On this week’s episode, Dan begins by revisiting the discussion he had with last week’s guest, Raoul Pal… Raoul predicted that bonds were due for one more epic run up as the Federal Reserve cut interest rates. Will the Coronavirus inspire further rate cuts from the Fed?
Dan also discusses how listeners in our feedback emails tend to worry about Fed policy and other macro issues. Dan’s advice is to “stop worrying about the macro stuff or become a lot more interested in bonds.”
Later on, Dan welcomes new guest, Mark Minervini, of Minervini Private Access. Mark is one of the world’s most successful stock traders on the planet and an international performance coach. Mark won the U.S. Investing Championship in 1997 with an astonishing 155% annual return.
Mark is truly a self-made man, starting with a portfolio of a few thousand dollars and amassing an incredible fortune. Over one five-year period he averaged 220% annually with only one single losing quarter.
He is also best-selling author of books Trade Like A Stock Market Wizard and Think and Trade Like a Champion.
Mark explains his burn the ships mentality, and how in order to be truly successful, you have no choice but to go all in with everything you have.
Author and Founder of Minervini Private Access
NOTES & LINKS
4:45 – Dan discusses why investors are more interested in bonds than ever. “This shift into bonds, underway for years, has been gargantuan.”
11:10 – Referencing past Stansberry Investor Hour guest, Chris Cole, Dan explains why inflation is the kind of thing that can sneak up on you and surprise you… “The markets are utterly and completely unprepared for an inflationary uptrend…”
15:00 – Dan introduces this week’s guest, Mark Minervini, one of the world’s most successful stock traders, former US Investing Champion, and international performance coach. Mark averaged 220% per year with only one losing quarter for five consecutive years in his personal trading account.
19:56 – Dan confronts Mark, “You said one of the most controversial things I’ve ever heard said by anyone in finance…”
24:37 – Mark talks about how being financially independent has changed his priorities. “My number one priority is…”
28:50 – Dan questions if Mark’s methods will work for just anyone… “A strategy takes an operator and takes discipline to follow it, so that’s really the lynchpin…”
36:20 – Dan asks Mark about his stop loss strategy and how it relates to his expected gain. Mark explains the strategy that made him incredibly wealthy over the past three decades. “Everything I do is based on timeless principles… the key is interpreting them properly.”
48:10 – Mark gives Dan some advice that may surprise some listeners “Trading shouldn’t be sexy; trading should be boring.”
49:30 – Mark discusses quite a few changes he’s made in his portfolio just within the last few weeks and his reasoning behind it.
54:12 – Dan answers questions from the mailbag covering topics like climate change, bonds, how to hedge your portfolio, plus a heated email from a listener on one of his favorite stocks.
Announcer: Broadcasting from Baltimore, Maryland and all around the world, you’re listening to the Stansberry Investor Hour. Tune in each Thursday on iTunes for the latest episodes of the Stansberry Investor Hour. Sign up for the free show archive at investorhour.com. Here is your host, Dan Ferris.
Dan Ferris: Hello, and welcome to the Stansberry Investor Hour. I’m your host Dan Ferris. I’m also the editor of Extreme Value published by Stansberry Research. Today we’ll talk with champion stock trader Mark Minervini. He’s one of the guys in Jack Schwager’s book Stock Market Wizards. You know those guys are the best traders in the world, so I cannot wait to talk to Mark.
But before we do that, let’s just talk about bonds a little bit, okay? Last week our guest Raoul Pal said, “Buy bonds, wear diamonds.” That’s an old Wall Street adage he’s using today because he thinks bonds are due for one more epic run-up as the Federal Reserve cuts interest rates. He expects weak economic data this month, and the coronavirus too, to inspire a total of 100 basis points of interest-rate cuts by the Fed. That’s a lot. Normally that’s like four quarter-point cuts or he thinks maybe two 50-point cuts. That’s a lot of interest rate cutting by the Federal Reserve.
The Fed funds rate, the rate that the Fed actually manipulates, it’s currently 1.75%. If Raoul is right, it’ll wind up around 0.75%sometime later this year. As I understood his argument, as early as June, certainly by the end of the year, and if that happens, you will get a nice move up in short-term bonds. He mentioned short-term bonds and euro dollars as ways to do this.
So, I told Raoul, most of our listeners and Stansberry readers are into stocks. He said that’s okay, just remember the TLT is your friend, and TLT is the ticker symbol for the big ETF that owns longer-term treasury bonds. Did that one on a move as well. You might also remember something really cool. He listed big asset classes in the order of which they’re from the most macro sensitive to least macro sensitive.
So, the ones at the top of the list are most sensitive to Federal Reserve policy, taxes, all kinds of macro stuff, basically anything the government might do, certainly. Then the ones at the bottom are least sensitive, and it goes from top to bottom, short-term bonds, long-term bonds, commodities, lots of speculation in commodities but still reflect the macro fundamentals, then currencies and equities were the least macro sensitive. It’s funny to me that investors I talk to and hear from in Stansberry feedback emails tend as a group to worry a lot about Fed policy and other macro stuff.
I think they should either stop worrying so much about the macro stuff or become a lot more interested in bonds. If they’re going to worry about the macro stuff and think it’s important to trade in and out based on that, then you should be a bond trader, not a stock trader. Overall, it sure seems to me like folks have become a lot more interested in macro in the past several years, just during the time that I’ve been an investor since the early 90s.
As the years have ticked by, we’ve endured the irrational exuberance of the late 90s and the dot-com crash, the housing bubble, the financial crisis, and the Federal Reserve has gone from being this weird group of people with spreadsheets in some office in Washington that nobody thinks about to being just about the number one topic in the financial pages almost every single day. It’s all anybody seems to want to talk about.
