Minervini Lite

10th Jul '17 by Ken Lowes

56 comments 13753 reads

I am so bored, a 100% in cash, not even a collective investment –all sold. Well not quite true I still have a 15% exposure to goldmines, not just gold, but goldmines, even more risky and what is more I increased it last week but when I didn’t get instant gratification I sold the increase for a 3% loss. I have just replied to purpleski who was advocating the buy quality and hold—can’t disagree, but the pain of getting it wrong just imagine having tied myself to the clothes prop and beat myself with Scottish Thistles—have you seen the size of those things this year? Imagine after all that angst, I then go back into a market only to see it collapse. I have been here before, many times and I can guarantee that the day I go against my basic instinct and re-enter the fray, will be the best technical indicator for a worldwide sell. In July 1987 having been out of the market since Easter, I thought we have got this wrong and re-entered only to be smashed with the unprecedented collapse in October. It was so fast that for a few days nothing could be sold and the pain had to be endured—time passes, a few years actually and everything sorts itself out until the next time. Obviously the long term investor took the pain but also the profits accumulated during the time when I was out of the market, I just took pain.

To amuse myself I read Minervini’s book on how to be a zillionaire. I have distilled all the rules and caveats and applied them to the UK market. There were some confusing rules such as investing after a peak in volume or after a pie dish appeared on the chart, but it was a great book full of very useful information. What I did find was that usually after a big spluge of volume the share usually went down, it also happened after the pie dish appeared so a guide to entry it wasn’t. None the less Minervini is richer than me and apparently more successful so I must park my cynicism.

I started this exercise in March after Ben Hobson’s interview with the great man. Now this is the tricky bit because I am going to pass on the results of my intensive analysis,…

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ricky65

13th Jul '17

That's a comprehensive list. I don't disagree with any of it.

Off the top of my head I'd add strong revenue and EPS growth in Phase Two.

Not sure I'd pay £4000 for a seminar personally!

Rusty2

14th Jul '17

Ricky, Superstock is not to do with share price rise, it needs to have "Generally a company scoring greater than 60 for each of the 3 Ranks would be classified as a Super Stock". If the value rank is below 50 then it will be a High Flyer.

The problem I have with ECSC (LON:ECSC) is momentum is falling and the latest broker forecasts are negative.

Ken Lowes

Hi Ricky
Now you mention it I do remember the passage in the book re new issues and I agree a 50% increase is great, a few of those every year and we would all be delighted.
I use Hargreaves Lansdown and IG, between them stop losses aren’t a problem but more importantly in my opinion good charting software is critical. As I mentioned sometimes an auto stop gets you out unnecessarily, Naked Trader has a few things to say about that subject in his book. I have used Sharescope for over twenty years and one of the great advantages is being able to do almost real time back testing of someone else’s theory. For years I tried making decisions based upon Technical Analysis and of course it works sometimes but sometimes isn’t really good enough-- most times is what we are looking for and I believe Minervini is getting me there. By going back say fifteen years and moving forward a day at a time you can test the validity of most ideas. Obviously it is a cost but in my view a good charting system such as Sharescope is as important to investment as petrol is to a car. That having been said I wouldn’t want to be without the facilities of Stockopedia, which in my view are second to none.
With Charts you can run a trailing stop loss of any value either for the whole of the portfolio or an individual stock or both. Seriously there is so much you can do, virtually without limitation.
I was of course joking about the seminar; my days of giving seminars are long gone. As for Superstocks, just a name for a stock that keeps climbing, which means it has all the right ingredients. But in the current climate it can be applied to anything that catches the imagination. Which some would say is another signal that we are coming to the end of a bull market.

Brackendale

Hi Herbie, This is also something Im wondering about - plenty of stocks doing a lot of upwards action on small volume. If there was huge volume 3 months ago, and subsequently rise continues on low volume, should I buy in? If I had bought on the big volume, I would have stayed in, so why not buy in? When you work it out let me know!!

I think a lot depends on the share. Huge volume is usually caused by news, I presume by volume you mean buying. Problem is momentum can change quickly, so if a share is going up I think you need to look for reasons why and is the rise sustainable, are brokers forecasts being upgraded etc. There are several checks on my screens for EPS upgrades, RS and Momentum. If these are negative or slowing I probably would not be buying, I would wait until the next trading report or results. See Dart (LON:DTG).

I see that Minervini's average trade is only 20 days.

ISAallowance

"I see that Minervini's average trade is only 20 days. "

I think it's possible that this could be distorted by his losing calls getting stopped out quickly, and that his average winning trade may be longer.

