Investment Strategy Statement - Joe Younger

by: Joe Younger

I combine fundamental and technical analysis to identify strong performing growth stocks. I strive for portfolio diversity, but my biggest area of interest is biotechs, particularly medical robotics.

I invest in three types of stocks: Large cap growth stocks that pay a dividend or that probably will soon; small-cap, high-growth stocks; and speculative micro-caps with explosive growth potential.

I value stocks via P/E and sales ratio comparisons, and I combine this with visual (aka technical) analysis to delineate buy and sell points.

I generally take partial profits at +25% and then hold the remainder until the stock price breaks its 50 day average; however, I grant true disruptors more leeway.

I have 20+ years of retail investing experience and a broad background in fundamental and technical analysis.

Investing Areas of Focus

I focus my research and investment on three types of stocks:

1. Large-cap growth stocks with consistent revenue and earnings growth at least in the high single-digits, and that pay a dividend. These types of stocks provide some stability to balance out the wild biotechs I often hold, and from a technical standpoint, they tend to behave fairly predictably, dutifully finding support lines at support, bouncing off or slowing down at resistance points, and rarely moving more than a few percent per day (although with the secrecy surrounding earnings reports these days, all stocks are susceptible to major earnings day gyrations...) Examples of these types of stocks include Costco (COST), Microsoft (MSFT), and Visa (V). Although I prefer to see a growing dividend, because it adds support to the stock price in addition to, of course, rewarding the investor, I do make exceptions for stocks where a dividend seems nigh; for example, Intuitive Surgical Inc. (ISRG).

2. Small-cap, high-growth stocks with rapidly increasing revenue. I am more flexible with these regarding income. I look for high-growth companies that are either profitable and increasing profits rapidly each quarter, or that are sacrificing profits to ramp up sales, but their losses are decreasing each quarter, and they are moving toward profitability; or, they are playing a high-growth, zero-profit game like Amazon (AMZN) did for many years. Examples include Vericel Corporation (VCEL), Inspire Medical Systems (INSP), and Zendesk Inc (ZEN).

3. Speculative micro-caps with explosive growth potential. I dedicate a small portion of my portfolio and way too much of my time to investigating and investing in tiny microcaps (mostly biotechs) that have true home-run, life-changing, wealth-generating potential. Unfortunately, stocks in this niche also run the real chance of striking out - they run out of funding before they can commercialize, or perhaps their brilliant idea just doesn't pan out. Keeping positions small and swallowing pride and taking small losses to avoid big ones are a major part of investing in stocks of this nature. A few explosive microcaps I am interested in right now are Corindus Vascular Robotics (CVRS), Avita Medical (OTCQX:AVMXY), and Microbot Medical Inc. (MBOT).

Area of Specialty: I have held stocks from virtually every industry over the years, from semiconductors to retail to waste management, but most of my articles and the majority of my research involves biotechs and medical robotics. My father was an ophthalmologist, and although I did not follow in his footsteps, I have maintained a strong interest in medicine and cutting edge treatments for disease and disorders throughout my life. Companies of this nature are complex and fascinating, and I appreciate that the products and services they are offering are improving the health and welfare of us all. As for medical robotics, I have been fascinated in this industry since, as a youngster, I saw Luke get his artificial hand in The Empire Strikes Back.

Investing Process

A Three-Pronged Approach:

1. Mr. Market: First, I try to figure out what Mr. Market is up to, that is, are we in a bull market, bear market, or a sideways trending market? Anecdotally, I have found over the years that the old adage that "three out of four stocks move in the same direction as the overall market" should be amended to say, "nearly all stocks move in the same direction as the market." So, if we are in a bull market, I am buying. If it is a bear market, I am not buying; I am piling up cash, avoiding trying to catch falling knives, and waiting patiently for good stocks to form new bases. If the market is trending sideways, I am buying very cautiously, and in smaller position sizes. Mr. Market is king. If the market is tanking, I am not buying anything.

2. Fundamentals:

  • Metrics: I have found that pouring over too many metrics leads to "paralysis by analysis," so I focus specifically on just a few fundamentals, as follows (note that I am looking for consistent growth in all areas): Revenue, Earnings Per Share, Gross Margin, Institutional Sponsorship, Cash vs Debt, Dividends, and Relative Strength vs the S&P 500.
  • Conference Calls: Before I buy a stock, I read or listen to the conference call transcripts for the previous few quarters, and I read every CC transcript thereafter while I own the stock and often for some quarters afterward. I learn so much from the conference calls, particularly regarding future guidance and plans. One just has to remember that except for the occasional CEO who calls a spade a spade, most management executives are car salesmen who paint their companies in the best possible light.

3. Chart Reading, aka Black Magic, aka Technical Analysis

Technical Analysis gets a bad wrap. True, there are a multitude of oscillators and Fibonacci tools out there that over-complicate chart reading, but at its core, a price chart is a visual representation of investor psychology - fear and greed; and these core human emotions will be with us as long as there is a stock market. Also, chart patterns tend to become self-fulfilling prophesies. For, example investors can see a prior high at a certain point, so they sell at that point, fearing others will sell at the point, too, and voila--a resistance line is born.