Wouldn’t you know it, right when I’m realizing this, I just read this terrific article by Jason Zweig of the Wall Street Journal’s intelligent investor column. Zweig has been around forever and he’s a very smart guy, and of course he calls his column The Intelligent Investor based on the book by Benjamin Graham, the value guru guy, Warren Buffett’s mentor. This column that Zweig wrote recently, he said, “Investors have become a lot more interested in bonds over the past couple of decades.” This period where I’m saying people are much more focused on the Federal Reserve, wouldn’t you know it.
Here’s a quote from the article. He just kind of runs through some numbers. He says, “This shift” basically into bonds, “underway for years has become gargantuan. From 1990 through 1999, bond funds and bond ETFs accounted for only 10% of the cumulative $2.37 trillion that flowed into funds,” mutual funds of all kinds he means, “according to the Investment Company Institute. From 2000 through 2009, bond funds made up 26% of the $3.5 trillion in total in flows over the ten years just ended, however, 74% of the total, $2.68 trillion that investors added, went into bond funds.”
Ten percent in the first ten years, 26% into bonds in the second ten years, and then 74% in the third ten years. Of course, people are getting older so maybe they’re becoming more conservative, but maybe they’re also learning to focus on bonds because they’re obsessed with the fed. Zweig also notes that muni bond funds particularly on fire last year, $105 billion poured into muni bond funds, which stood at $861 billion at the end of the year. Put another way, one-eighth of all the money in municipal bond funds arrived last year, even though the funds have been around since 1976.
Now after this massive three-decade shift into bonds during a time when interest rates have mostly fallen and are still scraping all-time lows, we have no less than our guest last week Raoul Pal, macro investor extraordinaire telling us he’s at full risk in bonds, mostly short-term bonds. I think he’s probably right, but it kind of makes you wonder what happens after that.
I wonder if you remember, if I could just shift gears on this topic a little bit here, if you remember our interview with a very bright young guy named Chris Cole from Artemis Capital. It was episode 76, November 2018. Chris is the number one source of insight and ideas on volatility who regularly appears before the public. He writes these very thoughtful pieces which he posts on Artemis Capital website which I recommend highly, by the way. You might understand only about 50% or 60% of it, but it’s definitely worth reading.
In one of them, he pointed out that the negative correlation of stocks and bonds that we’ve gotten used to during this 30-year period, it’s only been around for about that long, for the last few decades. In other words, for the last few decades, investors have learned that their bonds will protect them when this stock market takes a dive, and as people have gotten older and maybe more conservative, I don’t know, they seem to have put more and more money into bonds, feeling safer and safer all the while.
You can see the negative correlation. It’s real simple, right? Get a chart in something simple like Yahoo! of the SPDR S&P 500 ETF Trust, ticker symbol SPY, from October 2007 to March 2009, the housing bust, the financial crisis. The SPY fell about 55%during that time. Round numbers. Don’t worry about it. Not important. Just say 55%.
Then the iShares 20+ Year Treasury Bond Fund, that TLT we mentioned, rose 17% during that time. So, just say you put half and half. I don’t recommend that as a portfolio, but if you did half and half you would’ve lost a lot less than 55%. Like I said, I don’t recommend doing that. It’s just an easy way to show how the two assets interact, and this is what people have come to expect, but who knows? Will it always be that way? I don’t know.
Right now, as Cole pointed out in his paper, there’s well north of $1 trillion of assets globally managed based upon this basic expectation that bonds will take care of you. They’ll go up when stocks fall. Because the two assets have been negatively correlated, generally speaking, in basically the memory of just about anybody who’s had some money to invest the past few decades. A lot of money is also managed in a strategy called risk parody, which is stocks and bonds, but you lever up the bond portion of your portfolio to get equity-like returns. It’s thought that that’s less risky than actually buying equities with that portion, and that the negative correlation again will take care of you.
So, if we get into a period in the future when stocks and bonds fall together, it’ll hit millions of investors with $1 trillion or more of assets very, very hard. As Cole pointed out in this piece that he published in October 2015 called the prisoner’s dilemma, this phenomenon is very recent, this expectation that bonds will take care of you.
You can go to Artemis Capital website to see all the work he did on this topic, but the thing that I got from this is he posed the trillion-dollar question, “What might cause stocks and bonds to correlate positively once again?” that is to rise together and more concerningly to fall together? What might cause stocks and bonds to fall together? And his answer was inflation. He says, “The volatility of inflation appears to be a core driver of higher correlation between stocks and bonds.” Makes sense, right?
Inflation is not good for business, so it shouldn’t be good for stocks, and it’s not good for bonds because it deteriorates the value of the currency you’re being paid in and that your principle is held in. So, of course, while I’m thinking all this stuff and I’m reading this Zweig article and remembering Chris Cole’s paper and I’m starting to think about this, of course then in the news last week at a lunch presentation at the Economic Club in New York, hedge fund billionaire Ken Griffin says, “The markets are utterly and completely unprepared for an inflationary up trend.”
He’s been worrying about inflation at least since early 2018 when he penned a letter to investors in which he noted, “Nascent signs of accelerating inflation in many countries around the world, and the general complacency around the risks of inflationary shock.” Griffin’s team pored over the meeting minutes of the Federal Reserve. They found no discussion of a potential return of inflation, and he said that showed that our most well-informed policymakers aren’t prepared for inflation’s return.
I’ll leave it to you to decide if those people are well-informed or not. They’re well-informed, but I don’t know if they know what they’re doing let’s just say. Maybe you think it’s silly to worry about inflation. I’ve been talking about it for a couple years off and on at the Stansberry Conference in Vegas and off and on in my newsletter. God in His infinite wisdom only knows when it will play out, and He knows that it’s been silly to worry about it for many years now, except that owning gold sure has worked out well recently, hasn’t it, the past few years?
Look, you can say, “Well, people worry about inflation and they’ve been wrong. Inflation is nowhere. You can’t see it anywhere right now.” Problem is, inflation is the kind of thing that can sneak up on you and surprise you. Maybe all of a sudden bond yields start spiking for no apparent reason, and then after that we get some economic report like unemployment or some other key inflation type economic data that starts showing signs of spiking inflation, and before you know it, everybody is talking about inflation and your retirement portfolio is down 20% or 30%, and you’re running out of clean underwear.
