This interview was originally published on December 17, 2010 at thekirkreport.com

Charles Kirk: It is with tremendous pleasure that I offer my last interview of 2010 with Mark Minervini.

As with many traders I interview, Mark requires no introduction as he is one of the most highly-respected independent traders of our generation. His blog in recent years has instantly become one of the must reads out there as he often shares market commentary and analysis which shows why the respect so many have for Mark is so well-deserved.

Moreover, his experience and past history of savvy market calls is legendary. It is with little doubt that we can all learn a lot from him! We hope you enjoy and find this focus interview helpful in your own journey toward more success in the markets.

Kirk: Hi, Mark. First of all, thank you for taking the time to answer our questions. I speak for many members who have a great deal of respect for you and we sincerely welcome you to this interview series.

Mark Minervini: You do a great job, Charles, and Im honored to be a part of it.

Kirk: Please tell us a little bit about how you got interested and started in trading.

Mark Minervini: I dropped out of school in the eighth grade in pursuit of a career as a drummer. From the money I made working as musician, I bought my first stock in 1983, which was a few hundred shares of Allis Chalmer. Shortly after, I read Richard Loves book, Superperformance Stocks: An Investment Strategy for the Individual Investor Based on the 4-Year Political Cycle. Everything Ive created with regard to my trading approach since stems from Loves initial impression on me, specifically from his writings in chapter 7.

Kirk: What was one of the most important lessons you learned early on?

Mark Minervini: That no one was going to do it for me; no one was going to make me rich except me. I learned that you must take responsibility for your results in the market and in life if you want to be exceptional. Secondly, I learned that in order to do well in the market you must be consistent; consistency is what separates the pro form the amateur. In order to have consistent success, risk must be managed in relation to potential reward as standard operating procedure. Youre not going to make just one trade, rather hundreds or even thousands of trades; its all about how much you make on average versus how much you lose on average over time. Lastly, I realized that I simply had to get to the bottom of what actually worked in the marketplace and ignore all the opinions and theories.

Kirk: Was there anyone out there who helped you greatly during your initial learning curve? If so, what did you learn most from them?

Mark Minervini: My Mother and my Father. I learned it was ok to do what I love; to go after my dream. I also learned it was ok to be unconventional. I was given the room to be creative. My parents trusted me. I always knew I was supported emotionally. Financially, we were poor but my parents supported my dreams.

Kirk: Indeed, it is so important to have a strong support structure in place. In a nutshell how do you currently approach the market and what is your primary trading strategy?

Mark Minervini: I approach the market from a risk first approach. My trading strategy is called Specific Entry Point Analysis or SEPA. We look to enter trades at low risk entry points relative to potential reward. Primary focus is not to lose money. Secondary focus is not to lose money. And, the final focus is to make more on average than I lose.

Kirk: You remind me of Buffett who said he had only two rules: 1) Never lose money and 2) see rule number 1! What do you see as the primary benefits from employing a strategy that focuses on both fundamentals and technicals?

Mark Minervini: The benefits are having all the pertinent information that is consistent with big winning stocks. We know what to look for both fundamentally and technically. I have seen stocks bought on pure technicals and the guy buying the stock doesnt even know that there was a cash offer or a proposed merger right at the price he paid. Refusing to look at fundamentals or any information that gives you an edge is usually because the individual just doesnt know how to use the info, or has some bias based on personal opinion or tradition.

Kirk: Why is this kind of trading best for you and, more importantly, why do you think it works so well?

Mark Minervini: My strategy works well because its my strategy. I know the strengths and, more importantly, the weaknesses of what it is I do. It also works well because I allow it to work and stick with it even when it runs into difficult times. Nothing works well if you keep changing your approach. To be a master you must be a specialist, not a jack of all trades.

Kirk: What do you trade mostly? Equities, options, futures, ETFs, currencies, etc.?

Mark Minervini: Only equities.

Kirk: In an average week how many trades do you make? What is your average hold time and how many positions do you have open at any given time?

Mark Minervini: During an average year I may make 400-500 trades. About half of that turnover is a result of taking small losses, which Im out of pretty quickly.

Kirk: What would you say are your primary strengths and weaknesses as a trader?

