Stock Trader Mark Minervini And Market Strategist Ben Laidler Join Alpha Trader (Podcast Transcript)

Editors' Note: This is the transcript version of the podcast we posted last Tuesday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast, embedded below, if you need any clarification. We hope you enjoy!

Aaron Task: Welcome to Alpha Trader. Coming up in the program Mark Minervini, author of best-selling books, including Trade Like a Stock Market Wizard and Think and Trade Like a Champion, will be joining us. But first, please welcome to the program Ben Laidler. He is Global Market Strategist for eToro. Ben, welcome to Alpha Trader.

Ben Laidler: Thanks for having me.

AT: Thanks for being here and give eToro’s business, we certainly want to talk cryptocurrencies with you. But first, I followed your work at HSBC and Towers Hudson, to give as a classic strategist type, you've been more bullish certainly coming into this year than consensus. I believe your forecast was for a 10% plus year for the S&P 500.

Given the fact we've already seen that, are you raising your targets now? Or do you think we're going to be, is the idea we're going to stay flat for the rest of the year?

BL: I think we're definitely still positive. I mean, I look around and I still think that markets are underestimating the gross surprise, which is coming through both on the GDP side, I mean, look at the PMI is nearly 60 last week. We've got a Q1 now cost of sort of 7% to 8%, which is well ahead of consensus, and Q1 earnings, it's early days, but there's not a huge beat coming through.

So, I think there's still more upside. I mean, 10% in four months is a big move. So, I'll be happy if we just hang on to it. But realistically, I think there's still more upside, it's going to come from the growth side. And I think what sort of the surprise for people here, I think is just that you very, very rarely see is like this, where growth just keeps surprising estimates.

We normally come into the year with sort of 10% earnings estimates and then start cutting them, right. I mean, that's normally the narrative. And this year, is one of those very rare years where we're doing the opposite. And, those years do come along, and they come along when you have either recovery from recession, or with a lot of fiscal stimulus around. And this year, we've actually got both of those things.

So, and I think that's just going to continue to push expectations up. And I would just say, this is also pretty rare, right. We've just come off two pretty big years to the S&P 500 to have that sort of third straight year in a row. It's very rare. I mean, I think it's only happened twice in the last 50 years. So, we're calling something very, very rare. But I think, we probably have more conviction now than we did coming into the year, quite frankly.

AT: Right. And I suspect you'll have a lot more information by the end of this week, because we've got a third of the S&P 500 reporting earnings. President Joe Biden is set to introduce as America's family's plan. And obviously that's got to wind its way through Congress. But another huge potential fiscal stimulus and the Fed is meeting and likely going to say we're staying on hold for the foreseeable future. So, all those things coming together.

Let's drill down a bit about earnings for a moment. This week, obviously, you have the big mega cap tech stocks, Apple, Amazon, Alphabet, Microsoft reporting, Tesla's reporting after the bell Monday, we're talking here Monday morning. So, to be determined how that pans out. But I hear a lot of talk about how this percentage of companies have beat expectations.

I'm more concerned about, is there an earnings growth number that you think the market needs to deliver, or revenue growth to sustain the levels of the major averages here?

BL: Yeah, so since you're right, I mean, this sort of beats number is a bit of a sort of Mirage, because historically, U.S. companies are sort of played this game of just sort of guiding everything down into the quarter, and then sort of hopping over the bar that they've just reduced. So, put that to one side.

I think what we're focusing on here is the visibility that companies are getting back. So, I think what's going to move markets is companies on their conference calls saying, I now forecast this year, and most of them took it all away last year, right. So, I'm getting visibility back. I'm getting more comfortable.

I am putting a forecast in place. And then what happens behind the scenes from that is they start looking at their CapEx plans, and now they got more visibility, they may be prepared to take more risk in the businesses and so you get the sort of virtual circle going, which I think just continues to sort of push up earnings expectations.

The other thing I'm looking at is the earnings leverage. As I said, GDP is 7% 8% this quarter, earnings are going to be a multiple of that which again, shouldn't be a surprise given how so crushed earnings and margins were last year. But I think given that I think this GDP story is going to run and run for a number of quarters to come.

You're looking at the sort of leverage that companies can get through that sort of top line revenue number, especially given that the last 12 months, they will take costs out. So, I would argue that their operating leverage to that sort of incremental bit of GDP is just getting higher and higher, which is why the people that are going to keep beating are they sort of value stocks or cyclical stocks, the people that have this sort of four or five times leverage of whatever goes on to the top line to the bottom line.

