Mark Minervini, one of America’s most successful traders, is a 30-year veteran of Wall Street. He is the Author of # 1 Best Seller Trade Like A Stock Market Wizard; How to Achieve Superperformance in Stocks (McGraw-Hill; April; Hardcover and eBook formats: $27). Minervini has been featured in national media including Fox News, CNN, CNBC, Bloomberg, the Wall Street Journal, Barron’s, USA Today, BusinessWeek, and more. For additional information, please visit http://minervini.com He won the US Investing Championship in 1997 with an annual return of 155% and has also been featured in Jack Scwhager’s “Market Wizards.”
The ChartYourTrade Community was graciously granted the incredible opportunity to ask him a series of trading/investing related questions. We took the Top 12 questions from our audience which did not overlap any of his prior interviews (click to see Mark’s interviews on NewTraderU.com run by Steve Burns: Interview 1, Interview 2)
CYT Community: For someone just starting out who is attempting to trade part-time with little or no experience, where would you recommend they start?
Mark Minervini: You should read as many books as you can. Find a style that makes sense to you; most importantly, something you believe in, because you will need a strong conviction to get through the difficult periods. All strategies have periods of underperformance and every strategy will require a period of time to go through a learning curve. In order to be successful at any strategy, you must commit to it; otherwise, you will only become a jack of all trades and master of none. To make big money trading stocks consistently, you need expertise and specialization. Find a style that suits your personality and then master it.
CYT Community: What does the basic outline of one of your written trade plans look like?
Mark Minervini: The major elements of your trading plan should include:
- An entry “mechanism” that determines precisely what will trigger a buy decision
- The specific reasons why you’re entering a trade
- How you are going to deal with risk; what will you do if the trade moves against you, or if the reason you bought the stock changes suddenly
- How you’re going to lock in your profits.
CYT Community: A challenging aspect of trading is managing portfolio heat, especially in a strong market with many buy alerts going off. How do you manage this? Will you exit an existing winning trade in favor of a new breakout?
Mark Minervini: The goal of trading is to make a decent profit above the risk you take and do it over and over consistently. Worrying about getting the high or the low is fruitless and virtually impossible to accomplish with any regularity. Yes, I often will sell one stock to buy another. I may sell half of two stocks to finance a new full position. This way, I maintain my two positions and still get a new position on without increasing my overall exposure.
CYT Community: What percentage of fund ownership do you like to see in a stock (i.e. 20%, 60%, etc) Does the quality of fund ownership matter? If so, please explain.
Mark Minervini: I don’t mind companies that only have a small % of institutional ownership. I just don’t want to see too many funds in there and the stock getting too popular with the average investor. That could be an indication of a “crowded” trade. With smaller newer companies, you want to see institutional sponsorship increasing in recent quarters.
CYT Community: Recently you announced in twitter that you have a position in JACK. This particular stock shows negative sales quarters. What weight do you typically give to sales? Was there an exception made in this particular stock? Are there any other variables that you find outweigh the risk of slow sales?
Mark Minervini: A company can increase earnings from margin improvement, however, that will only go so far. At some point, sales are going to have to kick in. With JACK, it came out of a pretty nice base and was holding up relatively well. Without the sales kicking in yet, I have it on a short leash. If the stock price didn’t start moving up right away after my purchase, I would have probably just sold it. So far, it’s held up and I still own it. But, that could change very quickly.
CYT Community: On Twitter you mention that you have been increasing market exposure since Aug 15, 2014. If the market keep trending upward say for 3 months, will you be still making new stock buys or most probably just holding top positions?
Mark Minervini: If stocks are setting up and my current positions are working, I will entertain new buys. It’s when things are not working out well that I stop buying, or even sell off positions, especially if there are signs of distribution in the market.
CYT Community: What would prompt you to raise a stop? Where do you typically place stops that you’ve raised?
Mark Minervini: Once a stock moves up and make a new high after it goes through its first pullback or “natural” reaction, I usually start thinking about raising my stop. If I’m at a decent profit, then I’m going to protect my breakeven point more aggressively. I never want to let a good size gain go into the red. However, you don’t want to raise your stop too soon or you will choke off the trade.
CYT Community: Have you considered managing other people’s money? What advice do you have for an aspiring manager before starting down that path, positive or negative?
Mark Minervini: Right now, I’m not interested in managing other people’s money. I’m content running my own money, and I’m really enjoying helping others thorough my book and my educational services. If someone wants to go the route of money management, I would hope that they would have a track record of success running their own money first.
CYT Community: What elements do you consider the most important when sizing up the market? Leading stocks, major indexes, moving averages, distribution days (how many/what time frame) When do you move to 100% cash and when are you testing the water again?
Mark Minervini: The way stocks in my universe are acting is indeed the most important “indicator.” Not much else matters, because that’s what I’m trading. Even if the market averages are rising, if individual stocks are not meeting my SEPA® criteria, I won’t be able to take any positions. Once I’m invested, my stops force me out one by one. If I’m in cash, I start testing the waters when I see stock set-ups proliferate. I’m always watching the leadership.
CYT Community: What is your opinion about being in a new “Super Cycle”? Has this effected your trading at all? If so, how?
Mark Minervini: I’m not sure I even know what that means. Titles and labels lead to opinions. I try to keep my opinion to a minimum. I follow the stocks and place my buy orders based on when a company meets my SEPA® criteria. If there’s a bunch of names meeting my criteria, then it’s a good market. That’s really all I need to know.
CYT Community: Do you feel the market has changed at all since you won the US Investing Championship? If so, how? And how have you adapted?
Mark Minervini: Not much has changed. Things move faster because information flows faster. But, the market is the same as it was in 1930, and it will be virtually the same in 2130. Every 10 or 20 years, certain people like to say “it’s different this time” – usually to justify poor performance and make excuses. Trading is actually easier than ever.
CYT Community: There’s a fine line between being disciplined and sticking to a plan and being overly rigid with your plans. Do you allow for any gray areas in your plans to allow some flexibility/discretion? If so, can you provide some examples? If not, can you please explain why not?
Mark Minervini: When you have a sound methodology you want to be rigid with your principles, but flexible with your observations. The tactics you use to take advantage of fundamental truths may change, but the fundamental truths remain constant. Think of fundamentals as legs of a table. Regardless of what type of legs or material hold up the table, there are still four legs that maintain stability. If that makes sense?
Mike Lamothe: On behalf of the CYT Community, thank you so much for answering all of our questions directly and in such great detail!
If you’d like to learn more about Mark Minervini and the methodology he used to win the US Investing Championship, start with his book “Trade Like a Stock Market Wizard,” by clicking here.