Mark Minervini: Discipline is my primary strength. And the willingness to admit when Im wrong and move on. My weakness is I usually sell early and often leave money on the table. But I dont really view that as a weakness, just something that could be improved upon. When you move in size you have to get out when the getting is good.

Kirk: In my experience it is often better to sell too early than too late Mark! How have you learned to mitigate your weaknesses and focus more on your strengths?

Mark Minervini: By not focusing too much on my strengths. If youre good at buying and bad at selling I would focus on selling; if you improve your selling you will have a complete game. Focus on making your weaknesses strengths and then you will have no weaknesses. Exploit your strengths and improve your weaknesses.

Kirk: What have been some of the most challenging lessons you have learned?

Mark Minervini: That you cant be everything. You must commit to a strategy and sacrifice other strategies. The problem with the market is its like playing poker however; you always get to see the next cards even though the hand is over. You always see what would have happened. This is very difficult to deal with for many people. To be successful, you have to understand that trading is NOT about picking highs and lows, its about making money.

Kirk: Very good. What are some of the key rules that you consider before selecting any potential trading opportunity?

Mark Minervini: How much am I risking is the very first concern. Also, does the stock meet all the necessary criteria? If the risk is acceptable and all the entry criteria are met, I enter the trade.

Kirk: What would you say is your average win: loss ratio for your trades?

Mark Minervini: I average 2 to 1.

Kirk: How has your overall performance been recently, as well as over the past few years?

Mark Minervini: Its been about the same as always. Im a consistent 2:1 trader.

Kirk: What would you say are your favorite kinds of technical and fundamental set-ups?

Mark Minervini: The ideal set-up is a stock emerging from a constructive consolidation with strong accelerating earnings and sales.

Kirk: Can you give us a recent example of a set-up you found to be very attractive and worked well in this market?

Mark Minervini: CML. Bought it on 11/24. Sold it on 12/7 for a quick profit.

Kirk: Have you noticed any trading set-ups more prone to failure than they have been in the past?

Mark Minervini: No. Not much has changed. Contrary to what many believe, its not different this time. LOL

Kirk: To help us understand your trading approach, can you talk about a recent successful trade from start to finish?

Mark Minervini: LULU. Supported by excellent fundamentals, the stock emerged from a double bottom pattern that formed from 4/15 11/04. I bought the stock on 11/05 the day the market topped just before a pullback of about 5% in the major averages. The stock was held through that market pullback because it acted normal and held above our stop. This gave me the conviction to add to the position as it emerged through its next buy point in November. I sold the stock (most likely too early) on 12/09 when they reported earnings up about +50% from the initial purchase from about a month earlier.

Kirk: Now please tell us about a recent unsuccessful trade.

Mark Minervini: Shorted GMCR; shorted the rally in October and November after the big break on SEC news. Stock rallied and stopped us out

Kirk: One of the things I most appreciate about you is how much you stress proper risk management. If we can, lets talk a little bit about position sizing. Can you provide an example of a recent trade and explain your method for determining the size relative to your own trading portfolio?

Mark Minervini: I want to own as much as I can but generally no more than 25% of my portfolio (as liquidity permits). You are not going to make huge returns being too diversified. However, I only risk what I can get out of safely based on liquidity.

Kirk: Thats interesting. I think many would be surprised at the idea of having any position anywhere near 25% of an entire portfolio. Besides over diversification and liquidity concerns, what common mistakes do you think many traders make concerning position sizing?

Mark Minervini: They dont know what an optimal position size should be based on their own risk/reward and risk tolerance. For instance, if youre a 2:1 trader, your optimal position size is 25%.

Kirk: Ok. I think I understand what you mean, but please explain this position sizing formula more in detail so others can perhaps apply it in their own trading. Can you offer another example?

