Since a few months ago I tried CAN SLIM methodology of trading, and previously the 100% beginners investment method in dividends, it had been several weeks since I had not returned to try any investment strategy.
So to compensate, let's go with the legend: Mark Minervini.
So, I'm going to divide this mini serial piece into two articles about the famous growth investor:
- Here we will see who Minervini is, his achievements, and most importantly, his investment philosophy.
- And in the article, we will review, in detail, his Specific Entry Point Analysis (SEPA) investment strategy, which includes the famous Volatility Contraction Pattern, or by its initials in English, VCP.
Let's get to it.
Who is Mark Minervini?
Born on January 22, 1966, Mark Minervini is a renowned investor and American author who has left an indelible mark on the world of finance.
But to achieve this, he did not have an easy path ahead. As he himself has acknowledged on numerous occasions, he started young in these markets, in the early 80s when he was just 14 years old.
And remember, in a time when there was hardly any information (and less for free), no courses, or practically no books. And starting from even lower, since he was the son of a typical middle class family with limited resources, but his curiosity and patience in the markets that led him to success.
In fact, he acknowledged that he needed the first 6 years of his investing life to start being profitable.
And how was that possible?
Thanks to the fact that he got his hands on a book called How to Invest in Stocks by Jesse Livermore, and shortly afterwards How to Make Money with Stocks by our beloved William O´Neil (author of CAN SLIM), the moment he discovered the philosophy of growth investing. The rest is history.
From Zero to obtaining a return of more than 33,550% in five years
Yes, you read that right.
He was not profitable until he internalized the correct training, but since then, he has not stopped.
And it is that between the year 1994 and 2000, in less than 6 years, he was able to beat the market with an impressive 33,554% return, or what is the same, a 220% CAGR (annualized).
In fact, to prove that he was not cheating in any way, and that they were net profits extracted from the market in the midst of a winning frenzy, in 1997 he joined the US Investing Championship (in the division of stocks LESS THAN 1 million dollars), obtaining the first place with a return of 155% per year, and almost doubling the second, which ended with a not negligible 81%.
Almost a quarter of a century later, in the year 2021, he would present himself again to the mentioned contest, but this time obtaining a return of 334% per year, more than three times the second position, the investor Vibha Jha, who obtained a 100% return.
It should be noted that such an impressive return made him beat the record of the most profitable investor in the history of the contest, this time in the category of stock investors with capital GREATER than 1 million dollars, which till 2020 was held by George Tkaczuk with a 119.1%.
Currently, Mark Minervini is the president of Minervini Private Access, an investment and financial advisory firm. He is also the author of several trading books, including:
- Trade Like a Stock Market Wizard
- Think & Trade Like a Champions
👉 Find out Who are the best traders in the world?
Mark Minervini's investment philosophy
Now that we know the person, it is time to know his philosophy. Or in other words, those principles on which he bases his investment strategy.
Protect your portfolio
In the Minervini investment philosophy, stop loss play a fundamental role, depending on the situation in which we are:
- Risk Management: If we have entered the trade, but have not yet been able to set the stop loss, it is important to place it at a level where, if triggered, it minimizes losses while allowing enough room for the price to withstand daily fluctuations.
- Take Care of your Profits: In this manner, when the price breaks resistances, we will increase our stop loss to secure profits. This mitigate the risk and it is time to search for the next investment.
According to Minervini, when an uptrend ends, the following rule is fulfilled: 50% of the companies fall 80%, and vice versa.
So when an uptrend starts, for whatever reason (macroeconomic, fundamental …), it starts to show signs of exhaustion. Are you really willing to suffer a correction, which will most likely take away all the profits you have achieved?
Don't always be invested
The market, as we know, works in cycles of uptrends, sideways movement and downtrends. Fortunately, uptrends usually occur every few years, where the stock market can rise, from the starting point calmly between 65% -100%. Whether it is due to the monetary policy of the central banks, the strong fundamentals of the company, or the incredible expectations placed in the company.
The rest of the time we will have to endure a lot of pressure and little return, since we will be in a stage of lateral range, or we will suffer severe corrections.
As we saw in CAN SLIM, there is no reason to endure all that pressure, it is much more peaceful to stay in liquidity waiting for the next uptrend.
Buy long, never short
And from the previous reason, the following one derives. It makes no sense to invest at a loss under any of the two concepts.
Don't be too short in a speculative operation, because we have detected a significant drop that is about to happen. Despite the potential justification and objectivity of your analysis, always remember this phrase from the economist Keynes – Markets are capable of sustaining irrationality longer than investors can sustain solvency.
But in any case, when we talk about not investing in the short term, we also talk about not averaging down. Why compensate the profits we have had with future losses? It is better to exit and collect profits.
Invest only in the best values
We have already seen this point, and it is a very shared opinion by the entire investment community, both value and growth.
When a sector is on the rise, it is usually the leader of that sector, and at most the challenger, that pull the cart. All the others, go in tow.
It makes no sense to invest in those values that are not the two best of that sector, to see if we hit the bell. It is clear that sometimes it can come out well, but we will have greater chances of success, if we bet on the sectoral leaders.
It is better to lose Correctly than to win Incorrectly
Minervini believes It is better not to be so profitable in a growth stock, but being the leader of the sector, than investing in a small company, and that for some conjectural factor, hit the bell and revalue strongly.
Yes, this time it will have gone very well for us. But we will have internalized a bad habit, which in the long run, the mathematical expectation shows that it is not correct.
And of course, this is applicable much beyond the philosophy of the Wall Street wizard: It is better to be wrong, having executed a good practice, than to be right doing it incorrectly.
Examples of Stocks that gave Mark Minervini great Profits
Finally, I leave you some examples of stocks that helped increase the profitability of the Wall Street wizard's portfolio. Of course, this does not mean that he currently has them in his portfolio, it simply means that at some point in his investment life, he did.
|Buy in XTB
|Buy in eToro
|Buy in IG
|Buy in Hargreaves
In short, an investment philosophy that has made Mark Minervini one of the most successful traders remembered.
Read more about important figures and trading
FAQs about Mark Minervini
How did Mark Minervini achieve success in the stock market?
Mark Minervini started investing at a young age in the 80s, facing challenges with limited resources. After six years of learning and adapting growth investing principles from notable books, such as those by Jesse Livermore and William O'Neil, he became profitable. He achieved remarkable success, notably a 33,554% return in less than six years between 1994 and 2000.
How did Mark Minervini perform in the trading competition
Mark Minervini participated in the US Investing Championship, winning first place in 1997 with a 155% annual return. In 2021, he returned to the competition and achieved a remarkable 334% annual return, surpassing the record for the most profitable investor in the history of the contest.
These achievements demonstrate his consistent success and expertise in the stock market.
Stocks that Contributed to Minervini's Success
Stocks that played a role in Mark Minervini's success include DexCom (DXCM), Align Technologies (ALGN), Lululemon Athletica (LULU), and Sarepta Therapeutics (SRPT).
It's important to note that these reflect stocks that were part of his portfolio at some point in his investment career and may not necessarily be current holdings.