I just think nowadays more than any time since I’ve started putting my own money to work in the markets in the early 90s, you need to be able to think around corners and you need to be prepared. As long as stocks and bonds keep going up, up, up and bonds keep protecting folks when stocks fall, nobody is going to think any different, right? My worries will look like they’re not founded in reality, and you’ll say, “Well, Dan is worried about this, but he’s wrong, and Ken Griffin is worried about this, but he’s wrong” and whoever else.
But when the shock hits, maybe an inflationary shock like the way Griffin mentioned, you’ll end up scrambling and you can be caught off-guard. Investors need to look forward. They need to plan. Our guest today, Mark Minervini, guys like him go in every day with a plan for the day or the week or each position they take on. You always need a plan no matter what your timeframe is, no matter what kind of investor you are.
Personally, I’ve advocated holding stocks, plenty of cash, and gold for a few years now, and I still think it’s the right thing to do. I think it’s a truly diversified portfolio. The cash takes care of you in a deflationary environment, like an equity bear market too is that as well. Gold takes care of you in inflation. Stocks take care of you all the rest of the time in good times. If you’re pouring money into bonds these days, like Raoul Pal was talking about last week, I think you’re going to make a ton of money in the near term. I think that’s right.
But even Raoul if you recall, he said this is essentially like one massive last hurrah in the strength of the dollar before it kind of all turns around. I couldn’t agree more, and when it turns around, my friends, you had better be already prepared. Even in the newsletter in Extreme Value this month, we’re going to try to help you do that. We’re going to try to help you be prepared. With all of that, let’s go ahead and talk with Mark Minervini, okay?
Okay, folks, it’s time for our interview, and man, have I been looking forward to this one. Today’s guest is Mark Minervini. Mark Minervini is one of the world’s most successful stock traders and an international performance coach. He is a former U.S. investing champion, won in 1997 with 155% annual return. Nice. He’s also the author of the bestselling books Trade Like a Stock Market Wizard, and Think and Trade Like a Champion.
Starting with only a few thousand dollars, Mark turned his personal trading account into millions, averaging – are you ready for this – 220% per year with only one losing quarter for five consecutive years. An incredible 33,500% total return. To put that in perspective, $100,000 turns into more than $30 million at that rate.
Mark is featured in Jack Schwager’s excellent book, Stock Market Wizards: Interviews with America’s Top Stock Traders. Schwager writes, “Most traders and money managers would be delighted to have Minervini’s worst year, a 128% gain, as their best.” Mark educates traders about his SEPA methodology through Minervini Private Access, an online platform that allows users the unique experience of trading side-by-side with him in real time. He also conducts a live master trader program where he teaches his trading system in a comprehensive weekend event, and with all that, Mark Minervini, welcome to the program, sir.
Mark Minervini: Great to be here. I see why you do what you do. It’s like you have this great voice. I feel like I’m on with Don Imus here.
Dan Ferris: Oh, thanks. Terrific.
Mark Minervini: You’re like this radio personality voice.
Dan Ferris: Well, this is just my radio voice. My normal voice when I’m talking with my wife is a little different. So, I’ve been on your blog and read the Market Wizards interview and a bit of your book, Think and Trade Like a Champion. I know from reading the Market Wizards interview that you got interested in the stock market as a teenager in the 1980s.
I’m wondering if there was a particular event or a particular experience during those years that prompted your interest. What really got you initially interested in the stock market back then?
Mark Minervini: Poverty. That’s the true answer, but to be honest, that got me interested in making money, and because I had no education, I really didn’t have many options, so I looked at the stock market as a place where I didn’t need a degree. There was no prejudice. I could just open an account and if I did well, I could make money. Of course, I didn’t have any money, so I had to start off with a very small amount of money, so it took a lot of years.
It’s crazy, but I used to look at the stock tables when I was like eight years old, and I was fascinated. My Uncle Benny, I was always told he was a stock guy, but I didn’t learn about that until I was a teenager. But I was fascinated with the tables and I remember I used to follow Exxon for some reason, but it’s just kind of crazy how at a very young age I liked the stock tables.
Dan Ferris: It’s so weird, Mark, Exxon Mobil comes up a lot as the initial interest for a lot of people. It’s strange. In your Market Wizards interview, and if you don’t want to talk about this, hey, it’s cool, but I have to ask, in the Market Wizards book, Schwager represented you as being kind of reluctant to discuss this pretty cool kind of career it seems that you had as a musician before you became a stock trader. Is he right about that? Are you really reluctant, and if so, are you still reluctant to discuss it today, and if so, why?
Mark Minervini: I don’t think I was nearly as reluctant as he made it out to be, and I’m certainly not reluctant to talk about it today. We can talk about music and all that and don’t have to talk about stocks. It would actually be refreshing.
Back then when I did the interview, I think maybe I felt like I had limited time and I was going to be in Market Wizards or Stock Market Wizards and I had read Market Wizards and The New Market Wizards, so it was a big deal for me to be in this book that I had read and idolized some of these people that were in the previous book. So, I guess I really wanted to make sure that I came across as a stock guy, I don’t know. I don’t remember. It was a long time ago, but again, I don’t think I was as reluctant as maybe he made it out to be.
Dan Ferris: Okay. Now, that makes sense to me, because most folks don’t mind discussing that stuff. I’m a musician myself and played classical guitar for years and years and years, and we talk to a lot of guys who say, “I was a musician first, and then I decided to do something that actually made money.” Now, one of the reasons, Mark, that I’m really excited to have you on the program is I swear you said one of the most controversial things I’ve ever heard said by anyone in finance, but I think I get it.
I know you discuss it on your blog and you discuss it on YouTube, but I wonder if you could kind of just retell it a little bit for our listeners, why they should throw $100 out the window the next time they’re driving down the road in their car?