Mark Minervini: Ok. First, its important to understand that you are not going to achieve huge returns consistently being overly diversified or by relying on diversification for protection. You will only get a smoothing effect. When you own a bunch of stocks you end up with two problems: the first being that you just cant watch and know all you need to know about each of them. The second problem is that you will have a difficult time getting fully invested quickly when opportunity presents itself and more importantly, getting liquid if you need to raise cash in a hurry. In addition, the math just doesnt support it. Depending on the size and risk tolerance of your portfolio you should typically have between 4 or 8 stocks and for large portfolios maybe up to as many as 10 or 12 stocks. This would provide sufficient diversification but not too much. The Optimal-f formula can act as a starting place for you to understand optimal position sizing based on expectation. If Ken Heebner of CGM Funds can move around billions of dollars in just twenty names and still manage to beat the market, then a personal portfolio can surely manage sufficiently with 4-5 or 10-12 stocks. If you lose 5-6% on average and even if your position size is at 25% exposure, youre still only be risking about 1.25% of your capital per trade. Of course, if you dont have an edge, then you will lose no matter what your position sizing is.

Kirk: Good, thats helpful. So, do you use and set stops, Mark? If so, whats your stop loss method?

Mark Minervini: I always know where Im going to get out of a trade before I get in. I aim to lose no more than 5-6% on average over time on my losers.

Kirk: Do you ever average down into a losing trade?

Mark Minervini: Theres a reason Paul Tudor Jones had a sign posted on his wall that read Losers average losers, and that reason is because its true. I almost always only add to a position if it proves itself and then I may add to my position at a higher price, not lower.

Kirk: Do you scale up and into winning positions? If so, how do you know when to increase a position size relative to your overall portfolio?

Mark Minervini: Yes. I generally move money into the better performing names at subsequent pivot points or set-ups.

Kirk: All good traders dedicate a lot of time and effort to improvement and reducing mistakes. How has your trading method evolved and improved over the years?

Mark Minervini: It just becomes more and more crystallized because I continue to focus on the same timeless principles, which allows me to become more and more of a specialist. The power of a narrow focus is amazing. The key is to be a real pro at something. Know all you can about a style or a tactic. Then you can build on that foundation. Traders give up too easily and jump around too much when things get difficult. How good do you think Kobe Bryant would be if while he was developing his skills growing up every time he had a really tough game he changed to a different sport or played a different position?

Kirk: I couldnt agree with you more Mark. I see this problem among many. Can you provide an example of something you thought was true when trading early in your career and now believe is just completely wrong?

Mark Minervini: Yeah, everything. But I learned very quickly sound principles. It just took me many years to master the application.

Kirk: Why do you think most traders fail?

Mark Minervini: Here are 6 reasons:

1. Poor selection criteria; usually based on personal opinion, theory or tips and bad advice
2. They dont stick to and commit to an approach; style drift
3. Dont cut losses (#1 mistake made by virtually all investors)
4. Dont know the truth about their trading they fail to conduct in-depth post analysis
5. Treat trading as a hobby not a business
6. Want too much too fast; learning a skill takes time

Kirk: Please describe a typical trading day for you. How do you organize and dedicate your time?

Mark Minervini: Most of my work is done the night before. I already know what Im going to trade before the open. I watch the market all day long, never leaving my desk for more than a few minutes during trading hours.

Kirk: How much time and attention do you pay to others opinions about the market and/or stocks you are trading?

Mark Minervini: Zero. I avoid outside opinions like the plague!

Kirk: Are there any tricks of the trade that you use to help maintain a consistent successful approach over a long period of time?

Mark Minervini: Yeah, long hours, hard work, a sound approach and discipline. There are no tricks or big secrets. Again, is there a secret to having a good basketball shot? It starts with a good coach, proper practice, plenty of hard work, discipline and sacrifice.

Kirk: Amen. However, most traders I know have a set of rules that they have learned from past mistakes. What are a few of yours that you think most traders would benefit from?

Mark Minervini: Hard work alone wont cut if you dont have a sound approach and if youre not doing the right things. You must be facing west if youre looking for a sun set. Approach each trade from risk first; ask how much can I lose. Dont risk more than you can expect to gain on average. Know the truth about your trading; study your results carefully. Never average down. Always cut your losses; keep your losses small. These are fundamental rules that should never be compromised.

Kirk: I suspect like all good traders you are working on improving your performance in some manner. Can you share what youre specifically working on right now?

Mark Minervini: Sticking to the rules. Always making sure we stick to the rules. We have a great approach, I dont like to get to tricky and over complicate something that requires a straight forward approach.

Kirk: Youve been trading for some time now. What would you say are the biggest changes in the markets and trading in general youve seen during your career, both good and bad?