Stephen Alpher: You have to help me through this right now. And this isn't to make light of folks who have suffered economic hardship or continue to be in economic hardship, but I'm seeing one of the more extraordinary kind of economic booms I've ever kind of like lived through right now. And I can speak anecdotally from suburban Philadelphia, it's out of control.

Nobody can get workers, from the guy who cuts my yard to the guy who runs like a local, like a fairly sizable IT firm, and the Fed and plus, we're on the verge of another massive fiscal stimulus program, and the Fed is saying, tightening is off the table until 2023. And we're here in April 2021. It boggles my mind how we can have another whatever it is 18, 20 months of this current stimulus, and not a leash, like one of the great kind of inflationary boom lifts of all time.

And whether that be consumer price inflation, or asset inflation, some sort of inflation. Is there a massive pocket of weakness I'm not seeing that still has to be kind of like, wiped away?

BL: So, there's definitely pockets of the labor market, which are very tight, but I think in aggregate, that underlying the unemployment number still sort of close to 10%. And that's the number that the Fed is sort of laser-laser focused on and until that number comes down a lot then they'll do anything.

Now, having said that, I do think this recovery is absolutely running ahead of expectations. And we have a Fed meeting next week, this week. So, let's see what the statement says. And let's see what the minutes sort of ultimately say, but I think we're definitely the Fed’s going to hike before the end of 2023. In my mind, there's no doubt on that.

But I think the trajectory here is when do they start talking about tapering, I think we may see that before the end of the year. But I'm not too concerned about that, i.e. if we do start talking about it, because the economy is running ahead of expectations, and overall earnings are running ahead of expectations. And I think, we've already had this bond market tantrum, which I think is sort of a potential precursor to what may be to come.

But equities have sort of shrugged that off. I thought what happened, and we don't really don't talk about very much about Canada on this podcast. But I thought what happened in Canada last week, they've now tapered twice. And, Canadian assets are some of the best performing assets this year. So, it's definitely a risk, but I don't think it's something that necessarily derails the rally that I think just continues.

SA: And the Fed is, we've had some fairly, some big CPI prints recently, I think March has might have been one of the largest monthly gains in years. And the Fed trots out a transitory term every time CPI goes up. Are you in agreement about that?

BL: Yes. So, if you thought March was large, you actually see April May, right? I mean, we're just going to keep laughing, lower, lower numbers, right. So, they're just going to get bigger and bigger. So, it's going to be interesting. The head, the Fed has been very clear with the statements, that's how they got hold their nerve?

I mean, I think they probably should. I mean, again, that's you've got energy in there, and we’re lapping sort of negative cheap prices. You’ve got zero percent inflation sort of this time last year, et cetera, et cetera, and that's the headline, right? They sort of call the PCA, which they claim to be really focused on is actually lower than that.

So, I mean, you need to keep an eye on it. But I think as times are turning be, remember, the Fed has changed its mandate here. Right, they're now looking for this averaged 2% inflation target, which basically says, their mandate is now to let the economy and inflation run a little bit hot. So, again, we shouldn't be too surprised by this.

And remember, we've spent the last decade trying to get inflation up. And, if you speak to central bankers and the rest of the world, they would die to see the level of inflation that the U.S. might be getting. So again, I mean, everything in moderation, and bond yields have moved a bit. Inflation expectations have been already well over 2%.

So, I think we've sort of priced something in here, give the Fed the benefit of the doubt. Again, let's not forget all the things that held inflation down for the last 10 years are still in place. We've just got quite a lot of stimulus everything poured on top of that. So, inflation is picking up. I don't think we're set up for a multiyear outward inflation surprise, which is going to necessarily undermine what we're seeing in the equity markets.

Let me just to take a step back here and just connect it to bond markets, which is ultimately going to be the expression of what happens to inflation. I mean, bond yields are important, but it's not only about bond yields. If it was, European and Japanese equities would be through the moon and they're not, given that you have zero negative bond yields there.

And then bond yields now, are still lower than they were coming into last year, when equities had no problem with where bond yields were at that point. So, I guess I'm reasonably relaxed about yields, especially given that we have had this sort of bond yield tantrum and survived it.

AT: Yeah, I like that term, reasonably relaxed. But we did have that tantrum at the start of the year and the 10 year went from under 1% to roughly 1.75% and now it's back at 1.6%. Not to oversimplify things, but as rates were rising, you saw a big sell off in the high growth stocks in the mega cap stocks, which have outperformed in the last month or so as bond yields that stop going up.

What is your view here on the mega cap tech stocks? You reading your notes here? You cannot be bearish on tech, and we are not. So, would you be neutral on them? Or do you want to own them heading into earnings season where again, those are the companies that have a lot of operating leverage and can reduce costs very easily?