Mark Minervini: Well, that certainly hit me from an angle I didn’t expect. I actually forgot all about that. Well, this is something that I did with one of my very first proteges that worked for me. He was constantly saying how he was going to be a millionaire and going to be the best trader and he was going to even be a better trader than me. This was back in the 90s.
One day we were in the car and I said, “So, you’re positive you’re going to be a great trader and you’re going to be rich and how long is that going to take?” He said, “Not that long. I’m going to be really great at this.” I said, “How much money you got in your pocket?” He went in his pocket and he said, “I got $200.” I said, “Well, then throw it out the window. If you’re going to be a millionaire in a year or two, what does it matter, right? Let’s make a declaration.”
He was like, “You’re crazy. I’m not throwing money out the window.” So, I went in my pocket and I think I had like $400. We were on the highway and I just tossed it out the window and I said, “I’m so confident in my future that that just doesn’t mean anything. I know that it’s going to come back.” I said, “Now throw yours out” and he wouldn’t do it.
Anyway, I won’t mention any names. He’s a very good friend of mine and we still keep in touch to this day like 30 years later, and it’s sort of just a declaration of the confidence in your future. It’s mainly a declaration of your confidence and to look at the bigger picture. If you truly are going to be wealthy and rich and have money, obviously $100 doesn’t mean very much. I know some people got upset and they said, “You could’ve given it to charity”, but I want to point out that I don’t deduct that from my charitable contributions. I can do both.
But anyway, it was a fun thing we did on Twitter and I challenged people. I said I would match them over the weekend. Twelve people did it. I threw $1,200 out the window and videotaped it, but then after that it was funny because then it kind of went viral and people saw me do that, and we had 100-something did it from all around the world. I actually had people throwing $100 bills off of rickshaws in Asia.
They’re walking down the street in Africa and dropping it on a dirt road. It was crazy. There were all these videos from people throwing them out windows in Japan and just all around the world. It was pretty wild. It’s liberating.
Dan Ferris: Yeah, it is liberating. But you know what it’s like, Mark? It’s like the ancient navy that sails to an enemy’s shores and burns its ships, right? You burn your ships. You’re going to either win or die trying. It’s a commitment.
Mark Minervini: The burn the ships story, I tell that story in my latest book, in the mindset book, Mindset Secrets for Winning, which is not a stock market book. It’s purely a peak performance book, and that’s the exact story I tell is about the burning of the ships. Yes, that is sort of it, and of course $100 you’re not burning your ship. If you were really to burn your ships, you’d renounce all your possessions. So, it’s a very small burning of the ships.
Dan Ferris: Well, but it’s representative. It’s like in the ships, that was a life and death thing for an army, but this is investment capital and you can’t burn it all, right? So, you just burn a little bit of it and you’re on the shore and you’re ready to fight. I think it’s brilliant. For an hour I was thinking about this going, this guy is nuts, but it’s actually nuts in a good way, though. It is different and it’s an emotional thing.
Mark Minervini: I knew I was going to take a lot of heat for it. I knew when I did it there was going to be a lot of people that were going to get upset and disagree or be upset that it was wasteful with money. I was hoping people would understand the concept, but some people, a lot of people got it, and I think it actually liberated and empowered a lot of people.
Dan Ferris: Man, if you got people throwing $100 bills off of rickshaws, you empowered a lot of people. That’s amazing. Just moving on a little bit, I feel like we could talk about that all day because there’s so many aspects to it. Back at the time of the Market Wizards interview, it said you were working like six days a week, 14 hours a day. You hadn’t taken a vacation in ten years.
But then I noticed in Think and Trade like a Champion, you said your wife and daughter are now your highest priority, and I would imagine they would want you to take them on a vacation now and then. What’s your schedule like these days?
Mark Minervini: So, my priorities have changed over the years. In the beginning I held off on getting married and having a family because I knew it would interfere with my career, and I wanted my career to be first, and I wanted to be wealthy and financially independent, so I did not get married and did not have a child until I was financially independent. But once I made all the money and I don’t have to work anymore, it’s a nice thing that I can do what I love, my priorities changed.
My number one priority is my family, my wife and my daughter and health. Those are at the very top. If you asked me that in 1990, my number one priority was at all cost was to be the best trader in the world and to make millions and to be successful, and that was where my head was at, at that time.
Dan Ferris: Well, you kind of did it, so congratulations. That’s pretty awesome. I noticed in Think and Trade like a Champion you talked about this need to be unbalanced if you’re really going to be devoted like you were earlier in your life, and a lot of the talk about the emotional commitment is geared toward this all-in commitment.
But then I noticed there was this one sentence and it just really, really briefly, it said, “That doesn’t mean that you can’t improve your trading and enjoy the benefits of investing even as a part-time investor.” But then you got right back to talking about the intensity and the unbalanced lifestyle, but it really struck me that you mentioned even as a part-time investor amidst all of this discussion of total all-in commitment. Is that a conflict? Am I missing something there?
Mark Minervini: Look, it depends. If you want to be the best in the world, I don’t care what it is, if you want to be the best in the world at something, whether it’s the best basketball player, the best bowler, the best lawyer, you’re probably going to have to be unbalanced. You’re probably going to have to have a disproportionate amount of time into that craft or that career, and there’s going to It’s like for instance in the Olympics, there was a poll done and asked Olympic hopefuls that if they could take a pill that would make them or they could be guaranteed that they would win a gold medal, but they would die in five years, would they do that? About 50% of them said “yes.” When you’re going for the very top and you’re going to be the best in the world and the best in the business, that’s the kind of competition you’re up against. That’s the kind of unbalanced all-in competition.
So, that’s what I’m talking about, but that doesn’t mean you can’t read my book, learn about what I did, learn my methods, and improve your results dramatically even if you’re a part-time investor. When I talk about that unbalance, I’m talking about when you’re really going for – they read about I had this big run of triple-digit returns. That required a lot of work and really, really dedicating myself full-time all the time pretty much every day all day seven days a week for years to do that. That’s not something that comes easily.
