Sunday, February 7, 2010

You can beat the "races" if you choose your "horses" carefully

The way most stock investors see it, if you’re not in the market, you’re missing out on opportunities to make money. I’ve even heard some say that there’s risk is being out of the market. I look at it from the opposite view. When you are in the market, you are at risk. Therefore, you want to be in the market as little as possible—and to make as much money as you can while you are in.

Because of my view, I’ve been criticized for staying in cash for extended periods of time during difficult market conditions. I’ve even heard my approach called a “bull market strategy,” meaning it only works or can be applied during a bull market. My response to that is: so what’s your point? Other than selling stocks short, I don’t know of any long-side method that works that great in a bear market. Very few stocks, even value stocks, can survive the wrath of a true bear decline.

The best leading stocks generally see their big performance a year or two into a bull market. I focus on those stocks in order to make a huge return in a relative short period of time. There is no need to be in the market all the time; in fact, I think there is grave danger in doing so. It’s like going out on a boat trip: you want to go out when the sky is blue and the seas are calm. Sure, you could stay out there and brave a hurricane and there would be a chance you’d make it through, but why would you want to do that, and how many times would you survive those conditions?

My objective is to capitalize on a bull market to the fullest, and then more importantly, keep what I’ve made. Too often, traders and investors get it wrong in both market conditions. They fail to make enough during the bull market and then they lose a good portion or all of their gains in the subsequent bear market. In order to achieve consistent, superior returns, the goal is to win big and lose little. Your involvement in the market should be limited to the times when conditions are ideal or at the very least favorable.

It has been said that you can beat a horse race but you can’t beat the races. I believe you CAN beat the races; I have (so far; 27 years and counting). However, you can’t if you play every race. Be selective and manage the downside. If you do, the upside will take care of itself.
-
Mark Minervini
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4 comments:

  1. "It has been said that you can beat a horse race but you can’t beat the races." Can't argue with this statement.

    I believe you can beat the races; I have (so far). Really? For how long? I have serious reservations believing that anyone has EVER been able to do this over any significant stretch of time. Sure there are more than a few who have made this claim, but I do not believe them.

    Having said that, I completely agree with the point you are making, i.e., limited involvement in the market leads to bigger gains.

    regards,
    Tim

    ReplyDelete

  2. Great comment, puts things into perspective.
    Thanks,
    Paul

    ReplyDelete

  3. I am reading "Reminiscences of a Stock Operator" which is written by Jessie Livermore/ghost writer Edwin Lefevre.
    Livermore wrote that he once waited 4 years for the market to present an opportunity to his style of trading. But I think he would be adding to his holdings on this correction? Any thoughts Mark?

    ReplyDelete

  4. Mike, I can relate to Mr. Livermore’s sabbatical from the market. From 1993 until early 1995 I didn’t make a single trade in my account; I waited for the proper set-ups. In 1995 I was up 412%. It was worth the wait. -Mark

    ReplyDelete

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