Profile image
By Stockopedia (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Mark Minervini Interview – A guide to superperformance from a stock market wizard

Thursday, March 2, 2017 9:51
% of readers think this story is Fact. Add your two cents.

(Before It's News)

When you’re trying to interview a man with a deadline to write a
book, finding a convenient time isn’t easy. When that man is
Mark Minervini, whose hectic days are split
between trading and finishing his eagerly-awaited new investing
guide – Think and Trade Like a Champion – the pressure’s
even worse. When I finally managed to catch him – one
evening after the market close in New York – he was generous
with both his time and his views.

For more than three decades, books have played a crucial part in
cementing Mark’s reputation as one of America’s most
closely-watched traders. This year sees the follow up to his
popular 2013 guide, Trade Like a Stock Market Wizard: How to
Achieve Super Performance in Stocks in Any Market
. That was
written 10 years after he was profiled in Jack Schwager’s Stock
Market Wizards
. In his new book, Mark’s promising to cover
everything that couldn’t be fitted in first time around.

So what’s his appeal? Mark started trading with very little
capital in the early 1980s. After several years of losses, he took
his strategy back to basics and got scientific with what was
working, and what wasn’t. It was a turning point that transformed
his results.

In 1997 he was named U.S. Investing Champion after smashing the
contest with a gain of 155%. It served to prove the effectiveness
of his strategy even under the most competitive conditions. Since
then, he’s won a huge following and built an education business on
the back of it.

In essence, Mark is a growth investor. He made his name shooting
for big gains in fast moving stocks with a strategy that blends
fundamentals, technicals and strict risk management. The process is
carefully laid out in his first book, with a particular focus on
getting the timing of trades absolutely right.

But what comes across when speaking to him is that the precise
strategy is very much a personal decision. What’s more important is
the belief and mindset to stick with it, and an unswerving
discipline to avoid big losses.

Mark, tell me about how you’ve evolved and developed
your strategy over time?

My strategy developed very simply because I had a small amount
of money and I wanted to turn it into a large amount of money.
 So I had to find a way to trade the markets and be able to
very rapidly compound my capital.

In the beginning I couldn’t do short-term trading or swing
trading like you can nowadays. Back then, commissions were more
than $175 per trade. With a small account back in the early 1980s,
with a few thousand dollars, I couldn’t pay that much commission
trading in and out. You had to pick up the phone and call your
broker, and he called someone that called someone else on the
floor, and it was a much lengthier process to make a trade.

Back then we would look for big moves in stocks. But now you can
trade for pennies and have instant liquidity so there is a lot more
in-and-out trading, swing trading and day trading. Over the years
I’ve refined it more and more to the point where I’ve got down to
pretty much a science. It’s still an art, but the science takes out
as much guesswork as possible.

Your strategy is very much focused on growth companies.
In terms of fundamentals, what sort of profile are you looking for
in a stock?

My books spell everything out much better than I can explain in
a brief interview, but from the fundamentals side, if you’re
investing in growth companies you’re obviously looking for signs of
growth. It doesn’t necessarily mean that just because a company is
showing decent earnings, say earnings are up 30% over the past few
quarters, it’s attractive. It’s really a matter of asking whether
it’s doing better than it was previously.

For instance, if you have a company that’s growing at 30%
annually, but prior to that it was growing at 80% or 90%, that’s
not very good because the growth has slowed. That’s what you saw at
Dell Computer in the 1990s. Dell was growing at a rapid rate but it
decelerated towards the end of the decade and the stock topped.

But if you take a stock that was previously losing money but is
now growing at 10% or 15%, that’s a big improvement from where it
was. That could actually do better than a stock with a higher
growth rate that’s actually slowing down.

Sometimes that confuses people, but it’s really the change in
growth rate that you’re looking for. Wall Street likes it when
things are going better than expected, and when a company suddenly
shows that its growth is accelerating faster than anticipated.

So I’m looking for big quarterly earnings growth. But sometimes
you’ll get big fundamental changes that aren’t apparent in the
earnings. Maybe you’ll have a company that has got approval for a
new drug and you might not see it in the earnings. So it depends on
the situation and the category a company falls in.

I treat various industries and different types of companies
differently. That’s why I break it down into four or five basic
categories. You have Market Leaders, Top
Competitors
, Institutional Favorites and
Turnaround situations. Those are the four that I usually
concentrate mostly on. Then you have Cyclical stocks,
which I tend to avoid, and anything involving mergers I tend to
avoid most of the time as well.

What advice do you have for investors when it comes to
honing a strategy and developing a trading style?

One of the problems for the average investor, particularly for
those that are new to trading, is that there is so much information
out there; information overload is common. There is more than one
way to skin a cat, and my way isn’t the only way. It just happens
to be the way that I know really well, and I’ve focused on for so
many years that I’m good at it.

