TrimTabs Investing: Using Liquidity Theory to Beat the Stock Market


  • Format: PDF
  • Pages: 209
  • Published Date: 2005


TrimTabs Investing shows you how to beat the major stock market averages with less risk.  This groundbreaking book begins by comparing the stock market to a casino in which the house (public companies and the insiders who run them) buys and sells shares with the players (institutional and individual investors).  TrimTabs Investing argues that stock prices are primarily a function of liquidity—the amount of shares available for purchase and the amount of money available to buy them—rather than fundamental value.  Finally, it outlines the building blocks of liquidity theory and explains how you can use them to predict the direction of the stock market.


Buy-and-hold investors whose stock holdings have swelled to become a fortune are often mistaken about why they are successful. While they often boast about their investing prowess, the 200-year bull market driven by the record-setting U.S. economy is actually responsible for their success. In other words, they confuse wisdom with a bull market. Many investors who began playing the stock market casino in the late 1990s buying Internet start-ups on tips from friends or brokers lost nearly all of their money. Yet investors who did their homework and bought a basket of good quality companies even though at inflated prices—such as, Cisco Systems, eBay, Intel, Johnson & Johnson, Pfizer, WalMart, and Yahoo!—will probably do all right if they hang on to their holdings for the next generation or so.

Liquidity theory is designed for sophisticated investors who want to achieve higher returns than those available through dollar-cost averaging or buying and holding the stocks of great companies. As this book explains, liquidity theory holds that the stock market is no different from the market for any other good. As in other markets, stock prices are set by supply and demand, not fundamental value. In other words, stock prices do not change based on changes in expected future earnings, as most people on Wall Street claim. Instead, they are determined by changes in the number of shares in the stock market and the amount of money available to buy them. Liquidity theory uses this information to predict the direction of the stock market.

TrimTabs Investing details a unique investment strategy not explained in other books. Whether you are a hedge fund manager with $250 million in assets under management or an individual investor with a small nest egg, this book shows you how to put the power of liquidity theory to work in your portfolio. Assuming the U.S. economy continues to grow between 3 percent and 6 percent annually over the next few decades (and I will discuss below why I believe this level of growth is quite realistic) investors who follow liquidity theory will likely amass great fortunes over time. How can I be so sure? TrimTabs clients who have invested according to liquidity theory have trounced the major stock market averages over the past decade.


  • A Tale of Fortune Lost
  • The Genesis of Liquidity Theory
  • The Principles of Liquidity Theory
  • The Building Blocks of Liquidity Analysis
  • Demolishing the Cult of Earnings
  • The House: Secret Corporate Power
  • The Players: Buying, Selling, and Borrowing
  • Looking Back
  • The Bull Market and the Bubble
  • The Aftermath
  • Swinging for Singles: Lower-Risk Strategies
  • Swinging for the Fences: More Aggressive Strategies
  • Managing Difficulties
  • New Applications
  • How Liquidity Could Save the Markets