Category Archives: Mail Bag

An archive of my responses to members questions, comments and suggestions.

Mail Bag

I’m Overwhelmed With All the Information

Leave a comment

Comment:

I’m not sure the service is for me.. it looks very good but I’m overwhelmed by all the information.

My Response:

I know what you mean about information overload – it’s the main reason for creating this site.  The success of my members is extremely important to me.  This system is something I’ve been working on for two year and it’s made to highlight the best opportunities very quickly.  I too was tired of looking through newspapers, reading discussion boards, looking at various newsletters, etc. and then deciding which stocks I would focus on first.  It’s extremely time consuming and dramatically decreases your success rate.  IN this business organization is VERY important.  I realize that there is lots of information provided at first glance, but by focusing on the first page or two of just a couple screens, you can come up with the best opportunities the market has to offer with about 15 min of work every few days or so.  Compare that to all the hassle and hours of time spent putting together your own watchlists.
 
Mail Bag

What’s the Criteria for Adding Stocks to the Database?

Leave a comment

Question/Comment:

Thanks, Tate, for being so responsive. I also appreciate the feedback you give me to help continue the never-ending learning process. It is helpful to know that you have a watch list from which you take stocks for the database. Would you be willing to share the criteria for making the cut to your database? One of my ongoing questions is how to make this transition from my Scratch Pad to my Watch List. What I do now is look at the Breakout List and the 50-Day list and look for high scoring stocks from each list. These go into my Scratch Pad. After the market closes, I check out the stocks in my SP to see if they are close to a buy. These go into my Watch List for the next day with the appropriate alerts set.
 
My Response:

You’re very welcome.  The criteria I use is quite simple for the most part… im looking for sales and earnings growth first and foremost (usually above 20% quarter over quarter for both for at least 2 consecutive quarters).  A big part of my decision also goes into future estimates (for ’06 and ’07).  So if a stock has never been profitable but rapidly moving towards profitability with future estimates predicting big growth I’ll add it.  This is the power of using the human eyeball for adding stocks the database… this kind of stock would most likely be poorly rated by most computer generated databases.  I believe I catch many stocks that are off the radar.. but admittedly miss them at times too.  You will begin to see me catch more and more of these BEFORE the breakout as my tracking system improves and I add research help.  Also very important is ROE and profit margins – companies that are seeing accelerating growth in these areas will often be your big winners. 
 
Thats it for the most part.. sales/earnings growth, margins, ROE.. of course the overall ranking will take in other factors too, but if the company isn’t growing substantially it will never make it to the database. It really is a database of the worlds fastest growing companies.
 
You have the process down.. stick to researching the stocks in the first one to 2 pages of the breakout watch, hot stocks and 50 day screens.  Pick the best, put into a "hot list" or scratch pad as you call it and set alerts if appropriate.  Check your charts after the market each day and create another watch list for each morning.  So when you get up you might have 4 or 5 stocks that you will watch closely for entry.  Thats it really.  Gosh this game is easy right ?! : )
As a reminder, here is how I calculate the fundamental score of each stock (this is also listed in the Breakout Tracker help file)  Typically stocks scoring 20 or below would never be included in the database unless the technicals are outstanding:
FUNDAMENTAL: based on 30 points
  • 15 points (Earnings/Sales Growth): I look at consistency, history, amount of growth, acceleration and future growth estimates (future growth is very important something I noticed IBD wasn’t factoring in to their ranking system). I give it more weight in my system.
  • 10 points (Profit Margins/ROE): I look at relation to industry average and if it’s rising or declining.  (ie. if both margins & ROE are well above the industry average and have been rising the last couple years, the stock will recieve a score of 10)
  • 5 points (Management Ownership/Institutional Positions):  If management owns a large portion (say 20% or more) and institutions are initiating many new positions, the stock receives a score of 5.
Mail Bag

How About Shorter Time Frames for Sector & Industry Tracking?

Leave a comment

Question:

I’ve been perusing your site as a free member, & was wondering about the top industries tracking, as well as the sector strength tabulations.  Do you have a way of seeing those on a shorter time frame?  I notice that the sectors start at 15 day and on up, and the Top Industries tab I believe I read starts at 10 days and up.   It’s just my opinion, but the way industry group flow can turn on a dime these days and continue forcefully for 3 days plus—I would think that having an automatic way to see this on shorter time frames would be extremely helpful, as by the time you get past 5 days sometimes the strongest part of the move is already over. 