Mark Minervini: The order handling rule change in 1997 has changed the way stocks move short-term because Market Makers dont really keep inventory anymore. Its a topic that would require a lengthy discussion; maybe we could talk about it another time. Other than that, not much has changed except more information moves faster than before.

Kirk: What advice would you give a person just now beginning to trade the markets?

Mark Minervini: Find a good mentor. Commit to a strategy. Cut your losses. Tune out the media. Take full responsibility for your results.
Kirk: What do you think are the greatest misconceptions beginning traders have about trading the markets and about trading systems?

Mark Minervini: Way too many to mention. Just about everything a beginner thinks is a misconception.

Kirk: A number of people who read my website desire to trade for a living and I receive a lot of questions concerning capital requirements needed to start and how to make the transition to trade full-time. Do you have any words of wisdom or rules of thumb to share along these lines?

Mark Minervini: I started with a very small sum of money and turned it into a fortune. Capital is not the challenge. Mastering yourself is the challenge. Discipline is the challenge. Persistence is the challenge.

Kirk: Do you think trading for a living is getting more difficult or easier for the average individual investor? Why?

Mark Minervini: Much easier. Tools for pros and amateurs are virtually identical. The pro has no edge. The individual has the advantage. No real liquidity concerns for the small trader versus the big fund manager. Its a fantastic time to be a stock trader!

Kirk: When all is said and done, in your experience, what is the best way to learn how to trade?

Mark Minervini: Trade. As Ralph Waldo Emerson said: Do the thing and you shall have the power. And then conduct post analysis. Learn to be objective. You could try and find a mentor. However, the chances of getting great advice are slim at best. Trading is just like any other profession, there are only a handful of really outstanding practitioners.

Kirk: Do you have any books, websites, etc. that you highly recommend beyond your own website?

Mark Minervini: The Kirk Report. Why is there anything else? LOL!!!

Kirk: You are too kind Mark. Although I know both of us share a love for the markets and trading, what are your long-term career plans and future for your website?

Mark Minervini: I honestly dont know for sure. My long-term plans are too stay healthy and be a good father to my daughter. This past year I started a pilot training program. Also, we now offer my research to the individual investor not just exclusively to the institution anymore. It feels good to help others achieve their goals. I think I may continue to develop that. Why hog all the good trades for myself? LOL!

Kirk: What are some of your personal passions beyond the market?

Mark Minervini: Ive been a drummer since I was 6 years old and I continue to play. I play tennis, train boxing and lift weights to stay in shape, and I play an occasional round of golf.

Kirk: Finally, if you had only one piece of advice to share with all traders, what would it be?

Mark Minervini: Believe in yourself and never give up. Persistence is more important than knowledge. Make an unconditional commitment to trading and you will not fail.

Kirk: Thank you so much Mark. I really enjoyed this interview and Im sure others will find it helpful.

But seriously, the big pharmas have plenty of drugs in the pipeline. And while you are wating for the bid payoff, you can always receive a dividend, as according to WallStreetNewsNetwork.com, there are about ten high yield big pharmaceutical stocks, and half of them have yields over 3%.

Eli Lilly & Co. (LLY) trades at eight times forward earnings and sports an extremely generous yield of 5.4%. Earnings were up 16% for the latest quarter and the company’s next earnings announcement will be October 21.

Merck & Co., Inc. (MRK) trades at around nine times forward earnings and pays a yield of 4.1%. Earnings were down over 51% for the latest quarter, however, revenues almost doubled. Latest earnings announcement will be October 29.

To see a free recently updated list of all the high yield large pharmaceutical stocks, that can be downloaded and sorted, go to WallStreetNewsNetwork.com.

Disclosure: Author did not own any of the above at the time it was written.

By Stockerblog.com

August will be the third month of losses for the stock market out of the last four when the books close next Tuesday and we move into September. The major US indices have lost more than 5% across the board with the Dow down just 4.25% and the Russell 2K down 10%. The bearish price action looks like it will continue for the majority of September.