BL: Yeah. So, I think this is by seeing everything right. Not to oversimplify things, but I do think everything is going up. And I think that's not necessarily a bad thing, right. I mean, this was a rally on sort of one leg last year with, it was all about tech and nothing else. The fact that it's broadened out so dramatically this year, I think it's very, very positive for the sustainability of the rally.

Having said all that, I do think cyclicals and value are going to lead, that's where the operating are, that's where the earnings leverage is. That's where the valuations are cheaper, those are the stocks that are still under owned. I mean, remember these stocks lagged, or value lag growth 300% over last decade. So, I think it's natural in this growth surprise environment for those sorts of stocks to lead, but yes, in tech, I think, tech is a different story.

I mean, I would sort of say it's sort of cyclical versus structural. Right now, this is a cyclical environment. So, I think, those circles lead, but I think we're going to be using more tech tomorrow than we did yesterday. And these are still, FAANGs are going to report 50% plus earnings growth year over year, take out Amazon, and they're on sort of 30 times PE, I don't have a problem with that.

I mean, with those sort of growth rates with margins twice the market with these big moats with these pristine balance sheets and more buybacks and being pay dividends, I mean, I just think it's a sort of different story. But to your earlier point, it's a story, you can't be too negative on because broadly broad tech, and there are different ways of counting I mean, it's nearly 50% U.S. equities, and U.S. equities are nearly 16% global equities. So, you can't be bullish on equities, per se, if you're not at least sort of neutral on tech.

AT: Right. And so, you reference it, I also wanted to ask you what is your view on U.S. versus international and developed versus emerging markets here? Obviously, I should ask you, how concerned are you about what's happening within India and Brazil and some other emerging market economies with spikes in Cuba cases really scary type stuff happening right now?

BL: Yeah. I mean, it's tragic. And obviously, that's sort of macro implications to that. I bet the sort of 50,000 foot view here is that, we're going to continue to see the sort of regional rotation that we've been seeing. I mean, it started off with the sort of first in first out sort of China trade sort of last year.

And, that made China best for a major market award last year. U.S. with them rotating into the U.S. this sort of vaccines plus stimulus sort of exceptionalism, which we've seen sort of year-to-date really driving sort of U.S. outperformance relative to the rest of the world. And then we we're still sort of in that, but I think the story from here is, that rotation just sort of continues.

And I think the next stop is probably Europe. I think, the vaccination rollout is going to pick up there. Evaluations 30% cheaper relative to the U.S. much more cyclical index composition, sort of serial underperformer. So, not very well owned. But, that sort of operating leverage is huge. You're going to get something like 60% earnings growth out of Europe this quarter, which is nearly twice what you're going to see out of U.S. not because GDP growth is particularly good in Europe, but just last year was so terrible.

And so, I think that narrative is going to pick up in Europe and then after Europe, I think you probably see sort of non-Asia, EM, sort of LatAm and Eastern Europe, which has just been really, really impacted by the other crisis and a few exceptions like Chile is still lagging way behind.

AT: Right. Okay. And you mentioned the Everything Rally before, I think that's a good segue into talking about cryptocurrencies, obviously recently joined eToro, which is a crypto exchange. Should we take it from the fact that you've joined eToro that you are optimistic and or outright bullish on cryptocurrencies as an asset class here?

BL: I think it's sort of fascinating when you look at sort of crypto, I mean crypto currencies and there’s obviously, a lot of different views out there. But I think this sort of cryptocurrency adoption story has really not even started yet. You've got a very small market where very retail driven through investor base right now, but over a young, retail driven investor base right now, which has taken you to the sort of 2 trillion type market.

You've got a sort of older retail market, which is basically not involved. And when I saw survey the other day, that sort of less than 10% of older investors are in crypto versus sort of 50% of younger investors. And the institutional side, I don't think it’s even started yet. And that's fascinating, because when I've sort of put my sort of institutional asset allocator hat on, you've got an asset class, which even when you risk adjusted returns, so, cryptocurrency volatility is very high, risk is very high, obviously.

But, just for that, you look at your sort of Sharpe ratio, and it's three to four – for cryptocurrencies is three to four times better than it is for the needs for equities. And this is I mean, the crucial bit, you combine that with this very, very low correlation, it's been rising, but it's still less than 00.2 relative to equities.

It means that, you can put that in a portfolio, even with quite high risk and justify quite a high weighting, because you're sort of diversifying risk in your portfolio. And I think that sort of twin story of so high risk adjusted returns and low correlation is not to put too fine a point in. I think, the fullness of time it forces asset allocators to own cryptocurrencies.

