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20 Wisdom Points from the Book ‘Superperformance Stocks’

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings.

3.  A Superb Company Does Not Necessarily Have a Superb Stock. There are no sure things in the market

There has been a considerable amount of investment advice over the years that has advocated buying quality. ”Stick to the blue chips,” it said, “and you won’t be hurt.” But the record reveals that an investor can be hurt severely if he buys a blue chip at the wrong time. And even if he does not lose financially, he usually has gained very little, particularly considering the risks he has taken. (more…)

10 Insights from Benjamin Graham

  
  Education
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Benjamin Graham doesn’t need an introduction. His sober look at the stock market has built an enormous following and for a good reason.

1. “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”   –  It is true that perfumes come and go out of popularity, but no trend lasts forever. There are trends that last 3 months; there are trends that last 3 years.

2. “Obvious prospects for physical growth in a business do not translate into obvious profits for investors.” – it depends on to what level has the expected growth been already discounted. The truth is that it is really hard to forecast growth in quickly developing businesses. The market always overdiscounts at some point, but in the meantime trend followers could make a killing. You never know how long or how fast a trend could go.

3. The only constants in the markets are change and uncertainty. Not only business environment changes, but also people’s perceptions of stocks change.

Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies’ performance like a hawk; but he should give it a good, hard look from time to time.

4. Different catalysts matter for the different time frames:

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

5. The difference between a trader and investor

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.

6. How to think about risk (more…)

Bruce Berkowitz's Basic Checklist For Investing

  
  Education
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1.Can you kill the investment? Is there adult supervision at the company?
2. Is the company essential? Does it depend upon the kindness of strangers?
3. What can the company make? Reasonable profitability for owners?
4. How are owners paid? Distributions?
5. Management – honest in past and present?
6. Does accounting reflect reality?
7. Does the balance sheet match up with the income statement?
8. Catalysts – Buybacks? Misunderstood? Is enterprise having a big problem that is fixable? Everyone’s been burned by the stock so afraid to buy it.
9. Are there irrational fears of current headwinds?
10. Does the business have pricing power or unit growth?
11. Can you hold the investment for a long time & does it improve portfolio performance?

Mark Cuban On Story Stocks

  
  Education
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Don’t Miss to Read :
Different catalysts matter for the different time frames. In short-term perspective, price momentum is the most powerful catalyst. Short-term could sometimes be a couple years in the market. Here are a few wise words, written in 2004, by someone who has been on both sides of the table – as a shareholder and company owner:

For years, a company’s price can have less to do with a company’s real prospects than with the excitement it and its supporters are able to generate among investors. That lesson was reinforced as I saw the Gandalf experience repeated with many different stocks over the next 10 years. Brokers and bankers market and sell stocks. Unless demand can be manufactured, the
stock will decline.
If the value of a stock is what people will pay for it, then Broadcast.com was fairly valued. We were able to work with Morgan Stanley to create volume around the stock. Volume creates demand. Stocks don’t go up because companies do well or do poorly. Stocks go up and down depending on supply and demand. If a stock is marketed well enough to create more demand from buyers than there are sellers, the stock will go up. What about fundamentals? Fundamentals is a word invented by sellers to find buyers. (more…)

Four Steps to Taking Bigger Risks

  
  Education
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1. Create an information edge so that you are ahead of the curve.

 

2. Have a thesis that you can support with data.

 

3. Assess the sources of the data.

 

4. Trade on the basis of this data against others in the marketplace.

 

The trader who understands risk will pay attention to corporate numbers and guidance and will try to analyze the relevance of these numbers to where the company stands relative to its major competitors. He is also able to differentiate between companies and does not simply trade noise or daily movement.

 

The best traders focus on the company balance sheet, earnings reports, and an assessment of the growth prospects of the company. They also compare the company on a relative valuation basis to other companies in the same space. They consider the state of the economy and any significant macroeconomic variables, such as Federal Reserve interest rate cuts, the cost of energy, and the cost of doing business, and try to assess the nature of the market at the time.

To improve your data, ask yourself: Is this a market that is trading on fundamentals, or is it trading on macroeconomic variables and market sentiment? Then try to get a handle on relevant short-term catalysts — fresh earnings news, changes in top executives, new technology, for example — that may influence the market’s perception of the value of a stock. Once you take these steps, you can try to make a calculated bet on the impact this data will have on the price of the stock. (more…)

The “secret” ingredients

  
  Education
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To be successful in the markets you need to know:

– what to buy (equity selection);

– When to buy it and when to pass on it (risk management);

– When to exit (time management).

The most essential part of equity selection is finding/creating a trading system with positive expectancy. Look for the catalyst/catalysts than has/have the potential to start a big move in the desired direction. There are two catalysts I focus on – earnings related and sector related. I pay attention to price, because it measures the only factor than really moves markets – confidence. It always says more than any other source of information. Reaction to news is more important to news itself.

