Trading and the $100 Challenge

A Conversation With Mark Minervini

Champion stock trader and author

By Dan Ferris

Mark Minervini is one of the world’s most successful stock traders and an international performance coach. He won the U.S. Investing Championship in 1997 with a 155% annual return. Nice. He’s also the author of the bestselling books Trade Like a Stock Market Wizard, and Think and Trade Like a Champion.

Starting with only a few thousand dollars, Mark turned his personal trading account into millions, averaging 220% per year with only one losing quarter for five consecutive years. An incredible 33,500% total return. To put that in perspective, $100,000 turns into more than $30 million at that rate.

Mark is featured in Jack Schwager’s excellent book, Stock Market Wizards: Interviews with America’s Top Stock Traders. Schwager writes, “Most traders and money managers would be delighted to have Minervini’s worst year, a 128% gain, as their best.” Mark educates traders about his SEPA methodology through Minervini Private Access, an online platform that allows users the unique experience of trading side-by-side with him in real time. He also conducts a live master trader program where he teaches his trading system in a comprehensive weekend event.

Here, Mark Minervini talks with Investor Hour host and financial analyst Dan Ferris about confidence, trading, and why you might want to toss $100 out the window next time you take a drive…

“Most traders and money managers would be delighted to have Minervini’s worst year, a 128% gain, as their best.”

Dan Ferris: I know from reading the Market Wizards interview that you got interested in the stock market as a teenager in the 1980s. I’m wondering if there was a particular event or a particular experience during those years that prompted your interest.

Mark Minervini: Poverty. That’s the true answer, but to be honest, that got me interested in making money, and because I had no education, I really didn’t have many options, so I looked at the stock market as a place where I didn’t need a degree. There was no prejudice. I could just open an account and if I did well, I could make money. Of course, I didn’t have any money, so I had to start off with a very small amount of money, so it took a lot of years.

It’s crazy, but I used to look at the stock tables when I was like eight years old, and I was fascinated. My Uncle Benny, I was always told he was a stock guy, but I didn’t learn about that until I was a teenager. But I was fascinated with the tables, and I remember I used to follow Exxon for some reason, but it’s just kind of crazy how at a very young age I liked the stock tables.

Dan Ferris: Now, you recently said one of the most controversial things I’ve ever heard said by anyone in finance. Can you retell a little bit, why our readers should throw $100 out the window the next time they’re driving down the road in their car?

Mark Minervini: This is something that I did with one of my very first proteges that worked for me. He was constantly saying how he was going to be a millionaire and going to be the best trader and he was going to even be a better trader than me. This was back in the ‘90s.

One day we were in the car and I said, “So, you’re positive you’re going to be a great trader and you’re going to be rich and how long is that going to take?” He said, “Not that long. I’m going to be really great at this.” I said, “How much money you got in your pocket?” He went in his pocket and he said, “I got $200.” I said, “Well, then throw it out the window. If you’re going to be a millionaire in a year or two, what does it matter, right? Let’s make a declaration.”

He was like, “You’re crazy. I’m not throwing money out the window.” So, I went in my pocket and I think I had like $400. We were on the highway and I just tossed it out the window and I said, “I’m so confident in my future that that just doesn’t mean anything. I know that it’s going to come back.” I said, “Now throw yours out” and he wouldn’t do it.

It’s mainly a declaration of your confidence and to look at the bigger picture. If you truly are going to be wealthy and rich and have money, obviously $100 doesn’t mean very much. I know some people got upset and they said, “You could’ve given it to charity”, but I want to point out that I don’t deduct that from my charitable contributions. I can do both.

But anyway, it was a fun thing we did on Twitter and I challenged people. I said I would match them over the weekend. Twelve people did it. I threw $1,200 out the window and videotaped it, but then after that it was funny because then it kind of went viral and people saw me do that, and we had 100-something [people do] it from all around the world. I actually had people throwing $100 bills off of rickshaws in Asia.

