Markets quietly correcting

Meanwhile, Mark Minervini — one of the most successful stock traders of modern times – owned up recently to being mostly in cash too. On 2 October he tweeted his observation that America’s Dow Jones Industrial Average (DOW) is catching the headlines by moving higher, while more than half the stocks in the Nasdaq Composite Index are trading below their 200-day moving averages. The significance of that is that there are only 30 stocks in the DOW and around 3,000 in the NASDAQ. Generally, traders consider a stock price trading below its 200-day moving average as a bearish sign.

He also thinks the Russell 2000 index is showing weakness and that’s home to around 2,000 of America’s companies, as the name suggests. His view is that “the broader market is quietly correcting” and he thinks trading conditions are “risky”. Meanwhile, many have been waiting for a significant market correction across the pond for years. If you look at charts for the DOW, Nasdaq and Russell 2000, you’ll see that they’ve all shot up rocket-like for many years without any sign of a meaningful correction. And you don’t have to look very hard to find arguments that many American firms are over-valued. Perhaps the quiet correction could become louder.

Why it matters to us

Does it all matter to us here in Blighty? After all, the median forecast price-to-earnings ratio for all shares with estimates in the UK is running at about 13 and the median forecast dividend yield of all UK dividend payers is around 3.5%. Those figures are a long way from the eye-popping valuations we’re seeing with many firms stateside. Well, I think it does matter. The problem for us in Britain is twofold. Firstly, we have a much larger proportion of cyclical businesses in our main indices, such as miners, oil companies, banks and the like, which attract much lower valuations because of their inherent cyclical risk. This means that valuation averages can deliver a false sense of safety. Secondly, there is a long history of our stock market following the big movements in America– especially the deep plunges!

We’ve also got our own problems to worry about. Nobody really knows how the act of actually leaving the European Union and its aftermath will affect the economy, company profits and share prices. That could be a catalyst for a sell-off or maybe even a relief rally once we’ve actually done it and the uncertainty has passed, because stock markets hate uncertainty more than anything else.

Yet if we do see a big correction in the markets, you can bet your bottom dollar that Warren Buffett will start seeing value again, and Mark Minervini will pin down some decent trading set-ups, and both will be filling their boots with stocks. In the meantime, I reckon a good strategy could be to keep dripping money into the stock market whatever happens next and let pound/cost averaging smooth your long-term compounded returns. There’s no need to divert your funds to baked beans and shotguns after all. 

The post Is the great stock market crash of 2018 almost upon us? appeared first on The Twelfth Magpie.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The long-term investor’s weakness

Back in September super-successful US trader Mark Minervini tweeted: “The time has come to change to a late-stage strategy; nail down profits into strength and temper your profit objectives.”

Minervini is worried about reversals – the Achilles heel of the long-term investor. I am, too, and even British long-term investing legend Lord Lee owned up a few years ago to modifying his long-standing investing strategy to include the use of stop-losses.

Maybe we investors haven’t focused enough on the question of when to sell an investment. After all, it is well known that most private investors underperform the market, or worse, lose money. So for 2018, I aim to outperform the FTSE 100 by watching the downside closer than ever.

The arithmetical body blow of losses

Warren Buffett famously said “Don’t lose money” and with good reason: a 50% loss on a stock requires a 100% gain to break even again. You have to work twice as hard to make it back as you did to lose it.

But it gets worse than that. Minervini illustrates the point well in his book Trade Like a Stock Market Wizard with a handy table reproduced here:

Small percentage increases in the amount we lose generate large percentage increases in the amounts we need to gain to get back to breakeven. If you lose 90% on a stock — as many did in 2008/9 on banks, housebuilders and others — it could take an entire investing career to invest what you have left back to break even. No wonder traders say “your first loss is your best loss.” The smaller setbacks are the easiest to recover from.

In the earlier days of his trading career, Minervini had a record of gains and losses that compounded to an overall loss of 12.05%. He then adjusted the results as if every loss he’d taken had been capped at 10%. If he’d capped his losses, that 12.05% overall loss would have been a 79.89% gain. That realisation changed his approach to trading and propelled him to a multi-million-dollar trading fortune.

Minervini quotes billionaire businessman Sam Zell: “The definition of a great investor is someone who starts by understanding the downside.”

The private investor’s special advantage

Yet one school of thought is to average down and buy more of an investment if it goes against us in line with the approach of investing with a business owner’s mindset. However, I think that ignores the private investor’s special advantage of liquidity that comes from managing smaller sums of money than large investing institutions. We can be nimble and, to me, it’s pragmatic to stick with a firm with an owner mindset in spirit, while tactically selling if the shares move against us to maybe buy back later. The preservation of capital could more than offset additional trading costs.

If stocks don’t go up after we’ve bought them, or at least remain stable and pay us a dividend income, what’s the point in holding them?