Still quite short though!

Yes it's possible, only just read that in an interview. But he does seem to do quick trades for quick profit, he does have some longer trades over 6-9 months but from what I understand he prefers short term trades.

"It is much easier to find 4 or 5 names that go up 20% than it is to find a stock that doubles. In order to achieve a big performance number, I go for rapid compounding of relatively smaller gains"

Hi Herbie, I had a think about your post and I have now incorporated a couple of your ideas into my process, so - thank you. Have a good weekend

ok Herbie thanks for clarifying what Stockopedia labels a Superstock. Others use the term for a share that has risen a lot though there is ambiguity on how much a stock actually has to rise to be called a Superstock.

maffs0

I've just finished Mark's second book. A lot of repetition from book 1, but some great extra stuff on when to sell. Worth it for that alone. The idea of selling into a climax top for instance would have helped me sell at a good time rather than let greed take over. When BOO ran up to 260-270, it was an obvious example, but greedy me held as it had risen from 180 in just a few weeks!

One of the things I like a lot about Mark is that he makes it clear that there are principles in his book that apply to any style of investing such as cutting losses quickly, risk management and the like. But also in his book is his own "style" and it does seem to be quite short for me. I'm really looking for 15-30% on an average trade with no more than an absolute maximum 7.5% loss. The maths work for me with a 40% batting average or better.

Ultimately, I think its important that each of us come up with his own style and his own rules although, for me many of these will have come from Mark, O'Neil (and his "disciples") and Livermore.

These guys all agree on cutting losses and risk management, but have quite different styles. But all have made their millions.

15th Jul '17

ESCH came up on my radar last evening and it has 96 stock rank, I settled down to do the research this morning and the first thing I noticed was the spread of 10%-- that puts me out immediately, the last time I invested in a 10% spread was by mistake and it was my first investment after I signed up to Stockranks. It had SR of 100 and turned out to be a fraud. I would be interested to hear what you think re ESCH and how you would approach it?

I also dislike large spreads. I don't think a 10% spread necessarily means that a stock is a dud. At maximum I go up to 15% for small caps. I find that often you can buy within the spread which is good. When I bought Creightons (LON:CRL) in July last year I recall it was something like 11.25p - 10p but I managed to buy at 10.75p within the spread. That's turned out to be one of my biggest winners over the last year.

I also finished his second book a few weeks ago and agree that he repeats a lot of things from the first. Having said that I think it's worth the price of the book just for the chapter on selling.

Question comes to mind - was that a climax top when Boohoo.Com (LON:BOO) hit 266? It may very well be but I think more time is needed to say for sure. The volume on the pullback was considerably less than the volume on the up. Now at 224.5p the 50 DMA is in play. I wouldn't want to see it drop below that (it appears to have bounced off the 50 every time since Jan 2016). If it's not a climax top then another possibility is that it could be forming another base? Time will tell. Having said that I would have sold at least a portion of my shares into that strength (for clarity, I don't hold Boohoo.Com (LON:BOO) ).

I'm in complete agreement with you last sentence; All successful investors I've seen cut their losers and have good risk management.

I said I'd give my two pence worth on the portfolios and entry points, so here goes!

I'll start off with Blue Prism (LON:PRSM) 20/4.

This looks like a classic VCP. I take the start of the VCP as early December 2016, I see higher lows in the base, bouncing off the 100 DMA on 16/02 and 22/03. Volume appears to be contracting from left to right as Minervini mentions though the annoying anomalous spike on 23/03 makes it hard to see. I see the actual breakout above 531p was the 13th. Was there a criteria it wasn’t meeting that caused you to wait to the 20th?

I actually spotted this company in June 2016 shortly after its IPO and contemplated buying the breakout from the primary base in July when the SP was around 135p. What put me off was that it’s loss making. Through experience I find that almost all loss making companies disappoint eventually so I almost always avoid them now, though they can sometimes make good short term trades. With the benefit of hindsight not buying in July 2016 turned out to be a clear wrong decision as the SP is now over up over 4x since then!

I’m a software developer and I must admit I don’t really understand what this “Robotic Process Automation software“ company does. If I can't understand the business that's another thing that puts me off.

I see similarity with this and big data company WANdisco (LON:WAND) in 2012 which went on a similar great run before crashing down (though it's had a resurgence recently). I wouldn't be surprised to see Blue Prism (LON:PRSM) come crashing down similarly if it fails to reach profitability.