My Response:

Thanks for your question.  With all due respect I tend to disagree at least for the style of investing I use.  I don’t believe that performance over such a short time period defines a new trend.  Sure, you may miss some of the move, but I want to make sure a new trend is in place.  What I have found is that the top industries in 20 day performance is a short enough to avoid missing the move and long enough to define a new trend. 
  
A great resource for industry performance over many time frames is prophet.net which may provide many of the time frames you are looking for (you can see performance for 2 and 5 day).  Heres the link: http://www.prophet.net/explore/sectorrankings.jsp

Mail Bag

Do You Buy the Doom & Gloom for 2006? No!

Leave a comment

Question:

HI most of what read is the market going down , some of the reports siad a -10% ,,, can you comment?

My Response:

Which reports are you reading? Are these projections for 2006?  I won’t ever make predictions for an entire year because nobody really knows.  But based on price and volume movement in the first few trading days of January, I think the market is going to do very well for at least the next couple months.  I’ve posted a new market report at the blog if you’d like to have a look (http://investing.typepad.com).  While I won’t make a definitive projection for ’06, I would be shocked if the market is down 10% for the year.  I do think that we will have a better year this year than last, but we’ll see!
Mail Bag

Portfolio Position Sizing

Leave a comment

Question:

What percentage of the entire portfolio does each position represent?

My Response:

Typically, each pick will represent anywhere from 5 – 15% of the portfolio, depending on the state of the market, the stock being purchased, if its purchased at the pivot or off of support, etc..  Currently, a standard allocation is $15K.   Positions that I consider core holdings such as a Google or an Apple might get 20K while lower priced, higher volatility positions might get $7500.  I always make smaller purchases in a shaky market and for purchases off the 50 day moving average.  These positions typically are $10K.  Of course as the portfolio grows these sizes will increase.  On average I probably hold somewhere around 10 positions which offers a nice blend of growth and diversification.  In order to provide a Model Portfolio that is more realistic I’ll be working to implement the ability to use margin, include commission fees, etc. [update: this was included for 2006 when I used 10% of available margin] I hope to have this done some time this January.  Leveraging with margin is an important tool in a rising market and can really accelerate gains. Good question.. thanks.

Mail Bag

Performance of Portfolio? How Many Positions?

Leave a comment

Question:

What annual performance did your portfolio have in the last 2-3 years and YTD? Is this a real portfolio that your members can follow or just a hypothetical? What is the minimum number of securities in your portfolio? BTW: great webite!

My Response:

Thx for the compliment!  Yes, the model portfolio is a real portfolio, no hype here.  You’ll see the great trades as well as the bad ones.  For each trade I make in the portfolio I issue an alert within a couple minutes of the trade along with detailed notes, including the sell and updates during the holding period if warranted. 
 
The performance from the beginning of tracking is up around 55% which is around triple the S&P 500.  2004 performance was up 32% vs. S&P500 up 9%.  YTD I’m up 9% vs. 4% in the S&P, despite a difficult year.  The portfolio took a hit in the first couple days this year, much of it on news of the Taser SEC investigation.  The portfolio was actually down nearly 11% to start the year.. so the portfolio is up 20% since that time.
There will never be a minimum number of positions…  I let the market dictate how many stocks I hold at a time and whether I’m primarily long or short.  For example, I began to fill out the portfolio 100% on the long side towards the end of October and have been fully invested with 8-10 securities since.  I remain that way for the most part now, but have put on one short trade to take advantage of any profit taking .. which hasn’t been much! What a year end rally! I will never be entirely in cash because I believe there are always opportunities to profit, both on the long and short side.  Hope that answers your question.

 

 
The model portfolio is just one of many features of the premium service.  I also offer a database of the fastest growing companies that I have built from the ground up, email alerts, custom screening, stock watch reports, personal support, ETF tracking, etc…  Let me know if you have any further question.  Happy Trading!
Mail Bag

I’m Looking for Top Stocks, What’s the Best Way to Find Them In the Breakout Tracker?