SA: Speaking of adoption, we had a story JP Morgan this morning. I can't imagine a house on the street that's been more hostile to a cryptocurrencies and then JP Morgan from Jamie Dimon on down to David Kelly, who has been on the show and Phil Camporeale has been on the show. They're reportedly going to be launching an actively managed Bitcoin fund for their private wealth clients.

So, if JP Morgan's getting in on it as much as they've disliked crypto, I think that's important news. So you mentioned institutional adoption of Bitcoin as a bull leg for how much does the bull leg depend on continued central bank easing? You know, a lot of people think of Bitcoin as a great inflation hedge or Gold 2.0. They say, the Fed talks tapering earlier than expected or talks rate hikes earlier than expected, would you expect that to be a negative for Bitcoin?

BL: I think it's part of the story, but I'm not sure it's a huge part of the story. I think what really stands out is the returns, is the very clear supply rules. I mean, in the fullness of time, I think, we would obviously like to see it become an inflation hedge, and we talk about it being a potential inflation hedge. But we really don't know.

I mean, we’re 12 years in and those 12 years we've had no inflation. So, time will tell right, I'm open to the idea. But I think there are other reasons, arguably sort of better quantified to own it today, other than it'd been inflation age. I mean, it may well turn into one and fantastic if it does, but I think the real reasons to own it today are just a potential return. And these very clear supply roles.

I would say, I mean, I hear other commentators saying, oh, well, you know, it's a currency or it's a means of exchange. And again, early days, it may well turn into those. But right now, I just think it's a pure investment asset. And in that sense, you sort of, or in some ways you embrace the volatility. We don't own oil, because we want to have a barrel delivered to our house to put in our car or in an equity because I think this is an investment asset.

And then that's sort of lens I look at it through so that people I think are going to adopt it are going to be investment managers? No, it's not going to be anybody else I think at this stage.

AT: All that do you think embrace the volatilities as we've certainly seen that in bitcoins’ history and very recently, it fell more than 25% from its all-time high in about 10 days, and it's bounced back now, somewhere trading the 53,000 Plus, as we talk here today. So how do you get the older retail investor interested in an asset class that has that kind of wild swings? Isn't it a little bit scary for the baby boomers which still control a tremendous amount of assets in this country?

BL: Sure, I think we would never encourage people to invest in things they're not comfortable with or to do it in a non-diversified way. And that's I think there are ways to do it. I mean, you're doing it with a diversified portfolio, dollar cost averaging, et cetera, et cetera. But again, what I think is interesting is, again, this is a very nascent asset class, we're 12 years in, 11 years in, when I look at that sort of long term volatility over time, yes, it's really high.

Even today, it's average daily volatility is 4%. But, go back six or seven years, and it was 50% higher than that. So, I think the story from here is, as this asset class continues to mature and get different investors involved, that volatility probably just continues to come down. So, again, it's still high, 4% a day is still very high, but it's half what it was six, seven years ago.

AT: Right. And it's tricky. Steven mentioned, we had David Kelly from JP Morgan Asset Management here. He said, cryptocurrencies are quote nonsense. He basically was like, they're nothing and James Surowiecki, former New Yorker columnist recently had a post out basically saying, it's all just a Ponzi scheme.

People look at what's happening with Dogecoin, which has started as a joke, and now is one of the best performing assets in the world. What do you say to people who say this is just evidence of speculative excess? And this is the new.com in the 1990s and people are trading on ether. And that's not a joke about the cryptocurrency just like air balling.

BL: Yeah, I mean, I think there's genuine investment demand out there. There's no question mark, as to whether this becomes a sort of currency on develops a means of exchange. I mean, there are plenty of examples you can sort of point to out there. Again, I think it's a journey. I think it's a sort of maturity, it's going to take time for sort of mature.

And maybe just to answer the sort of broader question, because I think there's probably a bubble in talking about bubbles. I think markets have been super smart here. I mean, you look at all the thing, and if we come into the year, if we had to make a list of what could have been bubbles IPOs, SPACs, EBs, and Ark, I don't know, everyone has their own list.

Look at them, now. They're all down. And yet the overall markets up. So, I think the markets been pretty smart just taking a little bit of air out of some of these assets. And the markets been pretty resilient around that. And I think that the same could be said for the sort of broader market. I mean, we're on 22 times earnings. Yes, I think earnings are going to keep surprising.

But we've just made 10% in the first quarter. I'd like to see a bit of a consolidation here before we sort of move higher, grow into those earnings sort of a little bit. But I think that's what you've seen in the first sort of four months of the year with some of the assets that did really bad last year and I think that's incredibly healthy.

