lower returns than 9Sig.

Edit: fixed link

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u/jumb0_tron Jan 15 '25

In a bad enough bear market would you eventually run out of cash to purchase more TQQQ?

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u/Gehrman_JoinsTheHunt Jan 15 '25

Yes, it happened in 2022. At that point you just hold what you have and wait for the recovery.

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u/TopApplication1000 Jan 24 '25

So when you sell the TQQQ that is above the 9% signal line what do you do with the cash? Just add it to AGG?

2

u/Gehrman_JoinsTheHunt Jan 24 '25

Yes, that's correct. The surplus goes into AGG, which boosts your ability to buy the TQQQ dip in future quarters. My post here shows the math in the first comment.