Let’s face it: the investment game is rigged against average retail investors. The insiders on Wall Street have secret tools at their disposal and they’re not about to share them with you.

But here’s the good news: my colleague Jimmy Butts, chief investment strategist of the premium trading service Maximum Profit, has devised an investment system that beats the “Big Boys” at their own game.

Jimmy Butts (pictured here) agreed to sit down with me for a one-on-one interview over timely topics in the investment world. During the course of our discussion, he discussed how investors can turn the tables on the insiders.

John Persinos: What are the biggest risks facing investors right now?

Jimmy Butts: Two obvious ones are Federal Reserve policy and the U.S.-China trade war. But a major risk that I think investors have been underestimating is corporate debt.

The Fed recently changed its stance to become more accommodative after we began seeing market weakness in October 2018. Fed Chair Jerome Powell went from indicating that the central bank was “a long way” from getting interest rates back to normal, which at the time was interpreted as code for more rate hikes, to saying the Committee would be patient and sensitive to risks in the market.

The threat of rate hikes has quickly diminished. In fact, there’s now a higher probability that the Fed cuts interest rates as opposed to increasing them.

Then there’s the ongoing trade war with China that grabs headlines and shakes markets. This will likely continue to be the case until all parties can reach an agreement, but it’s hard to say if and when that will happen.

Finally, a big one that gets overshadowed by the former two is the corporate debt market. The ratio of outstanding U.S. non-financial corporate debt to gross domestic product has risen to an all-time high of 47%. And within the corporate debt market we’ve seen a massive issuance of low-quality high-yield bonds.

Keep an eye on those balance sheets as companies that have loaded up on debt might begin to falter. Look at General Electric (NYSE: GE). GE’s stock collapsed because of the company’s balance sheet. The company couldn’t keep up with its debt and pension obligations.

What are some of the most common investment mistakes that you see average investors make?

The biggest mistake I see investors make has nothing to do with understanding price-to-earnings (P/E) ratios or being able to read financial statements. Sure, being able to do those things is beneficial, but for most investors, the biggest mistakes happen because of their emotions.

The majority of investors have a hard time cutting losers and letting winners ride. What ends up happening is they book their profits too early and hold onto their losers hoping for them to rebound just so they can breakeven on the trade.

But the biggest detriment to a portfolio is letting a small loss swell into a big one. The percentages simply don’t add up.

For instance, if you’re down 50% on a position, you need a 100% return just to get back to even. It is no easy task to book a triple-digit winner. But the psychology behind cutting a loser is extremely difficult to overcome. Most folks believe that once they close that loser out, they’ve just confirmed that they’ve failed. Their ego and pride are hurt. But they have to realize that closing out a small loser is a victory. It’s a victory against a bigger loss.

This is why I’m a huge proponent of a rules- or system-based investing strategy. For instance, at Maximum Profit we have very clear buy and sell signals. By cutting our losers short, we avoid further losses and live to fight another day.

One of my favorite examples that I’ve shown readers of Maximum Profit is former holding Seadrill (NYSE: SDRL), the energy services firm.

Investors who got out of the stock when the system signaled “sell” were able to keep all their money (and even book a small profit). But those who invested with the “hope” mindset are still waiting… and have likely given up all hope because their investment is pretty much worthless.

As an investor, you will drastically improve your results if you become “okay” with the fact that you’re not going to bat a thousand and you make the decision to cut a loser short and not let your emotions begin dictating the trade.

There’s a school of thought that investors are transitioning away from momentum stocks and toward value plays. Would you agree? And if so, which sectors present the best values now?

I haven’t seen any evidence that investors are transitioning away from momentum stocks. The iShares EDGE MSCI USA Momentum Factor ETF (MTUM) has grown net assets from $2 billion in early 2017 to roughly $8.5 billion. And looking at fund flows for exchange-traded funds shows that the second largest redemptions in March were from the Vanguard Value ETF (VTV), behind only the iShares Select Dividend ETF (DVY).

Perhaps there’s a general feeling (not necessarily supported by data) that investors are flocking more towards value, or defensive-oriented stocks, which makes sense considering we saw a near 20% drawdown in the S&P 500 in Q4.

Anytime there’s market turmoil, some of the high-momentum stocks are clearly going to get hit first as investors take profits. We did it in Maximum Profit. Heading into December, we had cut our equity exposure down to just 40%, sitting with 60% cash.

And we took some profits off the table as our system’s sell signals were hit. For instance, we closed out of defense contractor Heico (NYSE: HEI) in December for a nice 70%-plus return.

The Federal Reserve has expressed dovishness lately on interest rates, which has buoyed investor moods. How long do you think this stance can last?

Well, as I told readers in 2014 and 2015 regarding the low-interest rate environment at that time, the Federal Reserve can and will keep interest rates lower for a lot longer than we think. And they did. I think the situation now is similar in that they can keep interest rates at current levels for a lot longer than we anticipate.

As I’ve already mentioned, the probability of the Fed increasing rates this year sits at zero, while the probability of the central bank actually decreasing rates has inched up.

How big a threat is inflation right now? Is inflation under control or are investors complacent about rising prices?

For the United States I don’t see inflation as a big threat. February’s Consumer Price Index showed just a 1.5% year-over-year change, which is down from July’s high of 2.9%.

Major commodities such as corn, wheat and oil are trading near multi-year lows, which is helping keep inflation at bay.

And with Fed Chairman Powell’s “wait and see” approach to interest rates, it’s clear the Fed doesn’t think inflation is a big worry.

You’ve often stated that the insiders on Wall Street have rigged the system against retail investors. How so?

Technology, speed and knowledge.

With the rise of high-frequency trading, the folks on Wall Street can receive, process and trade data in the blink of an eye.

Many of the top firms have sunk millions, if not billions into private fiber optic lines linked directly to exchanges, supercomputers, and algorithms that allow them to exploit minute movements and patterns in the market in fractions of a second.

For the average investor, this just isn’t possible. Most investors enter trades through their brokerage account, which is then sent on to the exchange. It’s like snail mail compared to Wall Street’s ultra-sophisticated capabilities.

What can everyday retail investors do to level the playing field?

Outside of building your own supercomputer with dedicated fiber optic lines, the playing field may never be “level” per se, but that doesn’t mean we can’t compete and win. You just have to find a strategy that works… and at Maximum Profit we’ve found one that works for us.

We’ve built our own algorithms and system that spots trades that are poised to deliver outsized returns compared to the broader market. We don’t day trade, we don’t use options, or any other derivatives. We simply follow the system’s buy and sell signals on regular ol’ stocks.

Editor’s Note: When you learn about Jimmy’s system, it may not seem legal. But I assure you, it’s fully within the letter of the law.

Jimmy has put together a presentation to show you a way to hack the stock market. Over the last year, he has used this ingenious method to get away with $37,000.

Want to know how Jimmy does it? Click here to find out.