AT: All right, our guest has been Ben Laidler. He is Global Market Strategist at eToro. Ben, thanks very much for being with us today.

BL: Thank you.

Stephen Alpher: Thank you Ben.

AT: Stay tuned. Be right back with Mark Minervini, you're listening to Alpha Trader.

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AT: Welcome back to Alpha Trader. We are joined now by Mark Minervini. He's the author of several best-selling books, including Trade Like a Stock Market Wizard and Think and Trade Like a Champion. He was the U.S. Investment Champion winner in 1997, with 155% return that year. Through March of this year, he's up 111% in that contest. He's the creator of the Master Trading program, Super Performance Workshop, and the founder of Minervini Private Access, an online educational platform. Mark, welcome to Alpha Trader.

Mark Minervini: Hey, thanks for having me.

AT: Thank you for being here. So, I want to talk mostly about your strategy and your trading philosophy for lack of a better term, but I do want to get your thoughts on what's happening in the markets as we speak here today on Monday.

Last week, you tweeted, it looks like we are at the point where the rubber is about to meet the road. The NASDAQ is building a large cup with handle bass, even the FFTY which is the innovator IBD 50 ETF Ark funds and the Russell Arby's building, can they hold them breakout? Can stock setups proliferate? We should get that answer fairly soon. So, it's now a few days later, we're talking on the 26th. Do we have that answer yet?

MM: I wouldn't say we definitively have that answer. But in the past couple months, it's been a market that's been highly rotational and you're seeing a lot of stocks that were look like they were building basis and they would break out and then they would come back in and maybe fail or what I call a squat, just have a reversal and a lot of wiggles and a lot of volatility around the breakout.

So, for that breakout swing trader, it hasn't been the best environment like they got used to prior to that the environment was really nice for swing trading, where we're getting some nice moves. So, I just think we're in that consolidation. And now we got to find out whether we're going to be able to get that next leg up and go back to a good environment for breakout trades.

AT: And what would tell you that we are in that environment? Would it be breaking out to new highs? And are that oversimplifying things?

MM: Well, I think that's the risk of maybe oversimplifying it, where you look at say, the Dow or the S&P, which has moved into new high ground and the S&P has done phenomenal. But then when you take a look at some of these other indexes, maybe even the NASDAQ, or the FFTY, which is a better representation of the type of names I'm usually trafficking in, and they're still in that basing period, and really you haven't seen them make a big move yet.

So, you really got to look at the individual stocks of your particular strategy, maybe values moving, growths moving. I've been doing a lot of short-term trading, but we just haven't gotten the follow through yet. But yeah, I think it's more important to concentrate on the individual stocks than it is to get too hung up in one particular index.

AT: Right. And also, it sounds like you're somewhat agnostic about where you find these opportunities, or do you prefer to focus in the higher growth type names that there in the FFTY?

MM: Well, I am agnostic to the point where I do favor the growth area and not because of any particular bias that I have personally, but just because there's certain areas that have proven to be where the big moving stocks are and the fast-moving stocks.

And when you get into the deep cyclicals like the steels, the papers, even airlines, you can even semi's our growth cyclicals are actually bought the SOX Index today, those I'll entertain a little bit more aggressively. But the deep cyclicals I tend to either shy away from or wait lower, because they just don't have those growth characteristics.

SA: And I wanted to talk about another stock that you said you bought today. And that was Duluth Holdings, and you said it was hard to buy, you must find bigger size than me. It's…

MM: Well, it really took off here and hard to buy is sort of what I want to see. I'd like to be able to get in the name. And it's not so hard if I can't get in the name. But this stock took off really fast. And that's a good thing. But you have to see if it can hold, if it's just retail buying, moving it out.

And then it comes crashing down on institutional buying, which has been sort of the theme over the last few months, we get these breakouts and what I think is you're getting retail buying breaking them out. And then the institutions will come in, and they sell into that. But now I'd like to see that transition into some of these breakouts holding, I'm hoping Duluth is going to be one of them.

But this big update here on already way above average volume is a great sign. But now we have to see if it can hold. And even if it pulled back here, if it can hold up and maybe a hold the recent lows, but we're on that 50-day moving average. And then of course if we can come on and get into maybe new high ground over in the coming days or weeks.

SA: So, you're buying that it's kind of like a momentum play of a stock that looks, that's breaking out of a moving average or 52 week high?

MM: Well, it's coming out of a very large base that's formed would be just a classic sort of cup with handle what I call VCP, volatility contraction pattern characteristics coming off the lows here of that handle. So, I'm trying to trade it as close to where I would be looking at some type of maybe stop loss, what I call trading near the danger point.