Dan Ferris: Right. I get that, I do. It’s just that one sentence kind of struck me, and I was kind of happy to see it in there. It’s like, there’s hope for the rest of you, but just so you know, you can only be the best by doing this. So, in your interview with Schwager, you said something that I loved. You said chart patterns were “not what’s important to trading successfully. For someone to be successful, they have to develop their own trading methodology. I developed my method for myself. It wouldn’t necessarily be a good fit for anyone else.”
I was like, “Yeah, man, that’s right on.” If that’s the case, Mark, you wrote two whole books where you spell out in quite a bit of detail what your methods are, and I wonder how appropriate those methods are for the people reading the books. You know what I’m saying? If people need to develop their own trading methodology, why go to the trouble of writing two books that spell out your method in such detail?
Mark Minervini: Well, I don’t think they need to develop their own trading methodology, certainly not in the beginning. In the beginning, no matter what we do, we mimic. If you were to start off as a basketball player or a football player you’re going to probably watch your favorite sports star and you’re going to mimic them and you’re going to learn from a coach and you’re going to learn through trial and error, so you’re not going to develop a trading methodology and be making lots of money in the stock market in any kind of short period of time.
Really, it’s matching your personality to the method. And then once you get that method down, maybe you’re able to do the type of things that I suggest and you’re getting some traction and you could start maybe adding in your experience, and that’s what I’ve done. I mimicked the best and then over the years, a lot of years, I started developing some of my own techniques and it just becomes a passing of the torch. It’s not like everything I do is unique. There’s a lot of things that are unique but over a number of years.
But the main thing is you have to match your personality. If you’re someone who doesn’t want to sit in front of the screen all day and doesn’t want to do a lot of work and a lot of trading and making a lot of fast decisions, well, then day trading is probably not for you. But then again, you might have a different personality.
You really have to match the style and find something that makes sense to you because the main key is that you have confidence in it. If you don’t have confidence in the underlying strategy, it’s not going to work. It could be the best strategy in the world, but a strategy takes an operator, and takes discipline to follow it, so that’s really the lynchpin to following any strategy.
Dan Ferris: You have a wonderful story about a fellow who actually lived with you. He didn’t just imitate your trading strategy. He imitated everything you did, the way you exercised and ate and dressed and thought and spoke and everything. I was very impressed by that, and it worked for him, right? He became successful.
Mark Minervini: Yeah. That’s Darren. Last year or the year before he came to the Master Trader program, my annual workshop. I was on stage and I said, “How many read the story about the guy Darren who mimicked everything and lived in my house?” People raised their hand and I said, “There he is right there in row 12.” He was sitting right there, so it was pretty cool.
Actually, last year he did come. I think he came two years in a row. I did the same thing. I mimicked traders and successful people and didn’t just try to emulate their style or vaguely emulate them.
I really looked at what they believed and how they thought and exactly how they operated on a daily basis, and really dug deep into the mindset behind the person. Because again, if you don’t think like that person or if you don’t have that mindset then you’re not going to follow the strategy because it might go against your beliefs or your idiosyncrasies or your own emotions and foibles, so you really have to have some congruency. Best way is if you think like someone, you can perform like them.
But if you could even learn the techniques of someone, but maybe they think very positive and they believe they can win, and you learn the exact same techniques and you get taught from the best in the world. Michael Jordan teaches you how to play basketball, but you don’t believe you can be a good basketball player, or you don’t believe in the process and the techniques. It doesn’t matter how good of a coach you have. You’re not going to be good at it because the beliefs are really what’s important. So, that’s what he was doing and that’s a very smart thing to do, and he was a smart young man.
Dan Ferris: I’m glad that you mentioned basketball and Michael Jordan. I know you do quite a bit of reading, Mark. Have you ever read a book called Range? It’s a pretty new book buy a guy named David Epstein.
Mark Minervini: I have not, but I’m going to probably get it now.
Dan Ferris: Yeah, so this guy Epstein, he talks about the two different kinds of learning domains. There’s a kind learning domain which is something with a lot of accurate feedback, and if you just keep doing it, your natural pattern recognition will help you improve, and that’s a kind learning domain. It’s like music, athletics, even chess to a certain degree. And then there are what he calls wicked learning domains where the feedback isn’t always so great, it can be confusing, and it doesn’t always arrive in a timely manner.
You can think you’re learning something and then you learn the exact opposite, and I think financial markets are that way for a lot of people. But what strikes me about your writing is you almost look like you approach them as a kind learning domain, because the way you go after it and focus on it, I don’t know. Can you help me out here? Am I wrong? I realize I’m introducing these new ideas and trying to peg you in one or the other, but your approach seems to be cut against the grain of that insight to me.
Mark Minervini: I’m actually online and I just ordered the book. I’m intrigued. I see it here, Range: Why Generalists Triumph in a Specialized World. I happen to believe in specializing, and it doesn’t mean that I don’t believe that you can accomplish a lot of things because I’ve been called a renaissance man many times, because I’ve done a lot of different things. I’ve been around for 55 years. You can get quite a bit accomplished in 55 years.
Plus, I started young because I quit school at an early age. I was a musician, I owned a recording studio, I did very well as a musician, stock trader, I’ve done sports, and I’ve excelled at a lot of different things, but I didn’t try to do them all at the same time. I really focused on being really great at one thing and then once I got to a certain point, then I moved on to something else. I can’t speak much about David Epstein’s book, but I did just order it on Amazon.
Dan Ferris: Right.
Mark Minervini: You’re right, I do read a lot. I have over 4,000 books in my library and I probably read 70 or 100 books a year. I’m constantly reading. I read every single day, so I’m a big reader.
Dan Ferris: So, would you say you read just like a little bit of everything or is it mostly finance or what?