Risk management has two basic elements: defining risk/reward ratio for every position I consider to get involved in and position sizing (how much to buy, what % of capital to put on risk).

Time management involves taking into account the opportunity cost. How long to stay in a position?

20 Thoughts from -Richard Love’s “Superperformance Stocks”

  
  Education
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If you read Jesse Livermore’s “How to Trade in Stocks” from 1940, Nicolas Darvas’s ‘How I made 2M in the stock market” from 1960, Richard Love’s “Superperformance Stocks” from 1977, William O’Neil’s early version of “How to make money in stocks” from the 1990s or Howard Lindzon’s “The Wallstrip Edge” from 2008, you will realize that after so many years, the main thing that has changed in the market is the names of the winning stocks. Everything else important – the catalysts, the cyclicality in sentiment, has remained the same.

Here are some incredible insights from Richard Love’s book ‘Superperformance Stocks’. In his eyes, a superperformance stock is one that has at least tripled within a two-year period.

1. The first consideration in buying stock is safety.

Safety is derived more from the good timing of the purchase and less from the financial strength of the company. The stocks of the nation’s largest and strongest corporations have dropped drastically during general stock market declines.

The best time to buy most stocks is when the market looks like a disaster. It is then that the risk is lowest and the potential rewards are highest.

2. All stocks are price-cyclical

For many years certain stocks have been considered to be cyclical; that is, the business of those companies rose and fell with the business cycle. It was also assumed that some industries and certain companies were noncyclical— little affected by the changes in business conditions. The attitude developed among investors that cyclical industries were to be avoided and that others, such as established growth companies, were to be favored. To a  certain extent this artificial division of companies into cyclical and noncyclical has been deceptive because although the earnings of some companies might be little affected by the business cycle the price of the stock is often as cyclical as that of companies strongly affected by the business cycle. Virtually all stocks are price-cyclical. Stocks that are not earnings-cyclical often have higher price/earnings ratios, and thus are susceptible to reactions when the primary trend of the market begins to decline. This can occur even during a period of increasing earnings. (more…)

DAY TRADING LESSONS

  
  Education
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daytradinglessons-update

  • Trading is a continuous learning process

  • Don’t trade without a plan. Be as prepared as possible. Don’t try to be right
  • Emotion is a much bigger influence in stock prices than any other factor
  • The market reacts more to sentiment than facts. Herd mentality rules
  • Sell into strength and buy into weakness
  • Market always rewards minority, not the crowd. The trick to figure out if the mass perception is wrong and WHEN it will be proved to be wrong.
  • Technical setups and money management are more important than fundamental catalysts when trading
  • Always ask: What beliefs are you acting upon? What is the basis for those beliefs? Why do you have those beliefs now? Would those beliefs be different if your recent gain/loss record had been reversed? Can you clearly enumerate what could happen that would cause you to change your mind?”
  • Extreme emotions cause extreme pain. I’ve learned how not to get overly bullish or bearish
  • Be mindful of higher trading volume on down days prior to a future catalyst as bad news can and often does leaks out
  • Take responsibility for your own trading
  • Cut your losses, let your winners run, and this is more easily said than done
  • If you can’t focus, you can’t trade. Be in the zone or stay sidelined
  • Buy below value and well below value if possible
  • Being flexible can be fruitful
  • Let the market come to me and don’t force trades
  • It is never “different” this time
  • Just more……….very soon ,Till then just read these and learn something new.
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    • Minervini, Trade Like a Stock Market Wizard-Book Review

      
      Education
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    Mark Minervini, U.S. investing champion in 1997, averaged a 220% return per year from 1994 to 2000 for a compounded total return of 33,500%. Yes, we all know that these astonishing figures coincided with a major bull market, but how many traders came anywhere close to his record during this period?

    In Trade Like a Stock Market Wizard: How to Achieve Superperformance in Stocks in Any Market (McGraw-Hill, 2013) Minervini shares his SEPA (Specific Entry Point Analysis) trading strategy. It’s essentially a trend following/breakout strategy that screens for such variables as earnings surprises and relative strength and that looks for catalysts driving institutional interest. It relies on both fundamentals and technicals. Its focus is on youthful small- to mid-cap stocks.

    There are strong echoes of Bill O’Neil, Ben and Mitch Zacks, Richard Donchian, even Jesse Livermore in Minervini’s work. That he borrows from such luminaries is not surprising. Having dropped out of school at the age of 15, he subsequently became “a fanatical student of the stock market. … Over the years,” he writes, “I’ve read an incredible number of investment books, including more than 1,000 titles in my personal library alone.” (p. 3) (more…)

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