And I think that recent low there around the 50 day, I think that's important. I think that has to hold here. We've gotten a shakeout, we’re drifted back and now it came off here. It looked like it was going to maybe fall apart. And now it's regaining itself. So, I think that Lowe's important, so that's where I'd like to see it hold at this point.

AT: So, you mentioned the volatility contraction pattern, VCP. And I believe it's a proprietary pattern that that you created, is that correct?

MM: Well, it's not proprietary, it's just it is something an observation, I guess, or something that I've termed and coined, that has was just doing an interview the other day and talking about how I was surprised and how it's really sort of taken off as a vernacular now.

So, it's just a characteristic of constructive price action where you have that tightening from left to right. And when you get to that right side, it gives you a good indication when supply stop coming to market. And that gives you an opportunity to be in an explosive situation because if you have a little bit of supply, and you have a lot of demand, you can move very quickly in a direction and that's what we're seeing in Duluth today.

SA: Got it. So thank you, because you brought it back to Duluth I was going to ask you about how it looked on a chart to you and how much do you look into the fundamentals of the company when you're trading and if I, correct me if I'm wrong, you're looking at daily and or weekly pattern is pretty short term in nature, right?

MM: Well, I'm always looking at the daily chart, and I'm always looking at a weekly. Once I spot something on a daily, I look at the weekly and I'm always looking at fundamentals. But the thing is, is that a lot of times I'll buy stocks that don't have a parent reported fundamentals. But there's something going on there, there might be a new product or a change in management, something that is positive and something that is fundamentally happening.

But it doesn't always show up in the report fundamentals. I'd like to see the fundamentals on the table, I like to see the reported fundamentals as well. But when you get into a stock, like a biotech stock, you're talking 75% 80% of those companies don't have earnings. So, now you're trading off the chart. So, you really have to know the category you're dealing with.

If you're dealing with a turnaround situation, you're going to look for very strong earnings in the recent quarters, because you're going against easy comparisons, you're dealing with a growth situation, you're going to look for consistent growth. If you're dealing with a biotech, you're going to be looking at the FDA approval process, maybe trading more off the chart.

So, you really have to categorize and then you apply, and you look for the fundamentals, and the catalysts that are going to apply to that particular area.

SA: And do you ever buy stocks where the fundamentals, at least on paper look great, but the chart maybe doesn't look so good. There's this idea out there that people say in a derogatory way that people who want to buy, stocks are the only asset that people don't want to buy when they're on sale? Right? It seems like you want to buy stuff as it's going up into the right. Am I correct about that? Do you ever do the other – Do you ever go in the opposite direction?

MM: Well, I have a saying never buy the numbers never buy the story, unless it's confirmed by the technical. So, I never will buy on fundamentals alone. It has to have a good chart. The chart has the final say. Now, of course, a value investor is going to look at it a different way. Bill Miller is going to be buying stocks that are down 52 at lows, and that's his area of competence.

But for me, I don't know anything about doing it that way. This is the way I do it. And the way I skin the cat, and you really have to we can both make money, a lot of times I'm selling stocks, or I'm buying stocks that he'd be selling and I wouldn't touch a stock that he'd be buying. So yeah, I'm looking for stocks that are in uptrends, usually in their 52-week highs, and they usually look expensive.

But the reason why is not again, not because of some personal bias. When we go back and we look at the stocks that made the biggest moves, these stocks were not cheap. They were trading near new highs. So, all these characteristics are based on what we've seen work in the market. And the better names, what the characteristics were.

SA: And where right now, are you seeing that, it's in our particular sector or area of the market where you're finding more those type names? Or are we still in that consolidation type period you described before so that maybe there aren't that many?

MM: I think we're in the consolidation period. We've got the like I said, the SOX. I bought the SOX today, the semies look pretty good still. The homebuilders, I'm not sure if they've already discounted everything, but they're holding up, we’ve got some earnings coming out on a few of these names coming up soon. I own a few home builders.

So, we're getting that turnaround now in the economy, on an inflation trade, there's a question of whether we have transitory inflation or not, that's more into the cyclical names. So, I'm looking at the growth names, something like Yeti is one that bought back on April 6, that's still holding up pretty well.

PayPal looks interesting here. It's the question of whether again, it's in a basic period here, starting to move up the right side here. If the market’s healthy, we should probably see PayPal do well here. So yeah, as far as groups are concerned, I'm looking more at the individual names, and then I let the names lead me to the group. So, if I see a lot of stocks in one particular area, then that tells me the group is strong.

