The King of Quants Has a Warning — and a New Tool to Go With It
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Michael’s note: Louis Navellier has been doing quantitative stock research for nearly 50 years.
He was running models on Wells Fargo’s mainframe computers before most people even knew what an algorithm was. And from that work, he invented his Stock Grader system that’s been used by millions of investors over the decades.
He’s also one of few analysts alive who has personally navigated eight bear markets — and kept his edge through all of them.
Last week, I sat down with Louis for a wide-ranging conversation about AI, the new collaboration he’s building with TradeSmith, and why 2026 reminds him of 1999 – for better and worse.
You’ll find an edited version of our conversation below.
And next week, TradeSmith CEO Keith Kaplan and Louis will hold a launch event for a brand-new, AI-enhanced system that combines the best of both our technology and Louis’ legendary Stock Grader. The webinar is free, and signing up will earn you limited time access to one of our most powerful momentum indicators. Get all the info right here.
Michael Salvatore: Louis, thank you for spending your time with me and my readers today.
Louis Navellier: My pleasure.
MS: You’ve been running quantitative models since the 1970s. Most people who use the word “quant” today mean an algorithm that’s been live for five years. You were doing this on mainframe computers before it even had a name. Where did it start?
LN: It started with a project at Wells Fargo. They’d just passed ERISA — the pension law — and the way lawyers were interpreting it, fund managers needed to match their benchmarks to limit liability.
My job was to figure out how to track the S&P 500 without buying all 500 stocks.
I isolated a 32-stock portfolio that I thought had the highest quality in the index. It also had a perfect correlation with all the industry groups, and a beta of one – meaning it was about as volatile as the index itself.
The problem was, I kept beating the market. And the job was to match it.
That exercise taught me that the market was rife with inefficiencies — stocks that had returns uncorrelated to the broader market.
Over time I layered in an eight-factor fundamental model — earnings growth, sales growth, margins, revisions.
So while I “failed” in my attempt to match the market with a smaller number of stocks, it wound up turning into my Stock Grader system, which I’ve been building and refining for close to 50 years.
MS: AI looks like one of the most crowded trades in a generation. How do you separate the companies building real businesses from the ones just riding the wave?
LN: Well, the key separating factor is earnings. And you can have all the doubts about AI that you want, but the fact is that these companies are posting record earnings right now.
We’re almost through earnings season, and the average S&P 500 company is up 29.3% year over year on earnings.
That’s the strongest earnings season in seven years. So forget every narrative-driven warning you’re hearing about AI. These companies have the numbers to back up the boom.
That said, I’m not buying everything. Stock Grader is tight right now. The top 10% is where you want to be. The top 20% isn’t bad. But below that, you’re taking on risk without the fundamentals to back it up.
The money in this market is very focused — like a garden hose on a strong spray, not a soft mist over everything.
MS: You’ve been saying this year reminds you of 1999. Now, 1999 was a great year for stocks. The Nasdaq 100 doubled that year alone. But not without a few bumps along the way. So what’s the connection you’re seeing?
LN: 1999 was actually one of my best years. We had some portfolios up over 100%. I have fond memories of it.
But what I’m watching is the pattern leading into the summer of 1999 — and what followed.
The market had a big run-up, then saw a correction in the summer. Many of the most popular stocks fell 25%, 30%, 50%. Then the market recovered and finished strong.
And then came 2000, of course. That’s when the Nasdaq topped out and didn’t see a new high for more than 14 years.
Now, to be clear, I’m long-term bullish. And the market we’re in today is very fundamentally different from 1999. Personally, I think we’re heading into 30% to 40% more gains this year because the fundamentals are in place.
But the summer pattern is something I think investors need to be prepared for — especially in the most crowded, most popular stocks. Those tend to feel the volatility most.
That’s actually one reason why this collaboration with TradeSmith matters so much to me right now. The tools Keith has built are specifically designed for exactly this kind of environment.
MS: You’ve been particular about what you put your name on over the years. What was it about what TradeSmith was doing that made you want to collaborate?
LN: What impresses me so much about TradeSmith’s software is how it automatically does what I’ve always done manually in my own research.
Essentially, it figures out a stock’s individual price behavior.
It understands that if a stock typically goes up, say, 12% on a big rally, it usually has to give back at least a third of those gains before the next leg higher. Sometimes two-thirds, depending on how strong the stock is.
What TradeSmith does is crack the code on those moves. It tells you when you’re buying on a pullback versus chasing a peak.
For the stocks I’m recommending — strong fundamentals, strong earnings growth — that timing layer can make an enormous difference.
I actually use TradeSmith software myself to track my own personal stocks. When Keith showed me what the combined system could do, especially in an environment like this one, it felt like a natural fit.
MS: The backtesting on the combined system showed something that surprised me — it wasn’t just that winners got bigger. There were cases where a trade that was going against you actually turned into a meaningful gain. A 4% win on Dover Corp. became 1,341%. A 9% loss on Fastenal (FAST) turned into a 463% gain. Does that match your intuition about where investors leave the most money on the table?
LN: Absolutely. And that’s one of the things I respect most about what TradeSmith built. My system tells you what to own. The timing layer tells you when — and when to get out before the damage happens.
A lot of investors hold a losing position too long because the fundamentals still look fine. The fundamentals can be fine, and the stock can still go the wrong way for months. Having a timing signal that tells you “the flow of funds has shifted, get out now” — that’s the piece that turns a loss into something you can recover from, or better, into a gain.
The stocks I find tend to be strong stocks. When the timing is right, they can move fast and far. The combination is what makes the numbers look like they do.
MS: Last question: Setting aside the summer volatility concern for a moment — what’s the single most important thing someone reading this should do differently with their portfolio over the next 30 days?
LN: Know what you own and why you own it.
In a market like this one, there are a lot of stocks going up. Some of them deserve to be going up — strong earnings, strong revisions, strong institutional accumulation. Others are just going up because everything is going up. Those are the ones that will feel the worst when volatility comes.
Run your portfolio through a grading system. Know whether the fundamentals are actually there. And have a plan for your exits — not a vague “I’ll sell if it drops too much” plan, but a specific, data-driven signal that tells you when the trade is over.
That’s what I do. That’s what TradeSmith does. And when you combine both, you’re not guessing anymore.
Louis and TradeSmith CEO Keith Kaplan are going live together on Wednesday, June 10 at 10 a.m. Eastern. They’ll be unveiling something they’ve been building together — a new way to use AI that Louis says is the most powerful upgrade to his Stock Grader system in the nearly 50 years since he built it.
Everyone who registers will get time-limited free access to one of TradeSmith’s strongest momentum indicators — the same one that powers the combined system.
To building wealth beyond measure,
Michael Salvatore
Editor, TradeSmith Daily