You can have a value player buying stocks that I wouldn’t touch,
and they do very well. Whereas I’m buying growth stocks with P/E
ratios that are higher than a value investor would ever think of
buying, but we can both do well. The key is to really know your
strategy.

But you have to narrow it down and come up with something that
makes sense to you and then commit to it. You’re not going to be
good at a lot of different strategies. You have to make a
commitment to one area and spend time learning it so you become
really good at it, rather than just dabbling with different styles.
You want to be a specialist, not a jack-of-all-trades.

If you’re going to day trade, that’s a lot different from being
a long-term investor. There are going to be different rules to
follow – but it’s important to have a set of rules and a
process.

It took me a lot of years of course, being successful didn’t
happen overnight. I didn’t do very well for almost six years but
over time it started to click for me. Nowadays you have access to
information that can help shorten the learning curve. When I first
started trading, I had to go to the library. I was reading books
that were old and outdated, and it wasn’t as easy to get access to
good information like it is today.

On that subject, the investment environment has changed
a lot since you started trading. Do you still believe that the
individual still has an edge despite new developments like
algorithm-driven, high-speed trading?

Absolutely! If you’d asked the average investor in 1930 if it
was too complicated and whether the big, rich investors and
institutions had the edge, they’d have said yes. If you’d asked
them in 1950, 1980, 1990 it would always be the case. It’s always
the case that people feel it’s a rigged game and that the big guys
have the edge. Actually, it’s quite the opposite; the big guys
don’t have the edge. They have a handicap because they have to move
big amounts of money and their process is very slow and
lethargic.

The individual investor can move very quickly and has a huge
advantage. The smaller you are and the smaller your portfolio, the
bigger advantage you have. Nowadays, you also have the exact same
tools as almost any professional. You have access to the same
information, and laws have been changed to level the playing field
as far as the information flow. All your tools, your quotes, your
execution are as good as anybody else’s. So it’s a great time to be
a stock trader and it’s going to just get better and better.

Your approach has some of the hallmarks of other trading
legends like Jesse Livermore and Stan Weinstein. Who have been the
big inspirations in your trading, and what have you learned from
them?

I met Stan Weinstein back in 1990 at a big investment event in
New York City. He was a very colourful, fun guy and he really
impressed me with his passion for the market. That’s when I began
to fold-in the trend work. It really got crystallised for me after
I met Stan.

One of my biggest influences early on was Richard Love. He wrote
a book called Superperformance Stocks. Richard Love and
William Jiler are the two who really are the backbone of the
fundamentals side and the technicals side. Jesse Livermore would
also be one of my big influences. I would say that I am a modern
version of those four traders and I’ve combined and refined the
best of each.

Paul Tudor Jones is also someone who I modelled a lot of my
trading after, particularly on the risk management side.  As
commissions came down and I was able to trade quicker and cheaper,
I started applying the types of rules that futures traders were
using. That meant being much more aggressive with trading stocks,
and taking a more mathematical approach and mitigating the risk
quickly like if I were a highly-leveraged futures speculator.

Risk management is clearly a major part of your
strategy, and particularly cutting losses early. Where do most
traders go wrong with this, and why?

Most traders go wrong because they usually don’t have a good
strategy to begin with. For most, their egos are more important
than making money, and they don’t figure out how to differentiate
the two. When a stock goes down, they don’t want to be wrong so
they wait until it comes back. The loss gets worse and before you
know it, a big chunk of your capital is gone. They hit what we call
the ‘uncle point’ where your arm is twisted so far that you can’t
take the pain any more.

Do that enough times and you start thinking about throwing in
the towel; and when your confidence is damaged, then you’re
doomed.

Maybe then they’ll read a book like mine and decide that cutting
losses sounds like a good idea. They try it, the stock goes down
and they sell it and then it turns around and goes back up and
takes off and they think: “my god, I’ll never do that again,
that was stupid”
.

So you have to realise that you’re not going to be right all the
time, in fact you’ll likely be correct only about 50% of the time.
You have to manage the risk, that’s the most important thing. There
is a lot of risk in trading stocks. All stocks are risky and that
has to be managed. The goal of stock trading is to make more money
on your winners than you lose on your losers – it’s not to be right
all the time.

For some, it takes a while to shift their thinking, but you have
to focus on avoiding big losses by embracing smaller losses.

Selling at a small loss is one challenge, but knowing
when to sell for a profit is another difficult subject. What’s your
advice on how to run winners and how and when to exit a successful
trade?

In my new book what I’ve done is to try and cover all the things
I didn’t cover in the first book because I ran out of room! It
covers all my rules and the types of things that you should look
for when it comes to deciding whether you should hold the stock
longer for a larger move. But also when you should reduce or sell
the stock even before it hits your stop loss. There’s a whole
chapter on selling and a chapter on what I call “violations”.