Mark Minervini: I don’t read novels almost ever. I mostly read motivational self-help, finance, spirituality books, things of that nature. The majority of my library encompasses those odds, risk, but I’m not a novel guy. I’d rather see the movie. I’m very pragmatic, so I like to get to the point. I’m one of those people I underline and highlight and I try to break the book down into a summary.
Dan Ferris: There was something in the Market Wizards interview that kind of surprised me a little. You said the essential principle is that the stop loss point should be a function of the expected gain, and that surprised me because I think in the same interview you said something about the good traders manage the downside, they don’t worry about the upside. Your mention of the expected gain is what surprised me because like all the wizards, your focus seems to be constantly on the discipline and cutting losses, and just that mention of the stop loss point being related to the expected gain surprised me. Can you help me out there?
Mark Minervini: So, what is your stop? How do you define your stop? How do you decide at what level that you stop out? I can tell you this, that if your average gain, if your expected gain or your strategy delivers an average gain of let’s just say 8% on average per trade, well then you obviously can’t take 10% losses. You’ll be losing money. And depending on how often you’re correct, I mean if your strategy was right 90% of the time, yes, you can take losses that are larger than your gain, but that’s generally not the case.
Usually most traders over time, their batting average or the percentage of profitable trades is somewhere around 50/50. They’re wrong just as often as they’re right. I like to have a minimum of 2:1. If I’m cutting my loss at 5% then I need to justify that with an average gain of 10% or greater, preferably even 3:1. That’s what that’s about as far as determining. Some people say, “Well, I’m going to cut my losses. I read a book and it said to cut your loss at 8%, but their average gain is 5%, and they’re right 45% of the time and they’re losing money. I’m cutting my losses. What’s going on here?”
Well, you have to work on getting a larger average gain to justify that amount of risk, or you’ve got to back into a tighter risk parameter and you’re going to have to have a tighter stop loss.
Dan Ferris: You know, I have to admit I’ve been a value investor for close to 30 years and I’ve been a published analyst for about 22 years, and so I know about the general quality of a lot of things that get published, and some of it’s not great, and so I’ve become a little skeptical. Any time I see anything published, it always makes me feel like the person publishing it, especially a book about a trading method, it always makes me feel like they’ve moved onto something better.
You don’t strike me as that kind of a guy at all, but I still wonder like in your books, you give so many very specific things like the amount of stop loss and the amount of loss of your portfolio that you should tolerate on a given trade and stuff. Are these primarily examples, or is this valid criteria like the criteria that are all throughout Think and Trade like a Champion, are they more examples or what?
Mark Minervini: Well, first of all, about 90% of all the examples that are in all my books and in the 450-page workbook that we give to the attendees of the workshop that I conduct, 90% of them are my actual trades that I did. This isn’t like hindsight we’re looking back and saying, “Oh, this would’ve worked.” These are actual trades that I did, 90% of them, not all of them. There are some that were great examples that I missed or we went back further than I was trading, but 90% of them.
The other thing is, is that I am doing nothing different than I’ve been doing for the last three decades. Today I do exactly what I’ve been doing. Very little has changed. I’ve just refined it a little bit more and I’m not as aggressive. I don’t have to be. I don’t have to trade for a living, so I’m just not as aggressive. At one time I had my whole account in one or two names and a lot of risk. So, that’s the only difference is I’m just not as aggressive, and I’ve improved my techniques even better than ever, but I’m doing the same thing. Nothing has changed.
I definitely did not move on to something else. I don’t see why I would when what I do has been working and it keeps working, so there’s no reason why I would move on to something else.
Dan Ferris: That’s interesting. We heard about you through Michael Covell and we interviewed him too. We were talking and I was saying, “Yeah, I remember back in I think it was the 80s or something I read about the turtle traders, and one of them said they were trading 21-day breakouts.” I asked Covell about that and he said – I asked if it’s changed any. He said, “Yeah, it’s changed quite a bit. The breakout periods tend to be getting longer and longer.”
From what you just said, it makes me want to know – sounds like not much has changed at all for you. Has there been any kind of overarching change at all?
Mark Minervini: Almost none at all. The difference is, is that everything that I do is based on timeless principles. You can go back and you can look at the 1920s, 30s, 40s, 50s, 60s, every decade, and you’ll find that what I do happens in each decade. You’ll have an opportunity to take advantage of the type of trades that I look for and that my strategy will find.
Now, some people just back-test and they find what’s worked in the last few years and sometimes it carries over a little bit. Like the NFL indicator or astrology; these are not timeless principles. When you’re looking at supply and demand and you’re making your decisions based on earnings and sales and margins and supply and demand, this is what makes stocks move. I can assure you that if a company is making lots and lots of money and their product is selling like crazy, the stock eventually is going to go higher.
I can also assure you that supply and demand doesn’t lie. It’s right there in front of you. You can see if there’s buying and selling. It’s really based on interpreting timeless principles. The key is interpreting them properly and also knowing when you need to stay away because sometimes things are just not working and your style is out of vogue for a little while and you have to do nothing. That’s one of the hardest parts is actually knowing when to do nothing. Sometimes you have to wait for a while.
We just had a period where we went almost two years where the market moved sideways, and it really wasn’t conducive to my style of breakouts and the type of high growth, high octane names, but now just since October, been working beautifully, and that’s usually what happens. I love when we get these periods, these long periods a year or two where things aren’t working for growth investors and everybody gives up and they say, “Oh, it doesn’t work anymore” and that weeds them all out, and then I know I’m going to just kill it for a few years after that.
It just happens every single time. I don’t mind those periods ‘cause I have the confidence to wait it out, but yeah, everything I do is based on timeless principles. By the way, as far as Mike Covell is concerned, he’s another one who’s a great interviewer and I love Mike. He’s a great guy.
Dan Ferris: Oh, yeah. We had a great time talking with him.
