My interview with Mark Minervini
Wednesday, April 20, 2011 15:45
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1. You often say the individual investor/trader has a great advantage over the Professional manager. What gives the individual investor the edge?
The biggest advantage that the individual investor has is control. With today’s technology, most traders can have the same tools as a pro. However, the individual trader has a tremendous advantage over professionals like mutual fund managers, mainly because they have greater liquidity and speed. This enables the individual to be more concentrated in a smaller list of well-selected names at lower risk because the individual can utilize stop-loss protection with little or no slippage. The individual, with a faster response time, can be more patient and strike at only the most opportune moments, which is the best advantage of all.
In my opinion, the individual investor, using the proper method, should be able to beat the S&P 500 Index every single year regardless of the market environment. You’re not running a mutual fund that must own eighty or a hundred different names, so you don’t have to be overly diversified. Thus, you can avoid the pitfalls that lead to compromises in quality. You don’t always need to have market exposure either. You can move to cash at will.
As an individual investor, free of the oversight of boards and committees, you can decide when it’s time to enter or exit the market and do so quickly because of your relatively small size. Therefore, you can concentrate your capital in a handful of topnotch names that you follow very closely. When there is a change in the picture, you can move in an instant. Speed, liquidity and autonomy are major advantages.
2. What creates explosive performance? As someone who has has demonstrated explosive returns over a long period of time, what is the real secret of explosive gains year after year?
Not losing or I should say not losing big is the most important principle for winning big. If you get yourself in a hole, then all you do is spend your time digging out of that hole. I spend the grand majority of my time concerning myself with assessing and managing risk. If you expose yourself to good risk/reward situations, then the profits takes care of themselves.
Specifically, you should not risk more than you expect to gain on average; I call that the “Cardinal Sin.” If you’re averaging say 10% on your winners at a 50% batting average, then you obviously can’t take 10% losses or you will lose money. As obvious as that may seem, most traders hold losses beyond their average gain quite often. Incidentally, we are currently in the process of developing Minervini Analytics, an online suite of calculators and spreadsheets that will help investors track their results, conduct post-analysis, and asses and manage risk.
Even worse than letting losses get out of hand is throwing good money after bad, which is to add to a loser. You should never average losers. You should also understand that you’re not going to achieve huge returns consistently by being overly diversified; 4 or 5 names to as many as 8-12 should be enough diversification if you take acceptable risks and manage that risk. It’s better to have a small list of well selected stocks that you follow closely than it is to be spread out all over the place.
3. Stock selection is critical to success. How can investors do a better job of selecting the right stocks?
Stock selection is indeed critical; however, it’s not nearly as important as managing risk and making good risk/reward decisions. You can pick the best companies, but if you manage the trade poorly you will end up losing money. The real Achilles heel of the average investor is risk management. Traders who do well consistently and stand the test of time, are those who understand how to put their money in a good risk/reward position. They’re not concerned with winning all the time, rather making more on winners than they lose on situations that don’t work out.
Most investors miss the whole point of trading, which is to make a profit. Most investors are too concerned with Monday morning quarterbacking and pampering their egos than they are at actually making big returns. They constantly adjust their plan based on emotions and end up frustrated and confused. This stems from a lack of defining style and objectives.
You’re not going to get the high or the low, so stop kicking yourself. If you can make more than you risk consistently you will achieve great results. You can rarely trade perfectly, but you can perfectly execute your plan.
SWSH is a good example. I bought the stock on 3-31-11 and sold it 5 days later for a 24% profit. If I held another 9 days, I would have realized an 84% gain! The point is: I achieved my goal; I made a decent multiple of my risk. Of course, I’m always looking to improve my trading: however, if I achieve my goal and make a decent gain, I have no regrets. Ringing the register and avoiding losses is how you rack up big returns. Stock selection is important, but stock selection is the easiest part of the equation.
4. Entry and exit selection is critical to success. How can investors do better job of selecting the right entries and exits?
The only thing you have direct control over is when you buy, how much you buy, and when you sell. In order to make those decisions to the best of your ability, it’s critical that you know the truth about your trading. Study your past trades, in particular your mistakes. If you make an honest appraisal of your results, this will allow you to hone your timing. Look for common denominators in your trading; things you do over and over. Strengthen your weaknesses until you have no weaknesses. That’s how you become a champion in anything. Much of what you need to know is in the results you produce. I can look at 15 or 20 trades that a trader makes and tell you almost everything about them.
5. How can traders shorten their learning curve?
You can shorten your learning curve by exposing yourself to good information and maybe a good mentor. The problem is, good advice is hard to find. We try to help people shorten that curve through our Master Trader Program seminar and through our daily interaction on our Minervini Private Access platform. However, even getting great advice, the one thing you cannot shorten is your experience curve; it takes time to learn anything worthwhile.
It’s important that you specialize. I know of no one who, for example, can successfully trade value in one cycle, and then switch to growth the next, long-term investing, and then day trader. Find a style and stick with it, learning all that you can so that you are truly an expert at something. Specialize on a specific approach. Once you define your style and objectives, it becomes much easier to develop and stick to a strategy and your learning curve will then accelerate.