Leave a comment

Question:

I like what you have put together at SI and it seems thru the breakout center and alerts I can more easily get what I am looking for.   I would like to spend less than 30 minutes each night and 2 hours on the weekends finding candidates, review existing positions, journal trades, etc.  All orders would be entered after market close as a buy stop limit order. What I am looking for are stocks that generally meet the following criteria.  What’s the best way to find them using your site?:

Fundamentally strong (i.e. 80 or > EPS rank, C+ or better sales/margin/roe rank, etc.)
  • 200K or greater average daily volume
  • Base of at least 6- 8 weeks
  • Leading group (top third of all groups)
  • RS of 70 or greater – or at least rapidly increasing for the last month before breakout
  • Huge volume breakouts, 2-3 times for small caps and 1.5 times for large caps

My Response:

My fundamental score combines earnings/sales growth, margins, roe, management into one score.  I recommend sticking to stocks that are ranked 23 and above.  I don’t currently list daily trading volumes [update: daily avg trading volume is now provided in the Breakout Tracker.  You can filter the tables by Top Industries by clicking the button under the search field (this will display stocks that are part of top groups for 10, 20 and 30 day performance.  As for high volume breakouts, you can set your breakout alerts to above a certain % ,but I recommend not limiting yourself too much here. 

The stocks that meet all of your requirements will be found in the Breakout Watch and Hot Stocks tables, with the best near the top.  The power of this system is that it allows you to stay on top of stocks that have already broken out and returned to the pivot.  Don’t forget about these opportunities.  Notice that I don’t ofen purchase at the initial breakout and prefer to wait for the first pullback, especially in a choppy market.  Before creating this system, I noticed I was watching the breakout and then forgetting about it and moving on to the next set of "breakouts".   I wasn’t paying attention to the breakouts that were pulling back to the pivot.  This system has helped me tremendously to stay on top of these opportunities.
 
In addition, sign up for the premarket reports that give you a list of these stocks in your email box, in addition to the breakout alerts.
 
What I do is just start quickly going through the charts starting at the top with Hot Stocks, then Breakout Watch, then Play the 50 Day.  If you have a dual monitor setup (which I highly recommend) you can have your SI tables on one screen and entering the symbols quickly into your charting software on the other.  After going through the lists I may have a list of 20 stocks that i’m really focusing on.  What do I do from here?  Put that cream of the crop in my real time watchlist charting package (i use TCNET currently) so i can track in real time at certain times of the day.  I will also set real time alerts on those stocks that are near a breakout or pulling back to buyable range.
 
While I use real time alerts, I find the email alerts from the SI system very beneficial because once they are in the system I don’t have to set the alert.  There are certainly times when I have missed a stock in my research, forgotten to set an alert or my real time alerts just weren’t working.  In this business redundancy is very important.

Mail Bag

Will You Add a Forum?

Leave a comment

Question:

I think you talked of starting a user forum, is there interest for this?

My Response:

There was little enthusiasm for this when I took an informal poll last year.  I believe my time is better spent elswhere right now.  There are so many stock forums out there.. i didn’t want to add to the mix.   I am  toying with the idea of setting up either an internal live chat system or setting one up on yahoo so SI users can chat with each other .. i would join in at times as well, time permitting.  But this probably won’t happen until early ’06 if I decide to go ahead with it.
[update: 1/7/2007 – soon selfinvestor traders will be able to come together in a real time charting setting!)

Mail Bag

Overbought/Oversold Conditions in the Market

Leave a comment

Question:

Every now and then people mention caution in a market because of an overbought or oversold condition. I’ve never used this as another tool but have noticed that you have also referenced this indicator now and then. Which overbought/oversold indicator do you use and how do you use it?

My Response:

Honestly I dont use anything but price, volume and support/resistance levels when gauging the health of the market.  I like to keep it as simple as possible.  If you remember, I sent out an email to premium members at the end of July warning of an overbought condition.  I was basing this just on previous resistance levels and the magnitude of the run (which nearly mirrored the length of the previous run from April to June – although the stochastics, which measures overbought/oversold would have confirmed this as well).  Investing can be complicated enough without having to track several different indicators.  My feeling as that indicators such as stochastics (to determine overbought/oversold conditions), MACD (to signal a change in trend), OBV, etc.is just another way of looking at the core components that make up a stock move (price and volume) and how it relates to its movement in the past. 
 
That being said, these indicators can provide another visual picture of whats going and can confirm what you see in the chart.  If interested in learning more about the most common indicators used by technical analysts there are some great free tutorials around from Stockcharts.com and Clearstation.com
 
http://stockcharts.com/education/IndicatorAnalysis/index.html
http://clearstation.etrade.com/education/reading_graphs.shtml