Mark Minervini: I just did an interview with him on my Mindset book, and it was one of the most fun, enjoyable interviews I’ve ever done. This one is pretty fun too by the way. It was really a fun, enjoyable interview. We had a great time and I felt like the content was really valuable for people. He has a way of just bringing out the best in someone, but I just did an interview with him not too long ago on his podcast. I’m sorry I interrupted you.
Dan Ferris: No, it’s okay. I’ll have to listen to that. I have so many thoughts. One thing I did notice, I was on your website just looking around and there was a great little bit of several appearances that you made on TV, and it surprised me to see you on there commenting about things like the Federal Reserve and various economic kind of macro type data.
I have your book Trade Like a Champion on Kindle. I real quick went and did a search on the terms “Federal Reserve” and “interest rates” just to see if it was anywhere in the book, and I got zero hits. It blew me away to hear you talking about the Fed because you’re so focused on the technical and the fundamentals that make up your trading strategy.
Mark Minervini: Yeah. First of all, I’m very versed in economics. I started off as a quant. I started off as a top-down. Early on I studied the market and the economy and then would form an opinion about the market and then find the best groups and then from there look for the best stocks. What I found out was I was constantly missing the leading stocks, the best stocks, and I had to completely flip it around and reverse the whole process. Now it’s stocks, group, market.
But I have a background and I have after of course almost 40 years doing this, I have a pretty good feel and understanding of the economy and the stock market. But when you go on TV, and I don’t do TV hardly ever anymore, but in the 90s I did lots of TV shows. I was on probably 150, maybe 200 shows a year. I’d be down at the Exchange on CNBC, then at Fox and at CNN. Sometimes I’d do five, six shows in a day. They wanted me on these shows, and they want to talk about that stuff.
They want to talk about the unemployment data came out today and what does that mean? And the Fed raised the discount rate. So, you’re forced to talk about that stuff. Everybody wants a reason. They don’t want to just hear over and over, “Well, I’m in the market because a lot of stocks set up and met my criteria and that’s why I’m in the market.
That doesn’t make for good radio or good TV, so you have to go and do this big dissertation on all the reasons why and the underlying economy, but the bottom line is for the overall market, the market is going to go with the economy give or take several months. You’ll see that bear markets are from recessions and bull markets are when they have expansions. It’s just a matter of timing it, of course.
Dan Ferris: It’s funny, you mentioned how they don’t want to hear how the setups are right and I’m trading. It’s way too boring for TV.
Mark Minervini: Yeah.
Dan Ferris: I was thinking about you this morning driving around deciding whether I should throw $100 out the window, and I thought about the reality of the life of a person like Mozart or Beethoven. They’re exciting romantic figures, but the reality of their life from day to day, if you were a fly on the wall you’d have fallen off the wall and fallen asleep and hit the floor because all they’re doing is scribbling music on a paper all day long, and that’s the mechanics of what they’re doing. It takes place between their ears.
With you it's the same sort of thing, isn’t it? Your trading strategy is between your ears and it works when it works and it doesn’t when it doesn’t, and you know when those times are, but that’s not very sexy, is it? None of this is very sexy, is it, Mark?
Mark Minervini: No. Trading should not be sexy. If it’s sexy, you’re probably taking on a lot of risk. I always say trading should be boring. If it’s making the hair on the back of your neck stand up, you’re not managing risk. You’re gambling probably. As far as the $100 out the window, I just want to point out that with that, a commitment needs to come with that. That’s the whole idea. The whole idea is to make that declaration and however you do it.
You don’t necessarily have to do it in that particular manner, but that declaration and throwing that out the window, today’s the day that I make the commitment that that doesn’t mean anything. My future is so bright and I’m going to do everything I need to do to make that $100 be nothing or whatever it is. So, I just want to make sure that I point out that a commitment needs to go with that declaration.
Dan Ferris: Yeah. By all means, clarify as much as you want because I don’t want our listeners to think that I’ve gone off the deep end and that I’m interviewing people who’ve gone off the deep end. It’s a very logical thing when you think about it, and like you said, many historical precedents. It makes good sense when you think about it. So, I noticed on a blog post dated December 23rd it said you were holding four stocks and it mentioned the semiconductor ETF, 10X Genomics, Hilton, and Apollo Global, and I was just wondering if you’re still holding them.
Mark Minervini: No, none of those. Hilton I sold out last week or I sold a little bit before that, but the last piece was sold out as this coronavirus thing first unfolded, so I held that for a few months. The SOX Index I bought back, I think that was back in October, and then I sold that after it ran up and took a profit on that. Apollo I recently sold. That’s APO. Just told that just last week, I believe. I took some profits just recently.
I thought the market was starting to get a little frothy, and then when this whole Coronavirus thing started hitting, I started taking some of my profits. I’m actually short the market on a hedge. I think I have 11 longs now, and I have an S&P 500 short position with a very tight stop, so very little risk, but I’m not expecting a big decline, but I do think we could maybe go lower for a week or two on this virus. I am short against my longs right now.
Dan Ferris: Well, I’ll tell you, I do my own thing, but hearing that Mark Minervini has a short hedge makes me feel good about the one that I put on as well. I’m right there with you. When I saw Apollo Global, it made me wonder if you had traded any of the other ones, like Carlisle Group had a good one too I noticed right along with Apollo.
Mark Minervini: I saw it, and I actually tried to get in Carlisle Group, but I didn’t. I was interested in that in October and then I kind of was looking back kicking myself because I was going to pull the trigger on it and I did not. Carlisle Group has also moved up here.
Dan Ferris: And you’d probably be selling that now too, ‘cause the moves are identical lately. Anyway, Mark, we’re actually toward the end of our time here. I really wanted to talk with you about all these other things, specific stocks like – that seemed less important to me because your message is so much superior to any discussion of a specific stock to me.
But I do have one more question and it’s something I ask all my guests at the end. If you had a gun to your head and I forced you to kind of sum up or just leave our listener with one thought, in your case I’m really, really curious to know what that thought might be.