The main thing is that you have to have rules. Without them
you’re just going to be operating from your emotions, your hunches
and the seat of your pants. It’s never going to turn out good when
you do it that way. So those rules should be based on a sound
philosophy, which means sacrificing. Let’s say you are going to be
a swing trader for instance, and you buy a stock at 20 and it goes
to 30 and you sell it. If the stock takes off and triples you can’t
be upset that you weren’t in it because you already accomplished
your goal.

Take day trading as another example. A day trader goes flat, to
cash, every night and is out of the market. They’ll go in there and
scalp the stock for sometimes a few pennies, or a nickel or a dime
or half a dollar. They’re not getting upset when they sell the
stock and take 50 cents profit on it if the next day it gaps up 5
points. It’s not part of their business plan.

It’s the same thing if you’re a long-term investor and you buy a
stock at 20 and it goes up to 25. You’re trying to play it for a
much bigger move and it comes back down and stops you out at 18 or
19 dollars. Now you’re a Monday morning quarterback and thinking
you should have sold it at 25. Again, if you’re playing for a
larger move, you’re going to have to sacrifice the shorter move. If
you’re going to play for the shorter move, you’re going to
sacrifice the larger move.

You must define your trading. You have to learn to sacrifice and
focus on a particular style, which is all based on having a
framework that you operate in. The whole idea of this scientific
approach is to remove as much of the emotion and as much of the
luck factor.

There are still going to be intuitive decisions to be made: What
to buy? When to buy? How much to buy? When to sell? There are
always decisions to be made and you’re never going to be truly
scientific, it’s still going to be an art. But that’s the beauty of
it. If it was purely scientific then you’d be able to put it into
an Excel spreadsheet or computer program and let it run, and humans
wouldn’t be needed and the edge would be gone. But that’s the
beauty about trading, there’s an art to it. That’s the challenging
part but it’s also what makes it so rewarding.

What was your best trading year, and what was your
performance?

One standout year was 1995, when I was up 412%, the 1990s were
good, of course. I was out in 2000 and came back in 2004 and had
some big triple digit years. Since then I’ve done very well and
been very consistent. I haven’t had any down years in perhaps 20
years. Early on, I had a lot of volatile periods when I’d do well
and then blow myself up in a few months of bad trading. These days
I trade more conservatively and without my whole net worth on the
line as I did in my initial years when I was trying to build my
capital.

When you look back, is there anything the stands out as
being a key moment in your trading?

As far as any one trade, not really, because I’ve traded
hundreds and hundreds of thousands of stocks and it’s not like I
had one big winner that accounted for my success. My returns have
really been produced through consistency and a lot of trading year
after year.

When I look back in time, back in the 1980s and early 1990s I
was more of an investor holding for larger moves out of pure
necessity. As a result, I got some really big movers. The names
that I was buying back then, if you look at them today you’d say
“oh, of course” – Amgen, Dell Computer, Microsoft, Costco, Home
Depot, Gap Stores, etc. But at the time few investors had even
heard of those companies, they were all small-cap, underfollowed
names. After that, it became sort of a blur because it was a lot of
trading and the stocks just became symbols that I was trading on a
daily or weekly basis.

Over time, how have your ambitions and the focus in your
life changed?

I’ve come to realise that my calling hasn’t just been trading
but it is also helping others. My editor told me I was a natural
born teacher. I didn’t realise it was something I was good at and
it wasn’t really something I planned on doing.

Back in the late 1990s I got in the public eye after winning the
U.S. Investing Championship and I was on TV a lot. As a result, I
was offered a lot of money by publishers to write a book, but I
didn’t because I didn’t want to give away the “secret”. I was
advising some very big institutions and I never saw myself dealing
with individual investors or having a retail product or doing
seminars. To me, I was a just a trader and I wanted to avoid all
that. The reasons why I started trading in the first place was that
I could be in a room by myself and be responsible for my own
success.

But that all changed as I started thinking about passing the
torch. When I wrote my first book I was not even sure if anyone
would even like it. Then I did a seminar and that turned into a big
success and I’ve been doing it ever since. So it feels like my
ultimate calling is to be an educator; it feels really good when
people tell me that I’ve helped them improve their lives.

One of the things that I always tell stock traders is that while
you can read about the mechanics behind the big returns from
superstars, it’s probably not going to get you the same sort of
success unless you feel that you can do it and it’s possible and
you believe in your own abilities.

A big part of me writing a book and doing workshops is to
empower people to help them understand that not only can they do
what I have done, but with the benefit of my knowledge, they can do
even bigger and better than what I’ve done. Ultimately, a belief in
your own abilities is more important than the strategy.

'Stockopedia - Stock Market Research Network' target=
"_blank">Stockopedia



Source: http://www.stockopedia.com/content/mark-minervini-interview-a-guide-to-superperformance-from-a-stock-market-wizard-173828/

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories
 

Featured

 

Top Global

 

Top Alternative

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.