SA: And I wanted to ask you about a stock that it's a pretty hot name, and one that you're kind of shying away from. It's a great interest chart, readers great. It's just a lot of people are into momentum plays. And that's SNAP. It's a stock that couldn't get out of its way shortly after going public, but it's kind of got its footing. It's been roughly about a 10 bagger over the last few years, what your suspect?

MM: Suspect of SNAP? Well, I actually…

SA: Suspect to the recent breakout is how I read it.

MM: No, no, I was just pointing out I think you might have read a tweet where I pointed out where SNAP actually opened up on a gap. And then it reversed all the way back down in the morning, I was just pointing out that that's been sort of the – that's been the character of the market. But it actually, but it had a good close. It actually had a good close and now it's going inside.

So that is another stock that is in a base and we'd be looking to see if that can hold up here and breakout. But I should also point out, I was buying SNAP on September 15, 2020. So, that's where I was looking at SNAP as the real, the opportune moment for what I call the optimal buy point.

SA: Okay.

MM: I recall as a while ago, and that was a lot lower. So,

MM: Right. Yes, it was.

SA: Yeah. And I recall the time you were tweeting about SNAP and tweeting about progressive exposure. Can you explain what that is and how it manifests itself in your trading?

MM: Sure, progressive exposure can be extremely valuable and will protect you from getting yourself into trouble into a bear market and will also get you in. So, you're very highly invested, have a high percentage of your assets in in the market. When you're in a bull market, it can be frustrating in whipsaw markets.

Because the nature of it is that you're going to only increase your positions and only increase your exposure and add more stocks when stocks are working, when you have some positions that are working. So, you're never adding exposure unless you're starting with smaller exposure, and you're building on success.

So perfect example is you maybe start with a couple positions and you're 25% invested. Well, if those aren't working, I'm not going to move to 50% invested or 75% or 100%. If they are working, then I'll start moving more money in, but only on the heels of that success. And if it goes the other way, and things are stopping me out, then I start decreasing my exposure. And I start trading less names.

So, just bending with the market like I said, the problem with that sometimes is when you get in a whipsaw market, you're ratchet yourself up, and then market turns around, comes in, stops you out, you're in cash, and everything turns around and goes back up. It could be frustrating in the short term, but what it will do, and this is the most important thing about trading is that you want to have a system that guarantees that you're trading the largest when you're trading your best and the smallest when you're trading your worst.

So, you don't get yourself in a situation where you start buying and buying and buying into a bear market. And then you blow yourself up.

SA: Are you stocks only? Or do you trade commodities, bonds, or big question crypto?

MM: I have had a little exposure into bitcoin along the way here. I made money a couple times just trading it. But no, I'm stocks only. Yeah, I don't – I'm not trading commodities. I'm not trading anything but stocks and some ETFs. But mainly individual company’s stocks.

AT: Right. And you've been doing this new successfully for three plus decades now. Which is amazing. Just given the nature of the markets, how have you been able to keep your edge all this time?

MM: Well, well discipline, first of all, and having a timeless strategy, principles that are timeless, sticking with good, timeless principles and extreme discipline. I mean, that's probably my biggest strength is that I'm incredibly disciplined.

So, and like I said, protecting myself, making sure that I'm never trading large into the bear markets and buying everything while it's down and continuing thinking I know more than the market and when things are going well levering up and making sure that I'm participating in the good markets, and really gassing it in the good markets.

And that's going back to progressive exposure. But yeah, 37 years I've been trading. Sitting in front of a quote, screen. So, it's a long time, I didn't have any success for the first five or six years though, there was a tough beginning. Then I had a couple years where I started doing well. And then, in those last three decades, yeah, things have been quite good.

SA: Right. And I've also heard you talk about and write about the day you really didn't have a mentor. So, you just kind of figured this out on your own, is that through trial and error? Is that correct?

MM: Well, I had lots of mentors, but they didn't know they were my mentors, because it was books. It was books and tapes and seminars and things like that. We didn't have internet. First of all, we didn't have any access. Yeah, there was no YouTube, there was no internet, there was no Twitter.

There was very few investment seminars or workshops early on, of course, there's a few key books that I read over and over. And that was instrumental in me developing eventually the strategy that I call my own now. But looking at going back, Richard Love’s books, Superperformance Stocks was a huge influence on me, and really got me in this direction.

AT: Obviously, the market or maybe not, obviously, and maybe I'm wrong to say that the market has changed a lot since you started trading. Just in terms of the speed and the technology that you mentioned, decimalization has come in since you started trading. How and have you changed your approach, given how the market has changed, if at all?