As of Wednesdays close a new, confirmed bear signal has emerged on the markets and its historically dependable. In addition to the slew warning signs from Mondays Equity Put/Call, the VIX crossing above its 200 day moving average and poor home sales we are seeing a short signal based on Acceleration Bands. Let me explain what this means

Perhaps one of the most difficult momentum indicators to trigger a buy or sell for the SP500 is Acceleration Bands the bands target the top/bottom 5% of bull and bear trends helping traders focus on only strongest moves. Check out our free Indicator How to Video on Acceleration Bands. The signals are easy a traditional Acceleration Band Buy Signal occurs after 2 consecutive closes outside the upper band while a Sell Signal occurs after 2 consecutive closes below the lower bands

Why is this Important NOW?

Wednesdays close marks the second consecutive close below the lower Acceleration Band meaning a Bearish Acceleration is expected in the market. The previous signals based on acceleration were profitable more often than not.

In the chart below you can see all SPY acceleration signals since 2008. Ive noted the entry/exit dates and entry/exit prices of each signalthe performance is based on the total signal result and max gain/loss is the max gain in the signal. Whats interesting is that about 75% of signals were profitable at one point during the signal. This means weve got a very good opportunity to short the market now.

To give you a better idea of what these signals look like on a chart we plotted the system on the chart below. This shows you the systematic entry/exits. Overall, you can see that these areas are the strongest trends over the past two yearsAcceleration Bands seek to highlight the top 5% of moves in a stock or ETF. Of course, the S&P500 (SPY) is an average so there are several sector ETFs experiencing the same signal. Other sector ETFs that are currently in bear accelerations are SPDR Energy (XLE) and SPDR Financials (XLF).

Whats Bottom line for TRADRs? Seasonality suggests that we could see strong selling pressure in September while the mid-term election cycle suggests a one year rally starting after the elections It would seem likely that a sharp seasonal sell-off could take place in September following by a strong fourth quarter rally.

SP500 Index Daily Acceleration Band Signals Since 2008

Trade well,

Andrew Hart ETFTRADR

Golf, as in personal finance, requires lots of patience. There are no quick-rich schemes in the finance world just as there is no way youll beat Tiger or Phil at their game right away (if ever)! Building your golf prowess and financial expertise are journeys that take time, there is no overnight success and so you should treat them as such. Not only are you being more realistic in thinking this way, youre going to save yourself a lot of frustration on the greens and with your cheque book.

Golf, as in personal finance, requires continuous learning. Where did all my money go? Why did I buy that stock? Can you believe this is happening to the market (again)? Answers to these questions are easier to find than you think, if you take the time to learn and apply your knowledge. Knowing what causes your slice into the woods can be fixed if you learn to understand how and why it happens and work to continuously improve your swing. Otherwise, those who fail to learn from history are doomedyou know the rest.

Lastly, golf just like personal finance, should be something thats enjoyed. Yes, thats right, you can enjoy personal finance. You dont have to fear money, debt, the stock market or banks. You can live without fear! Here’s a link to a great post I found on that topic Managing your money, just like managing your golf game, can be fulfilling if you have a plan and you learn to accept the poor lies in the rough just as much as the par-5 birdies. The sun wont always be shining on the course and the dividend stocks wont always be on sale. Take some chances, learn some new shots around the green and celebrate the small victories in each game. This mental approach to each will undoubtedly leave you much more fulfilled and happier.

Ok, that was more than I thought I was going to post today, but now that Im inspired (…and I hope you are too), time to watch The Masters. Over the weekend, try to take some time to visit these sites that I continue to enjoy and learn from….these authors are entertaining and know their stuff. Cheers!

The Financial Blogger

Ending the Rat Race

Canadian Capitalist

My Journey to Millions

Andrew Hallam

Four Pillars

Young and Thrifty

No doubt there have been mixed messages in the financial news over the last few months. In recent weeks, the experts seem confident the economy has staying power for 2010 and we shouldnt expect another market slide but their statements arent exactly inspiring. For example, acclaimed expert Murray Leith, Vice-President and Director of an investment firm called Odlum Brown Ltd. said there is still a lot of stimulus that will carry us through in the short term” but in the same interview he cautions investors because markets have rebounded to levels where retreats may start occurring.

What does this mean? Should we be ready for another dip?