The biggest advantage that the individual investor has is control. With today’s technology, most traders can have the same tools as a pro. However, the individual trader has a tremendous advantage over professionals like mutual fund managers, mainly because they have greater liquidity and speed. This enables the individual to be more concentrated in a smaller list of well-selected names at lower risk because the individual can utilize stop-loss protection with little or no slippage. The individual, with a faster response time, can be more patient and strike at only the most opportune moments, which is the best advantage of all.
In my opinion, the individual investor, using the proper method, should be able to beat the S&P 500 Index every single year regardless of the market environment. You’re not running a mutual fund that must own eighty or a hundred different names, so you don’t have to be overly diversified. Thus, you can avoid the pitfalls that lead to compromises in quality. You don’t always need to have market exposure either. You can move to cash at will.
As an individual investor, free of the oversight of boards and committees, you can decide when it’s time to enter or exit the market and do so quickly because of your relatively small size. Therefore, you can concentrate your capital in a handful of topnotch names that you follow very closely. When there is a change in the picture, you can move in an instant. Speed, liquidity and autonomy are major advantages.
2. What creates explosive performance? As someone who has has demonstrated explosive returns over a long period of time, what is the real secret of explosive gains year after year?
Not losing or I should say not losing big is the most important principle for winning big. If you get yourself in a hole, then all you do is spend your time digging out of that hole. I spend the grand majority of my time concerning myself with assessing and managing risk. If you expose yourself to good risk/reward situations, then the profits takes care of themselves.
Specifically, you should not risk more than you expect to gain on average; I call that the “Cardinal Sin.” If you’re averaging say 10% on your winners at a 50% batting average, then you obviously can’t take 10% losses or you will lose money. As obvious as that may seem, most traders hold losses beyond their average gain quite often. Incidentally, we are currently in the process of developing Minervini Analytics, an online suite of calculators and spreadsheets that will help investors track their results, conduct post-analysis, and asses and manage risk.
Even worse than letting losses get out of hand is throwing good money after bad, which is to add to a loser. You should never average losers. You should also understand that you’re not going to achieve huge returns consistently by being overly diversified; 4 or 5 names to as many as 8-12 should be enough diversification if you take acceptable risks and manage that risk. It’s better to have a small list of well selected stocks that you follow closely than it is to be spread out all over the place.
3. Stock selection is critical to success. How can investors do a better job of selecting the right stocks?
Stock selection is indeed critical; however, it’s not nearly as important as managing risk and making good risk/reward decisions. You can pick the best companies, but if you manage the trade poorly you will end up losing money. The real Achilles heel of the average investor is risk management. Traders who do well consistently and stand the test of time, are those who understand how to put their money in a good risk/reward position. They’re not concerned with winning all the time, rather making more on winners than they lose on situations that don’t work out.
Most investors miss the whole point of trading, which is to make a profit. Most investors are too concerned with Monday morning quarterbacking and pampering their egos than they are at actually making big returns. They constantly adjust their plan based on emotions and end up frustrated and confused. This stems from a lack of defining style and objectives.
You’re not going to get the high or the low, so stop kicking yourself. If you can make more than you risk consistently you will achieve great results. You can rarely trade perfectly, but you can perfectly execute your plan.
SWSH is a good example. I bought the stock on 3-31-11 and sold it 5 days later for a 24% profit. If I held another 9 days, I would have realized an 84% gain! The point is: I achieved my goal; I made a decent multiple of my risk. Of course, I’m always looking to improve my trading: however, if I achieve my goal and make a decent gain, I have no regrets. Ringing the register and avoiding losses is how you rack up big returns. Stock selection is important, but stock selection is the easiest part of the equation.
4. Entry and exit selection is critical to success. How can investors do better job of selecting the right entries and exits?
The only thing you have direct control over is when you buy, how much you buy, and when you sell. In order to make those decisions to the best of your ability, it’s critical that you know the truth about your trading. Study your past trades, in particular your mistakes. If you make an honest appraisal of your results, this will allow you to hone your timing. Look for common denominators in your trading; things you do over and over. Strengthen your weaknesses until you have no weaknesses. That’s how you become a champion in anything. Much of what you need to know is in the results you produce. I can look at 15 or 20 trades that a trader makes and tell you almost everything about them.
5. How can traders shorten their learning curve?
You can shorten your learning curve by exposing yourself to good information and maybe a good mentor. The problem is, good advice is hard to find. We try to help people shorten that curve through our Master Trader Program seminar and through our daily interaction on our Minervini Private Access platform. However, even getting great advice, the one thing you cannot shorten is your experience curve; it takes time to learn anything worthwhile.
It’s important that you specialize. I know of no one who, for example, can successfully trade value in one cycle, and then switch to growth the next, long-term investing, and then day trader. Find a style and stick with it, learning all that you can so that you are truly an expert at something. Specialize on a specific approach. Once you define your style and objectives, it becomes much easier to develop and stick to a strategy and your learning curve will then accelerate.
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