If you enjoy reading my weekly superstock scans, please read Insider Buy Superstocks by Jesse Stine if you have not done so. Whatever techni...

Three Trading Lessons from Insider Buy Superstocks by Jesse Stine

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If you enjoy reading my weekly superstock scans, please read Insider Buy Superstocks by Jesse Stine if you have not done so. Whatever techniques I have applied in my weekly scans, 90% are obtained from this book alone.

The full title of the book is "Insider Buy Superstocks: The Super Laws of How I Turned 46k into 6.8 Million (14,972%) in 28 Months, and the True Stock of How Extraordinary Failure and Doing Everything Differently Fueled My Record-Setting Investment Returns". It was a big book, about A4 size, with even bigger contents.



The story of Jesse Stine is truly extraordinary. He started normally like other traders - buying stocks on tips, investing in company he worked for, day trade, and losing all his money over and over again. It was only after a period of intensive learning and studying past big gainers, he had an impressive run from 46k to $6.8 million in a period of 28 months.

If you like a trading book with actionable steps, you will love this book. In Insider Buy Superstocks, Jesse Stine listed down rules for buying, selling and showed how to apply these rules with a number of examples. After understanding these theories, you can practise by going through charts and SEC filings and after some time you will be able to trade fairly similarly as Jesse Stine.

Apart from reading the book, I will advise you to subscribe for his free alert through his website at http://insiderbuysuperstocks.com/friends-and-family-market-alerts/ and follow him on his twitter and stocktwits. Though these avenues Jesse Stine will occasionally post his alert for major global infection points and call the top and bottom for sectors.

Three Trading Lessons From "Insider Buy Superstocks"

1) A move in the opposite direction is near when the media/bank is cheering or crying the loudest

The media tends to focus on events that have already happened. At critical market turning point, the media will rush in to create crowd psychology which are often wrong. In the book, Jesse quoted the negative headlines during the 2009 great depression, excess natural gas, collaspe of Greece. Not soon after, the market turned about explosively.

One thing I note was that when things are looking especially good or bad, different media or financial institutes seem to be competing with one another to predict a "worst-case" number. One very recent example is the fall in oil price. Goldman called for oil to drop to $20 in Sep 2015. In January, Morgan Stanley joined in the $20 call in January. And here comes Standard Chartered calling for $10 oil on 11 January. Oil reached its low on 19 January at above $27 and rose all the way and it is currently $46.

Financial news are mostly noise but scanning the headlines can be a rewarding experience.

2) Wait for the stock to come to you

Jesse Stine has a very interesting description when it comes to stocks. He suggested that we should become a dating aficionado and a confirmed bachelor where marriage is not an option. We should not fall in love with a stock and only fall in love with the price, and the stock will come to trader at the desired price. Only then we should buy the stock.

In this area Jesse Stine is very different from breakout traders like Mark Minervini and O'Neil. While breakout traders wanted to make use of the momentum when price goes above the line of resistance, Jesse Stine's strength lies in the risk-reward ratio. Like a compressed spring, a superstock may appear boring and motionless, when it explodes the reward will be great.

Using this strategy, you will miss many trades along the way. As Jesse Stine proves, you do not need a large number of trades to be a multi-millionaire. There will always be enough stocks in the right market that can provide explosive returns.

3) Best time to get out is when everything looks great

I like how Jesse Stine describe the scenario when everything looks great - "your stock has moved 100% over several weeks without a meaningful pullback, you have made tens of thousands of dollars, you are patting yourself on the back, you find yourself surfing Priceline for an all-inclusive Tahiti package for you and your wife, and heck you are even considering writing a book!"

I did have similar moments in the past. You start to extrapolate your monthly earnings, open up an excel sheet to add in the compound effects and imagine the perfect life you are going to enjoy in a few short years. And boom! Everything turns and your profits get smaller by the day. Unwilling to part with your dream life that appears so near a few days ago, you allow your profits to turn into painful losses.

In the book, Jesse Stine has included 16 superlaws of selling technical risk and 5 superlaws of selling fundamental risk. It may be a good idea to run through your existing stocks with these rules. These laws can provide you with reasons to sell and lock in profits at times where there appears to be no reason to sell.

Notable Quotes from the Book

On media misdirection:
"Right when it becomes abundantly clear to me that a stock or sector is on the brink of a major long-term powerful reversal, the media rush in to publish competing pieces directly contradicting all my unbiased research. In the markets, financial media is the primary creator of crowd psychology. As we know, crowd psychology is ALWAYS wrong at critical market turning points."

On waiting for stock to reach the right price:
"Remember that you are George Clooney, so the stock WILL come to you. It will eventually trade down to your desired price. If not, there are plenty of other great stocks on your list that will. Never let emotions enter into the equation. Once you have done all of the leg work and have a select group of stocks on your radar, your job from that point is to monitor and buy prices. Nothing else should enter the equation."

On selling when thing looks great:
"It goes against human nature, but the best time to get out is when everything looks great, everything is on track, there are no roadblocks ahead, there are a hundred reasons to buy and everybody universally agrees that there are absolutely no reasons to sell."

On investing in unknowns:
"Invest in future themes that nobody yet knows about. If it is something new and you don’t know anything about it, chances are good that others don’t know about it either. In the future, when others “discover” this theme, their investment capital will flood into this new “must- have” trend."

On concentrated portfolio:
"There have been times when I have taken massive multi-million dollar positions in single stocks when I perceived that there was a massive disconnect between a stock’s price and its value. In such times, I would have 90% or more of my net worth in one or two stocks that offered massive potential reward with very limited risk."






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1 comment:

  1. Why is Jesse's websites not working. His twitter is also seldom updated. Did he move to another website?

    ReplyDelete

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All information in The Trader Diaries (TTD) does not constitute to investment advice or recommendation to buy, sell or hold. Readers are advised to consult their financial advisors prior to making any investment or pursuing any investment strategy. TTD will not be liable for any losses resulted from information published or shared from the blog.