Im no financial expert but I am My Own Advisor so whatever the bubble-talk might or might not be, whether it be in stocks, real estate, commodities or other sectors, I feel my wife and I are better prepared for what might happen in 2010 than the market collapse in late-2008 and early-2009, and here’s why:

1. We have an emergency fund. Many financial planners advocate having one, at least one months salary and being my own advisor, Im not comfortable sleeping without it.
2. Were actively contributing to savings. This is different than #1 since we use this account for major purchases. Were not running out to buy a TV or a new patio set anytime soon but if a need arises at least we have something to draw from.
3. Were also actively paying down the mortgage. Not that we stalled on our mortgage payments, but extra bi-weekly contributions are helping reduce our debt, which is never a poor choice in my opinion.
4. We have some cash reserved in our unregistered brokerage account. This is the load up on dividend growers account. We have this fund should dividend-payers take a price-dip say a BNS, FTS, TRP or T. This time, well be ready to enter; last time in March 2009 this account did not exist. Im not saying well be ready to purchase thousands of shares, but every bit of extra money in this account helps if a correction occurs.

Having #4 is probably the biggest change weve made in our savings account structure. Sure, I have some regrets about not being able to make major investments into all the bank stocks at market lows in March 2009, but we did make a few purchases towards the end of 2009 and they seem to be paying off as the market climbs this spring. Next time, I want to be even more prepared. So coupled with this account, Im writing down my list of favourite-but-dont-haveem-yet-dividend-payers. Im also capturing some purchase prices for these stocks, should or rather when, stock prices eventually retreat a bit.

While the second quarter of 2010 shows signs of acceleration, I dont want to forget where things were just over a year ago. Just like everyone, we too were worried about our jobs and financial health. Things for Canadians and the economy at large seem to be better now and that’s a good thing. While no one can predict the future with any accuracy, I feel good about applying our lessons learned from the most recent recession and in some weird way, I look forward (being better prepared) for the next market correction. Theres always a next time, isnt there???

Most big winning stocks are fueled by earnings growth and acceleration. There is a definite correlation between a natural earnings maturation cycle and most of the great stock market success stories. In most cases, price performance was either the reaction to superior earnings performance or the anticipation of it. Stocks that lack growth could go through periods of underperformance, even to the point of being dormant for decades. This, of course, is the type of situation you want to avoid.

For example, from 1973 to 1997, Eastman Kodaks stock price performance basically broke even, while the S&P advanced 500%. While some stocks with poor growth prospects can languish, sometimes for many years, those with superior and improving fundamentals can perform exceptionally well.

Often stocks with strong fundamentals get even stronger because the institutional players, such as mutual funds and pension funds, those with the greatest buying power look for companies with positive earnings and sales surprises. The subsequent buying that comes from an earnings surprise or materially positive company-issued guidance can lead to significantly higher stock prices. This, in turn, attracts momentum buyers. This natural maturation pattern can be readily identified, if you know what to look for.

Apollo Group (APOL) advanced 950% in 50-months, during a period when, the NASDAQ Composite fell by more than 60%. Apollo was in its own earnings up cycle. Conversely, stocks that are in a bearish earnings cycle may resist even a strong market and go nowhere.

Require Accomplishment

An old business partner of mine had a favorite question he used on young, up-and-coming trainees who thought they had all the answers, but had none of the proven success. With an arrogant grin on his face, hed ask them, If youre so smart, then why arent you rich? This is textbook Wall Street mentality: what’s your bottom line?

There is value in that bottom line mentality, however. I have adopted that rationale when it comes to stocks: I always ask that same question my business associate would ask: If this is such a good company, then why isnt the stock going up? Prove yourself to me! If the CEO and the management team are so great, then why arent earnings, sales, returns on equity, margins and so forth superior to other companies in the industry?

Today, there are so many stocks to choose from that it is simply unnecessary to settle for less than the optimal situation. Think of it this way: if you were running a business and had five sales executives who were performing well above average and five who were below average, would you fire the good ones and keep the worst? Would you give the five worst performers raises, throwing good money after bad? Of course not. Thats the attitude you need when you look at your stock performers as you choose which investments deserve your hard earned capital.

If youre investing your own money, there is no pressure to act, as opposed to running a fund for outside investors who demand action so that they feel youre earning your keep as the manager. When you run your account you can afford to wait for the optimal time to purchase a stock. You can demand the best in terms of fundamentals and technicals. Take full advantage of this luxury. Be patient and demand the best.
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Mark Minervini

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