They’re walking down the street in Africa and dropping it on a dirt road. It was crazy. There were all these videos from people throwing them out windows in Japan and just all around the world. It was pretty wild. It’s liberating.

Dan Ferris: I think it’s brilliant. For an hour I was thinking about this going, “This guy is nuts”, but it’s nuts in a good way, though. It is different, and it’s an emotional thing.

Mark Minervini: I knew I was going to take a lot of heat for it. I knew when I did it there were going to be a lot of people that were going to get upset and disagree or be upset that it was wasteful with money. I was hoping people would understand the concept, but some people, a lot of people got it, and I think it actually liberated and empowered a lot of people.

Dan Ferris: Man, if you got people throwing $100 bills off of rickshaws, you empowered a lot of people. Back at the time of the Market Wizards interview, it said you were working like six days a week, 14 hours a day. You hadn’t taken a vacation in 10 years. But then I noticed in Think and Trade like a Champion, you said your wife and daughter are now your highest priority, and I would imagine they would want you to take them on a vacation now and then. What’s your schedule like these days?

Mark Minervini: So, my priorities have changed over the years. In the beginning, I held off on getting married and having a family because I knew it would interfere with my career, and I wanted my career to be first, and I wanted to be wealthy and financially independent, so I did not get married and did not have a child until I was financially independent. But once I made all the money and I don’t have to work anymore, it’s a nice thing that I can do what I love, my priorities changed.

My No. 1 priority is my family, my wife and my daughter, and health. Those are at the very top. If you asked me that in 1990, my No. 1 priority at all cost was to be the best trader in the world and to make millions and to be successful, and that was where my head was at, at that time.

Dan Ferris: Well, you kind of did it, so congratulations. I noticed in Think and Trade like a Champion you talked about this need to be unbalanced if you’re really going to be devoted like you were earlier in your life, and a lot of the talk about the emotional commitment is geared toward this all-in commitment.

But then I noticed this one sentence and just really, really briefly, it said, “That doesn’t mean that you can’t improve your trading and enjoy the benefits of investing even as a part-time investor.” But then you got right back to talking about the intensity and the unbalanced lifestyle, but it really struck me that you mentioned even as a part-time investor amidst all of this discussion of total all-in commitment. Is that a conflict?

Mark Minervini: It depends. If you want to be the best in the world, I don’t care what it is, if you want to be the best in the world at something, whether it’s the best basketball player, the best bowler, the best lawyer… You’re probably going to have to be unbalanced. You’re probably going to have to have a disproportionate amount of time into that craft or that career, and there’s going to have to be sacrifices. That’s what I was talking about.

It’s like, for instance, in the Olympics, there was a poll done and asked Olympic hopefuls that if they could take a pill that would guarantee they would win a gold medal, but they would die in five years, would they do that? About 50% of them said “yes.” When you’re going for the very top and you’re going to be the best in the world and the best in the business, that’s the kind of competition you’re up against. That’s the kind of unbalanced all-in competition.

So, that’s what I’m talking about, but that doesn’t mean you can’t read my book, learn about what I did, learn my methods, and improve your results dramatically even if you’re a part-time investor.

Dan Ferris: So, in your interview with Schwager, you said something that I loved. You said chart patterns were “not what’s important to trading successfully. For someone to be successful, they have to develop their own trading methodology. I developed my method for myself. It wouldn’t necessarily be a good fit for anyone else.”

If that’s the case, Mark, you wrote two whole books where you spell out in quite a bit of detail what your methods are, and I wonder how appropriate those methods are for the people reading the books.

Mark Minervini: Well, I don’t think they need to develop their own trading methodology, certainly not in the beginning. In the beginning, no matter what we do, we mimic. If you were to start off as a basketball player or a football player, you’re going to probably watch your favorite sports star and you’re going to mimic them and you’re going to learn from a coach and you’re going to learn through trial and error, so you’re not going to develop a trading methodology and be making lots of money in the stock market in any kind of short period of time.