Chart patterns really do often (but not always) predict price movement, with some caveats:

  1. It needs to be a bull market. Bear markets blow-up chart patterns.
  2. The large cap stock patterns "work" much more effectively than small-cap chart patterns, and illiquid, volatile microcaps are so erratic that chart patterns are almost useless.
  3. Earnings releases trump patterns. A bad or good report can gap a stock price up or down, regardless of what pattern had been forming.

Candlesticks do have merit as well, particularly for helping to identify tops and bottoms; although they only predict short-term moves, and of course, not infallibly.

I also pay close attention to three lines: the 50 day moving average, the 200 day, and the relative strength line. The 50 day moving average acts as a magnet; it periodically pulls the stock price to it, and buying high above the 50 day line or selling far below the line is never a good idea. Falling stocks often find support at the 200 day line. It is also generally a good idea to wait until a stock is above both lines before buying. And as for relative strength, we want to see a stock's price action to be stronger than most stocks in the general market. The higher the relative strength number, the better. Incidentally, according to a recent podcast I listened to by Investor's Business Daily, the "cut-off number" is 87. We want to see a relative strength number of 87 or higher.

Combining these three facets - overall market awareness, fundamental research, and technical analysis - is in my opinion, essential to investment success. Ignoring one would be like sitting on a stool with two legs.


Valuation is tricky business, as stocks can stay undervalued or overvalued for a very long time, as in years. By comparing Price to Earnings ratios and Price to Sales ratios of a given stock with other stocks in the same industry, one can get a feel for whether a stock is overvalued or undervalued in relation to its peers. However, investors are always willing to pay a premium for premium stocks, and troubled stocks tend to remain discounted, so comparing these ratios isn't supremely helpful. I pay more attention to breakouts and breakdowns of chart patterns and trend lines to give me entry and exit points, rather than buying a stock simply because it is undervalued or selling one because it is overvalued.

Risk Management

Here are a few strategies I use to manage risk:

  1. I always phase into positions. That way if I am wrong, I only lose part of the money I was planning to invest. For large positions, I buy 50%, then, 30%, then 20% (assuming the stock is moving upward). I keep the buys tight, doing them within a few days and sometimes even all in the same day. This strategy has saved me a lot of money over the years. If I am building a small position, I will buy it in two pieces. I phase out of positions in the same manner.
  2. I almost always cut my losses at 5-10%, unless I have a darn good reason not to. (It is just a few days before an earnings release, or the price is almost at a major support line, for example.)
  3. I almost never short anymore. I have tried to short many times, but invariably, either I am too late to start shorting and end up shorting a stock right before it bottoms out, or I short a stock too early, get stopped out and cover, and then it goes down. It's a tough game to play; timing is so important, and the trading windows are in general much smaller. And, intrinsically, stocks tend to go up over time (look at the lifetime S&P 500 chart), so shorting is essentially swimming upstream.

Return Objectives

With the exception of some of my multi-year-long holds, like Apple (AAPL), I sell off pieces of my positions on the way up. I usually sell half after a 25% gain. Selling into strength is hard, because we must conquer our own greed, but that is the time to sell - when the stock is going up and way overextended - not when it is falling like a knife. If I am fortunate enough to double my money; I usually sell the remainder of my original investment and continue playing with the profits, "the house's money," until the chart breaks down or there is a major fundamental company change for the worse.

I rarely have a specific dollar or percentage objective. I let the ever-changing fundamentals of a company and the stock's chart patterns guide me in and out of the stock.

Time Horizon

My time horizon varies. For some stocks, like for example Crocs (CROX), I may just be trying to take advantage of a retail trend, and I plan to only be in the stock for a few months (You never know when plastic shoes will suddenly fall out of fashion again...). For biotechs, clinical trial timelines often guide my investment. I will hold until the results of such-and-such a trial is released, and then sell if it does not meet expectations. For those rare, true societal disruptors, like Intuitive Surgical (ISRG), Microsoft (MSFT), and Tesla (TSLA), I have learned the hard way to hold them for many years, and when I haven't I have truly regretted it. Guess who owned, and sold, Netflix (NFLX) in the early 2000s? Sigh...

My Background

I am a retail investor, and I do not have a formal education or background in finance. I did take a few business/economics classes in college, but for the most part, I have learned the complex science and art of investing by reading and rereading investment books, listening to investing podcasts, and analyzing hundreds, if not thousands, of companies and stock charts. I opened my Etrade (ETFC) account in 1996 and have been investing ever since, and I have had net profitable results, sometimes very profitable, most years.

Please do feel free to ask questions or leave me comments on the message board below. Good look investing, and enjoy the process.

Disclosure: I am/we are long AAPL, VCEL, INSP, TSLA, CVRS. 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.

Additional disclosure: Disclaimer: I am not a professional stock analyst or money manager, and the information provided is for educational purposes only; it is not a recommendation to buy or sell a stock. Please do your own research and invest accordingly.