I have been rather disappointed with Jack Schwager’s Stock Market Wizards thus far, however I was extremely impressed with the Mark Minervini interview this week. Minervini trades growth stocks and does so very successfully. I was very interested to read about how similar his approach is to how I tried to trade for years. He led me to believe that perhaps my struggles were the result of too much emphasis on entry points.
Top Five Quotes From Market Wizard Mark Minervini:
“Stocks that are ready to blast off are usually very difficult to buy without pushing the market higher.” – Mark Minervini
This was Minervini’s explanation of why he doesn’t want to get his orders filled at good prices. He believes that if he is right, his order should move the price higher because it is heading that way anyways. I ran into this with quite a few stocks while trading O’Neil’s style. It was very difficult to buy them right at the exact pivot points because that is what everyone else is trying to do.
“They tend to be less familiar names. More than 80 percent of the stocks are less than ten years old. Although many of these stocks are newer companies, I avoid low-priced stocks. Stocks that are low are usually low for a reason. Typically, the stocks I buy are $20 or higher, and I never buy stocks under $12. My basic philosophy is: Expose your portfolio to the best stocks the market has to offer and cut your losses very quickly when you’re wrong. That one sentence essentially describes my strategy.” – Mark Minervini
This stood out to me because Minervini could also be describing O’Neil’s approach. While there are many approaches to stock picking, this is the one that makes the most sense to me. Minervini also admits that there are plenty of successful traders that trade exactly the opposite strategy. His point is that everyone must find a strategy that suits their own personality.
“Developing your own strategy is what is important, not knowing my strategy, which I have designed to fit my personality. Undestanding my trading philosophy, my principles, and my money management techniques, that may be valuable. Besides, I think most people over-emphasize stock selection.” – Mark Minervini
This is where the light bulb went off for me. When I was trading stocks using O’Neil’s principles, I focused almost exclusively on entry points and 7% stop loss points. What if I had much looser entry and exit requirements, but better money management and risk control? What if I had a systematic way to trade those types of high upside stocks? Then I would be able to expose my portfolio to high upside while limiting risk just as Minervini does.
“Perhaps the single most important factor was that I had a great passion for the game. I think almost anyone can be net profitable in the stock market given enough time and effort, but to be a great trader, you have to have a passion for it. You have to love trading. Michael Jordan didn’t become a great basketball player because he wanted to do product endorsements.” – Mark Minervini
I’m a sucker for Michael Jordan references, but Minervini is right. You simply can’t half-ass trading. I’ve tried.
“Being wrong isn’t a choice, but staying wrong is. To play any game successfully, you have to have some skill, an edge, but beyond that it’s money management. That’s true whether you’re playing poker or investing. In either case, the key is managing the downside. Good traders manage the downside; they don’t worry about the upside.” – Mark Minervini
I also love when traders reference poker. Again, perhaps my struggle with trading all along has been too much focus on entry points and not enough money management. If I traded more positions, with tighter stops, would I then be more likely to hit on some winners?
This Minervini interview helped me realize that there are other ways to trade growth stocks and that perhaps I could develop a systematic approach to do so.