Ricky,

I think the BOO example perfectly illustrates a climax top. The speed of share price increase accelerated sharply from 15 May almost without a break and then took off on 8 and 9 June. At this point it was 18% above its 10 day MA. It rise by 38% in just three weeks. And all of this after a sustained upward move.

Of course, it could have gone higher, but I think this is exactly the kind of situation MM would call "selling into strength" and where I held on greedily assuming there would be yet more. It looks to me like on the 8 and 9 June, the institutions ("pros") were selling to the retail investors ("amateurs") in massive volume while they could.

I still have a small position in BOO and am waiting for a base to build before getting back in fully. You are right that it has held its 50 day MA and bounced off it decisively last Friday.

M.

Hi Ricky
Two Points first--- As previously mentioned I didn’t start the exercise until early April and no fundamental analysis was carried out, I simply created a basic momentum screen and added Piotroski >5 Gearing <45% Mkt Cap>30 Spread <300 the objective was really to capture momentum. I then graded the result against my standard fundamental & momentum check lists and made notes as to what chance each share had of achieving any form of success. The share we are discussing PRSM had a “poor chance” of success and under normal circumstances I wouldn’t have gone near it.

I don’t subscribe to an entry based upon TA cup and saucer or flying saucer etc ( complicated sophistication ) I want to keep it simple which means a breakout after a period of consolidation or correction. So the entry was a break above 538. Obviously the break could be a false one so I wait a couple of days for confirmation and then enter, this was 613. The movement peaked at 950 and then corrected, stopping me out at 805, 15% stop loss-- Profit 31%.

Followers of hindsight wisdom can now say that if I had left it we would today be better off as the share sits at 899. To do that would mean enduring a 26% fall to below 700 and when the share gets there it could still go lower. What we are doing is investing with controlled risk and making controlled profit. We can now go back into the share when it breaches the previous top of 950, same process, with a stop loss of 15% or hopefully less. Some will say “ but if you had left it alone you would have made an additional 15% profit”, and they would only be able to say that with hindsight, they certainly won’t be heard if the share had continued to fall.

If you had applied the same principles to BOO or FEVR, removing yourself from risk every time the share corrected, you wouldn’t be complaining about not having made as much profit as someone who had remained invested on a continuous basis. Minervini magic is trying to make profits whilst reducing the risk and finding opportunities that might go wrong without being terminal.
Here is something to think about “the best profits have been made from the shares I thought originally didn’t have a hope” There were four out of the total of 31 —PRSM made 30%--EYE made 36% -- G4M lost 14% and FARN lost 1%. So even taking the losers into account we still made a good profit all within three months. Or would have if the test had been for real.

16th Jul '17

Might be worth showing you why I thought PRSM didn't have a hope, it wasn't just me guessing.
Stock Rank 44 QR 52 MR 91 VR 3 QM 99 My Fundamental Checklist 9/16 My Momentum Checklist 10/22 which is much more comprehensive than the one used in the exercise Stocko Risk Speculative Stocko Style HF. Must be a lesson here somewhere, certainly makes me think about the wisdom of in depth analysis for short term trades. Might be worth comparing the stockranks of BOO and FEVR prior to the take off.
Hope all this helps.

Hi Ken

Interesting that you wait a couple of days for confirmation and then buy. On Twitter recently Minervini mentioned that he buys the minute the pivot buy point is crossed. I usually buy first thing next morning because I'm not there to monitor in real time. My broker only allows to set a limit order to buy if a share drops below a certain price, not if it goes above.

I think using a 15% stop loss was a good way to play Blue Prism (LON:PRSM). I probably would have sold around 837p on 06/06 when it crossed the 20 DMA for the first time since the start of the move.

Those who say to hold through that correction are the types that give back too much of their profit. Risking 26% to make an additional 15%; that’s a terrible risk:reward ratio. As Minervini says, we always want odds on our money. I agree with yourself and Minervini, you don’t have to be invested continuously for the whole move to make good money.

Of those stocks that you thought didn’t have a hope, I see that all except G4M were loss making. I note that period coincided with a roaring bull market where speculative growth stocks tend to do well. I’m not sure how sustainable those conditions are. The market appears to have cooled off a bit for growth stocks recently.

I agree with the points you made but suppose Boohoo.Com (LON:BOO) breaks through 266p and makes a new 52 week high. I don’t think that move can still be considered a top.

I forgot to mention how I would approach Escher Group (LON:ESCH). I wouldn't buy it at the moment because it doesn't satisfy Minervini's Trend Template criteria. While it is above the 50 and 200 DMAs. the 150 is below the 200 when it should be above the 200.

Minervini Lite

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Ken Lowes

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