The post How I aim to beat the FTSE 100 in 2018 appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

He’s not kidding either, telling us “I ran that account up over thirty-four thousand percent.” I’ll let you do the maths to work out the fortune he’s sitting on now, and all from $30,000 – amazing.

Don’t lose money

One of the main themes he talks about is to avoid big losses. He reckons that everyone makes mistakes, but “correcting a mistake or minimising the damage of a position gone wrong is completely under your own control.” He says the big mistakes start out as small mistakes that were allowed to get out of hand. Therefore we must realise that “big losses are a choice and take responsibility for controlling them.”

Like the famous Warren Buffett, he says the trick is to avoid losing money. “That may sound like I’m joking, but I’m not. Lose the least amount possible when you’re wrong. Get good at that and you’re 90% there.”  To him, that means buying stocks with good upside potential and being careful to lose as little as possible when he’s wrong. In other words, he cuts his losses when a share moves against him.

Broadcasting loud and clear

Apart from reading his books, I think a great way of tuning into his hard-won market wisdom is to follow him on Twitter,  Mark Minervini @markminervini. He’s still active in the stock market and loves to share his experiences on a day-to-day basis as well as peppering his feed with pearls of wisdom gleaned during his more than 30 years’ trading and investing.

Here’s a snapshot of what he’s been tweeting lately.

1. The key to being a great trader is learning how to make quality choices and minimising mistakes. Focus on the process, not the results.”

2. “When you get the process right, the results come as a natural by-product.”

3. “Successful investors can disconnect emotion from investment decisions and can differentiate business performance from stock performance.”

4. “Once you have skills and a strategy with an edge, successful trading requires sticking to your core competence and avoiding style drift.”

5. “Your job in trading is to isolate and master the steps of performing well… if you successfully execute these steps the results will follow”

I reckon those tweets are self-explanatory. But he builds on the library of knowledge and wisdom almost every market day with new tweets. To me, tuning into Minervini’s twitter feed is a great augmentation of the wisdom contained in his self-penned books, which you can find online.

I’ll leave you with one last motivating tweet:

6. “A “loser” is just someone who hasn’t yet learned how to tap into the winner inside… knowledge, belief, action, post-analysis – repeat.”

Good luck on your investing and trading journey.

The post If you’re serious about making a fortune in stocks, tune in to this guy appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If taking advice from anyone, let’s make sure it’s from someone who has walked the walk and can demonstrate success in the field we aim to master. In the sphere of investing and trading, one popular stock-trading legend is active in the markets right now and broadcasting loud and clear, his name is Mark Minervini and his teachings seem to be gaining traction with many UK-based investors and stock traders.

Investing wizardry

In a trading career spanning 34 years – and counting – US-based Mark Minervini grew his personal trading account from “a few thousand dollars” into a multi-million-dollar fortune to become one of America’s most successful stock traders. He talks about returning 34,000% over one five-year period, which is just amazing. A record like that is enough to make me sit up and listen to what he has to say and there are a number of ways to do that.

I’d recommend getting hold of a copy of his self-penned book called Trade Like a Stock Market Wizard: How to Achieve Superperformance in Stocks in Any Market. The book stands out from the pile of investment books in my library because of the depth of detailed fundamental and technical explanation about how he goes about selecting, buying, managing and selling his stocks. I have yet to read a book that takes me through the process so thoroughly.

The magic continues

This year, he published a second work called Think & Trade Like a Champion: The Secrets, Rules & Blunt Truths of a Stock Market Wizard. It’s available in America and is yet to be released in this country, but I’ll be getting hold of a copy soon. Meanwhile, Minervini writes an occasional blog that’s well worth reading and drops pearls of well-earned wisdom into his twitter feed on an almost daily basis. If I had to sum up his approach to investing and trading I’d say it’s all about:

• picking the right stocks in the first place,
•  timing an entry into the trade with a level of precision that I’ve never come across before,
• knowing when to run winners and when to cut losers
• and improving overall performance by managing risk.

In a flavour of the issues addressed by Mark Minervini’s methods, he sets out in a recent blog post why he thinks most traders fail to achieve big performance:

    1. Poor selection criteria

    2. Incorrectly managed risk/reward relationship

    3. Adding to losing positions (averaging down)

    4. Failing to nail down decent profits

    5. Letting decent gains turn into losses

    6. Over-trading

    7. Under-trading

    8. Not knowing the truth about your trading (lack of post-analysis)

    9. Style drift (not committing to a single strategy)

   10. Unrealistic objectives and lack of patience

   11. Trading too large

   12. Overly diversified

   13. Lack of discipline (not following your own rules)

It was another guru, Richard Farleigh, who said “investment and trading are increasingly similar,” and I think tuning in to Mark Minervini today could be well worth your time and is likely to help improve your investing performance.

The post If you’re not yet rich from stocks, read this appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.