The Key To Creating Large Gains: Patience

by: Brian Nichols

Every week I write an article "5 Stocks To Watch Next Week" as part of a series that looks at stocks trending higher. While the title suggests a piece to find quick gains, I always conclude by explaining that I am not a technical trader, but rather basing my choices from a situational investor's point-of-view. Over the last two and a half months I have received countless emails in regards to this series, but in this piece, I want to better explain my conclusion to every article in this series. Thus, I am showing the longer term performance of the first three articles in the series in an attempt to show that larger gains are created with patience.

First, my investment paradigm is a value investor, but my holding preference is neither short nor long-term, but rather situational. In my book I explain the psychological difference, as a short-term trader often seeks quick gains and will swiftly overreact to volatility. A long-term investor holds regardless of the volatility, and is very patient; sometimes too patient. I am somewhere in the middle. I use value investing to find good entry points and then I set price targets where I sell the stock, regardless if it takes one week or two years. Therefore, I am neither short nor long-term, but at the same time I am both a short and long-term investor.

Now, on to the subject of this article. As I explained, I write my "5 Stocks To Watch" article every week and mainly because it is so popular. So far, I have written nine articles in the series (not including week of 6/3) and my average views per article is more than 21,000. Just so you know, Seeking Alpha has averaged almost 6,000 views per article during this current quarter. This shows that readers/investors are most attracted to articles that they believe can create instant money. It shows that the need for immediate gratification is great among retail investors. For this reason, those who are patient can benefit greatly. Take a look at the performance of the selections from my first three articles of this series, showing gains over a longer period of time, greater than "next week".

Week of March 23



Starting Price

Current Price


Spectrum Pharmaceuticals





Arena Pharmaceuticals





Rite Aid





FleetCor Technologies










S&P 500


During a 10 week period, the selections from my first article have returned an average gain of 19.16%, more than four times greater than the S&P 500. This clearly illustrates the presence of gains accumulated through holding - seeing as how only two of these five outperformed the market in the week of March 23. With that said, let's look at the performance of the following two weeks, March 30 and April 7.

Week of March 30



Starting Price

Current Price


Repros Therapeutics










Seagate Technologies





Amarin Corporation





3D Systems





S&P 500


Week of April 7*



Starting Price

Current Price






















S&P 500


*One selection was made in prior week

Since March 30, my selections have returned gains of 22.14%, almost six times the S&P 500. Since April 7, my selections have returned gains of 18.91%, almost four times the S&P 500.

What you can't see from the charts above is that on a week-to-week basis my selections outperform the market only 60% of the time, but during a longer period they have outperformed the market 80% of the time. Furthermore, on a week-to-week basis, the selections outperformed the market by less than 20%. During a longer period of time, you can see that these selections have outperformed the S&P 500 by several times.

Now, my purpose of writing this article is not to brag about the performance of my weekly stock selections. Instead, I am trying to accomplish two things: One, be able to use this as a reference for future "5 Stocks to Watch" articles, and two, correlate this performance to the behavior of retail investors who seek the immediate gratification of quick money in their pockets.

As I previously mentioned, the mere views associated with this weekly piece shows how investors are much more attracted to information that they believe will produce immediate income. In these articles, I use the exact same formula to select stocks that I detail in my book, which I clearly state is not for immediate gains - but rather chosen on the basis of value. For example, growth is compared to that of the S&P 500 along with P/E and price/sales ratios. A company with faster growth and more attractive metrics is most likely presenting some level of value. In biotechnology -- those in the clinical stage -- peak sales compared to valuation is often used as the key metric. The investor must then identify industry and stock specific trends to determine if any near-term upside is present; followed by a more thorough assessment of the company's fundamentals.

After many years, what I've come to realize is that investors are often able to identify value, but lack the patience and discipline to capitalize on the value that stocks present. As we move forward and I continue to write "5 Stocks To Watch For Gains Next Week" I will reference this article in each piece. The goal is to show how investors should identify value -- for longer than five sessions -- as upside is truly impossible to time. Sure, we can look at trends, sentiment, and the impact of catalysts, but if a stock is truly undervalued, then it shouldn't matter how long it takes to reach the targeted price.

Disclosure: I am long AAPL, NBS, ACT, RAD, STX, ALU, AMRN, SNTS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.