Mark Minervini: Okay, well my one thought would be to believe in yourself because you can do anything that anyone else can do because we have brains and we can learn, and there’s precedence before us. When someone does something, it shows us the path, it shows us the way, and then we can even do better because we’re starting where they left off. So, that’s how I turned an eighth grade education into a career and financial independence that I saw Paul Tudor Jones and some of these people who, while they were more educated than me, I realized that they’re just people and that I could learn from them and then I can start where they left off and maybe even become better.
So, I think that’s the one thing that I can’t do for someone; no one can do. Like I said, if Michael Jordan is teaching you, if you don’t believe in yourself it doesn’t matter and you can have the best coach in the world, but you should believe in yourself because this is a great time to not only be a stock trader but just a great time in general because of social media and all the information that we have. It’s amazing. It’s information overload, but if you sift through it, there’s amazing, amazing information. You’re able to learn directly from the people that wrote a piece of music or played a particular instrument or developed a stock strategy.
At one time when I was a musician, we had to take the record and put the needle back 150 times to figure out a part. Now you go on YouTube and the person who wrote that part is teaching you. So, it’s a great time and it’s a great time to accomplish your dreams and go after your passion.
Dan Ferris: Well, that is an awesome thought to leave us with. Thank you for that. That’s great. Thanks for being here, Mark. I really appreciate it, and in your case, I really do hope that we’ll get to talk to you again sometime.
Mark Minervini: Okay, any time. It was a lot of fun.
Dan Ferris: All right, thanks very much, Mark. Bye-bye for now.
Mark Minervini: Take care. Bye-bye.
Dan Ferris: Okay, it’s time for the mailbag. This is where you and I get to have a nice conversation, a nice polite conversation about investing. You write in with your questions, comments, and politely-worded criticisms to [email protected] I read every single one of them and I will comment on as many as I can.
Once again, this week not a lot of the emails really kind of required a comment, but there were a couple good ones. The first one is from Bill M., and Bill says, “Hi, Dan. Love your podcast and your levelheaded approach to investing. After reading The Moral Case for Fossil Fuels by Alex Epstein, I found your comments on climate change intriguing, especially your claim that we don’t know anything about it. I’m assuming that this claim is scientifically based, and I would be very interested in hearing more about the rationale behind it. Thanks for all you do, Bill M.”
Yes, Bill, it is very scientifically based because I have noticed that you don’t know anything about it, that nobody does. I have observed this empirically with my own eyes. No one knows anything about it. They don’t know what’s going to happen in ten years, and all the models have been wrong, all the models that caused people to make apocalyptic predictions have been wrong. That’s what people are doing, they’re modeling this stuff using questionable data in some cases. Al Gore’s hockey stick chart is an out-and-out fraud, and they don’t know.
And I’m not saying I know. You can call me a denier if you want, but the only thing I deny is that you have any idea what’s going to happen in 10, 15, 50, 100 years. Just all the arguments are just so bad. “Oh, it’s not weather. Climate is not weather.” It’s weather when we say it is. It’s weather when it’s weather in Southern California or Australia or whatever is convenient.
I’m not going to get into it. It’s all ridiculous. You don’t know what’s going to happen, don’t say you do. That’s my point. That’s my scientific observation.
Next one is from Dennis H. “Hi, Dan. Wow, thanks for the interview with your guest.” He’s referring to Raoul Pal, by the way. “Thanks for the interview with your guest. Did I understand that buying TLT and SHY were two ideas for long position hedges before the excrement hits the fan? I’ve never bought bonds. I subscribe to several Stansberry products including True Value.” We don’t have one called that. We have one called Venture Value. We have one called Extreme Value that I write, and we have one called True Wealth that Steve Sjuggerud writes.
He continues, “I’m long diversified stocks, long gold coins, gold royalties, and some silver and gold miners. Just looking for some other ways to hedge. I’m using stops on all my positions. Thanks for your work, Dennis H.”
Raoul’s position is not a hedging position. He is a global macro trader. He sees economic developments. He sees economic developments, he sees the global economy weakening, he believes the Fed will cut interest rates, he thinks this is going to make bonds go up in the near term, and he thinks it’s a great trade. He says he’s full risk into that trade. So, it’s a trade for him, not a hedge.
You heard today’s rant when I started out the program. Maybe bonds aren’t the hedge that everyone thinks they are, but Raoul thinks it’s a good trade and I agree with him.
Okay, that’s really all we have in the mailbag. There was one listener – I will comment on this – there was one listener who wrote in to say that Altius has been a lousy long-term investment and has been only good for short-term traders who can time exits and entries. The exact opposite is really true. It’s outperformed the mining sector in downturns, proving what I’ve always said, that it’s limited downside and huge upside potential.
You know, the potential lies ahead of it. I agree. The revenue has gone up more than 20 times. The capital allocation is as good as Warren Buffett but in the mining sector, and it’s easily the best long-term hold in the Extreme Value newsletter right now. You can and I believe should buy it. Buy a small position. Forget you own it for 20 years. It’s a cash-gushing wonderful business run by the best people in the industry, period. I’ll agree to disagree with that listener who wrote in.
All right, that’s it for another episode of the Stansberry Investor Hour. Remember to head over to our website www.investorhour.com. You can listen to every episode we’ve ever done, and you can read a transcript, yes, of every episode we’ve ever done. To access transcripts, just click on the episode you want and scroll all the way to the bottom. We have one for every episode. New episode transcripts may take a few days to post online.
But what you really want to do is go to iTunes. Subscribe to Stansberry Investor Hour podcast and click on that little word “like.” If you give us a like, it pushes us up in the rankings and attracts more listeners, making this wonderful weekly conversation of ours better for you, better for me, better for everybody, okay? I’ll thank you if you do that. Thank you in advance.
It’s my privilege to come to you this week and every week. I look forward to talking with you next time. Bye-bye for now.
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