Really, it’s matching your personality to the method. And then once you get that method down, maybe you’re able to do the type of things that I suggest and you’re getting some traction and you could start maybe adding in your experience, and that’s what I’ve done. I mimicked the best and then over the years, a lot of years, I started developing some of my own techniques and it just becomes a passing of the torch. It’s not like everything I do is unique.

But the main thing is you have to match your personality. If you’re someone who doesn’t want to sit in front of the screen all day and doesn’t want to do a lot of work and a lot of trading and making a lot of fast decisions, well, then day- trading is probably not for you. But then again, you might have a different personality.

You really have to match the style and find something that makes sense to you because the main key is that you have confidence in it. If you don’t have confidence in the underlying strategy, it’s not going to work. It could be the best strategy in the world, but a strategy takes an operator, and takes discipline to follow it, so that’s really the lynchpin to following any strategy.

Dan Ferris: Recently, it surprised me to see you on TV commenting about things like the Federal Reserve and various economic kind of macro type data. I have your book Trade Like a Champion on Kindle. I real quick went and did a search on the terms “Federal Reserve” and “interest rates” just to see if it was anywhere in the book, and I got zero hits. It blew me away to hear you talking about the Fed because you’re so focused on the technical and the fundamentals that make up your trading strategy.

Mark Minervini: I’m very versed in economics. I started off as a quant. I started off as a top-down. Early on I studied the market and the economy, and then would form an opinion about the market, and then find the best groups, and then from there look for the best stocks. What I found out was that I was constantly missing the leading stocks, the best stocks, and I had to completely flip it around and reverse the whole process. Now it’s stocks, group, and market.

But after almost 40 years doing this, I have a pretty good feel and understanding of the economy and the stock market.

I don’t do TV hardly ever anymore, but in the ‘90s I did lots of TV shows. I was on probably 150, maybe 200 shows a year. I’d be down at “the Exchange on CNBC, then at Fox and at CNN. Sometimes I’d do five, six shows in a day. They wanted me on these shows, and they want to talk about that stuff.

They want to talk about the unemployment data that came out today and what does that mean? And the Fed raised the discount rate. So, you’re forced to talk about that stuff. Everybody wants a reason. They don’t want to just hear over and over, “Well, I’m in the market because a lot of stocks set up and met my criteria and that’s why I’m in the market.”

That doesn’t make for good radio or good TV, so you have to go and do this big dissertation on all the reasons why and the underlying economy, but the bottom line is for the overall market, the market is going to go with the economy give or take several months. You’ll see that bear markets are from recessions and bull markets are when they have expansions. It’s just a matter of timing it, of course.

Dan Ferris: I do have one more question… If you could leave our reader with one thought, in your case I’m really, really curious to know, what would that thought be?

Mark Minervini: OK, well my one thought would be to believe in yourself because you can do anything that anyone else can do because we have brains and we can learn, and there’s precedence before us. When someone does something, it shows us the path, it shows us the way, and then we can do even better because we’re starting where they left off. So, that’s how I turned an eighth-grade education into a career and financial independence that I saw Paul Tudor Jones and some of these people who, while they were more educated than me, I realized that they’re just people and that I could learn from them and then I can start where they left off and maybe even become better.

So, I think that’s the one thing that I can’t do for someone – no one can do. Like I said, if Michael Jordan is teaching you, if you don’t believe in yourself it doesn’t matter and you can have the best coach in the world, but you should believe in yourself because this is a great time to not only be a stock trader, but just a great time in general because of social media and all the information that we have. It’s amazing. It’s information overload, but if you sift through it, there’s amazing, amazing information. You’re able to learn directly from the people that wrote a piece of music… or played a particular instrument… or developed a stock strategy.

At one time when I was a musician, we had to take the record and put the needle back 150 times to figure out a part. Now you go on YouTube and the person who wrote that part is teaching you. So, it’s a great time and it’s a great time to accomplish your dreams and go after your passion.