MM: Well, that's a very popular belief or thought that, things have changed. But really, what we found is nothing has changed at all. As a matter of fact, not only has nothing really changed very much in the last since I've been doing this in 37 years, but we go back and look at stock trading and charts and the way the market operated all the way back to the late 1800s.

And the early 1900s, when Coca Cola was basically the monster beverage of its time. And when GM was the Tesla or the Google of its time. At one time, you go back to the 1920s ’30s, there were 300 carmakers. That was like, that was the high-tech area. You look back then stocks did exactly what they do now they come out of the same price patterns, strong earnings, strong sales what drove the stock prices, great merchandise traded at high PEs and traded it for what it was worth.

There's virtually nothing that has changed except information flows faster. That's about the only difference. And you're able – you have no commission. Commissions have come way down, spreads have narrowed, so you're able to short term trade where you couldn't do that before. When I first started trading commissions were almost $200 a trade, spreads were sometimes $3, $5, $6. So, you had a hold for a big move.

You're automatically an investor. Stock trading or short-term trading, swing trading, it didn't really exist, there was no such thing. Then as commissions came down, and you got computers and you can access very quickly, you hit a button and make a trade, you had what we'll call the SOS bandits, they came in, you started having that short term trading, all the way till now where we have high frequency trading where they're trading in fractions of a penny.

So, the only thing that if you want to say changed, and now I wouldn't say it's changed, it's just compressed the timeframe.

SA: You reminded about Jim O’Shaughnessy says, human nature never changes.

MM: Right. And I know it's exactly the same in every part of the world and in every timeframe. It doesn't matter if we go back to ancient history, humans are humans, and we still have the same idiosyncrasies and neuroses.

AT: So, I think the fact that you say that the patterns haven't changed in 100 plus years of looking at stock charts, does it matter that now quote, unquote, everybody can look at the same patterns? Do they become self-fulfilling, that everyone sees the 50-day moving average? And or the cup and handle pattern that's forming or whatever other technical indicator you want to look at?

MM: Another very popular question and a popular belief. But the answer is absolutely not. Because the charts are not the cause, the effect. And so, and even if let's just say, everybody started using a particular technique, and because of that, it gets very efficient, and it prices everything in and it stops working.

Well guess what happens? Everybody stops using it. And they use something else. And then guess what happens? Those techniques start working again. So, it doesn't work all the time. Nothing works all the time. It ebbs and flows. But again, it's the effect, it's not the cause. You're looking at supply and demand on display and the tail can't leave the head.

AT: The other thing I wanted to bring it back to you, as you mentioned, in your first few years of trading, you had struggles. What is your message to traders who maybe haven't experienced a bear market yet? Or even a correction some of them, when they start?

MM: Yeah, yeah, that's a good question. And I think that in like every big bull market, and especially secular bull markets or bull markets that just keep ripping higher and every pullback is brief and you go back to new highs, the market is insidious. What it does, is it sets people up for failure. And I think we're setting up an entire generation for some of the biggest losses that we're ever going to see.

Now that's the same thing that happened when we topped in 2000. The same thing that happened in ’87 when we crashed. This has to happen. It's normal, and it's not a bad thing. It's just the way it is. You're basically programming all these new traders to think that this is easy. And I don't have to use risk protection.

I don't have to use a stop loss. Every time the stock is down, dispatch is down. I buy them they go back up. I should be buying when they're down their bargains. Now, eventually you realize that, not managing risk is like driving a car without brakes. You can get away with it for a certain amount of time, but eventually a crash.

AT: And do you see any evidence at that crash is coming soon? Or do you think we still have ways to go before that event?

MM: I think at any given time, take into consideration how far the markets come and take into consideration how frothy it is, at any given time we could have a sharp pullback, like a correction, like a little flash crash, or some type of correction that's maybe cyclical in nature.

But as far as a secular bear market or something that is really a long-drawn-out bear market based on underlying fundamentals, that doesn't seem to be set up right now. The backdrop, interest rates, the economic backdrop is still quite bullish.

AT: Alright, and Mark, before we wrap up, appreciate all your time here today. What would your advice be or how can people find you if they want to learn more about Mark Minervini in your trading approach?

MM: Well, they can follow me on Twitter or they can go to minervini.com and of course my books are on Amazon. I'm easy person to find, you just Google my name.

AT: All right, our guest has been Mark Minervini, author of Trade Like a Stock Market Wizard and Think and Trade Like a Champion, among others. Mark, thanks very much for joining us today.

MM: Hey, thanks, you guys are real pros. Thank you.

SA: Thanks Mark.

Recorded Message: Ready to add futures to your trading portfolio, plug into valuable educational materials from CME Group and connect to an online broker today through cmegroup.com/alpha.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.