The Investing Strategy Warren Buffett Couldn’t Beat

By Keith Kaplan

Listen to the audio version of this article (generated by AI).

 

Michael’s note: TradeSmith’s newest AI breakthrough just found a pattern buried in the options market… and our testing shows it’s flashed within 30 days of the biggest stock moves of the year. 

Today, TradeSmith CEO Keith Kaplan walks you through how we found this obscure edge by following the smart money.  

Keith will walk through this breakthrough on Tuesday, Aug. 25 at 10 a.m. ET at the 30-Day Wealth Accelerator event. And the following week, on Sept. 4, he’s holding a live Q&A to answer your questions about this new system. 

Sign up now for access to both events, and you’ll get the name of the stock his system is flagging right now. You’ll also get a free trial of the software behind it. 

Read on for more from Keith… 

Somewhere in 1.5 million patients’ medical records, an AI found a warning sign nobody knew to look for. 

It was a warning for pancreatic cancer, one of the hardest diagnoses in medicine to catch early. By the time symptoms show up, the disease has usually been growing for months. Eight or nine times out of 10, it’s already too advanced to cure. 

Then in 2023, a team at Harvard Medical School and MIT fed an AI those records – years of doctor visits, lab results, and diagnoses, covering more than 35,000 confirmed cases of the disease. 

None of these records were secret. Doctors and researchers have had access to this material for years. What they didn’t have was a machine trained to spot patterns hidden in the data. 

The pattern it found was a specific sequence of small, unrelated-looking details – a lab result drawn during a visit to the ER, a blood pressure change, a cyst noted years earlier – that showed up 6 to 18 months before diagnosis. 

It was an early warning nobody had noticed because nobody was looking for it the way the AI was.  

Doctors aren’t the only ones losing ground to these pattern-finding machines. The same thing has been happening in the market for decades. 

It started back in 1988, with a Wall Street fund run by math medal winners, physicists, and computer scientists who had never worked on Wall Street – folks responsible for one of the greatest runs of profits the world has ever seen. 

It’s the inspiration behind many of the hedge-fund level tools and strategies my team and I have created for folks like you – including our newest innovation, the Smart Money Edge. 

It’s a way to spot smart money buying patterns that show up before a stock jumps within a 30-day window. We’ve seen it happen ahead of FDA approvals, surprise buyouts, and earnings beats that caught even analysts on Wall Street off guard. 

I’ll get to the details on that in a moment. First, a look at how a fund full of mathematicians and physicists crushed the returns of arguably the world’s greatest investor. 

The Fund That Crushed the World’s Best Investor 

In 1988, if you’d put $1,000 into a fund run by the “Oracle of Omaha,” Warren Buffett, it would have grown to about $152,000 by 2021. A great return by any normal measure. 

But $1,000 invested instead in the Medallion Fund would have grown to $42 million. That’s more than 270 times what Buffett produced. 

Medallion didn’t buy or sell stocks based on earnings calls, management interviews, or economic forecasts – the things most funds still lean on. Instead, it traded on patterns its own researchers found buried in the data. 

Roughly 90 of the firm’s 300 employees hold Ph.D.s, almost entirely in math, physics, and computer science. The man who leads the firm today, Peter Brown, had nothing to do with investing until he was 38. Before that, his whole career was in speech recognition – teaching computers to find patterns in something as messy as the human voice. 

That fund became so successful it stopped taking outside money in 1993. Since then, every dollar it makes has gone to a small circle of the firm’s own employees and their families. Outsiders don’t get a look in. 

And it’s not the only place on Wall Street where mathematicians and machines have replaced human traders. Firms like Two Sigma and D.E. Shaw now manage tens of billions of dollars apiece running the same kind of approach Medallion pioneered – mathematicians and computer scientists instead of traditional stock pickers. 

And roughly 70% of all stock market trading volume is executed by algorithms, not people. 

It’s why, since I became CEO of TradeSmith in 2019, I’ve made it our mission to put these kinds of tools in the hands of regular investors. 

And it’s why I’m so excited about our latest project. It doesn’t look for patterns in historical price data like our other strategies do. It goes hunting for patterns in a place with less noise and a lot more signal. 

61 Million Trades a Day – What Are They Saying? 

The latest place we’ve turned this kind of pattern recognition is the options market – a corner of the market where big, sophisticated traders often place their bets.  

When insiders or well-connected money have a strong opinion about a stock, that opinion tends to show up there before it shows up anywhere else. 

For a lot of folks, options sound complicated, even a little dangerous – something for professional traders, not for someone managing a retirement account. So, they tune out what’s happening there entirely. That’s an understandable instinct. It’s also a costly mistake. 

The options market isn’t some side room. In 2025, more than 15 billion options contracts changed hands in the U.S. – averaging 61 million contracts a day. That volume is driven overwhelmingly by the same sophisticated, well-connected investors we’ve been talking about this whole essay. 

We’ve built a way to track that activity, and in our testing, it’s flagged real moves before they happened: 

  • Rocket Lab (RKLB) jumped 50% in a single day after beating earnings and raising guidance 
  • Vista Energy (VIST) jumped 32% after a surprise acquisition – even though the stock had been crashing right up until the news broke 
  • Oscar Health (OSCR) jumped 15% after strong earnings 
  • GameStop (GME) jumped 70% off a single social media post 

That’s what our system does. It tracks how much is being traded in a stock’s options, how it’s being traded, and how that compares to normal – across thousands of stocks, every day. We then use AI to check whether what’s happening is genuinely unusual for that stock, or just noise. 

We think it’s one of the most interesting patterns in the market today. Possibly one of the most lucrative. And most investors have never heard of it. 

Don’t Play This Outdated Game 

Here’s the part that matters even if you never look into any of this further. 

The market you’re investing in today isn’t the same one you learned to invest in. More of it than ever runs on pattern recognition, algorithms, and machines finding things humans can’t. That’s not a prediction – it’s already true, the same way it’s already true in medicine. 

If your edge is gut feel, cable news, or a “guru” on social media, you’re not just at a disadvantage. You’re playing an older version of the game, against opponents who upgraded years ago. 

If you want to see this pattern in action, I’ll be going through it all during my 30-Day Wealth Accelerator event. It kicks off Tuesday, Aug. 25 at 10 a.m. ET. 

I’ll show you how we track this activity, the current list of stocks it’s flagged, and how it’s performed in our testing.  

I’ll also be taking questions live on Sept. 4. So if you’re skeptical, you can ask me directly. It’s free, and there’s no obligation to do anything with the insights I’ll be sharing. Just make sure to RSVP here. 

All the best,

Keith Kaplan 
CEO, TradeSmith 

P.S. When you sign up, you’ll get immediate access to the top stock our system is flagging right now. You’ll also have the chance to access a trial version of our software so you can see for yourself how it works.  

Whether you watch or not, it’s out there working right now. To find out how to turn it to your advantage, here’s that link again.