CANSLIM Trading Strategy: Beat 99% of Investors Using This Simple Strategy

[Music] and without further ado, I want to introduce Ross Haber. Um, you know, he's got a great background, and he had the honor, I guess I'd call an honor, but uh, really a blessing to be able to work with William O'Neil, the founder of Investors Business Daily, and uh, and, and work under the tutelage, you know, be one of his mentors, uh, for four years or so early on in his career. But prior to that, when he came out of college in Florida back in the early 90s, um, he started working at Oldie Discount. I remember that because that was one of the first ones that were on the market when the internet was born. I think that's about the time that Al Gore invented the internet. Um, and um, but anyway, he was kind of on the cutting edge, and he got really, really good. He taught himself some great skills with his software, and he'll talk a little bit about that, but he's progressed over the years to hedge funds and options and risk management and uh, and now he is comfortably down in Florida near doing portfolio management and continuing to master his craft. So you see him often uh quoted in Forbes and Investors Business Daily and Seeking Alpha. I mean, so we're really blessed to have him here with us today. So without further ado, I'm going to go ahead and make Ross the host for the event here, and, and he will um take over at this point and start his show, and I will stop my screen sharing. So Ross, over to you. Welcome.

Thank you, Steve. Thank you, and uh, thank you everyone for spending your Saturday morning, waking up early to be here with me to um go through this. So in any event, as Steve said, my name is Ross Haber, and before I get started, um, I thought I'd share a little bit about myself, just to give you a little bit. I know Steve gave it to you already, but I'll, I'll give you a little more detail. So like you said, I started at Aldi. This was um the big competitor to Schwab. There was no really online investing at that point. There was no E-Trade or what have you. Anyway, that is, that was my beginning of the business. Now, the significant part there is the first book that I was ever given to read, even before the Series 7 manual, was "How to Make Money in Spa," excuse me, "How to Make Money in Stocks" by William O'Neil. So first book out of college, it's you know, was "How to Make Money in Stocks." Um, that was the philosophy the office followed to gain clients and so on and so forth. So um, along my path of retail brokerage, I developed a good relationship with a client who, as you can imagine, was a big O'Neil fan. We, we found quite a few along the way, since that's what we were pitching to everyone, so to speak. And um, one day she called me up and asked me how I'd like to go out to California, work for William O'Neil and Company. So one thing led to another, and I found myself in a chair at William O'Neil and Company's institutional services group. So I was there for, so which was the beginning of, so was the beginning of my relationship with Bill. Even in institutional sales, I was meeting with Bill three, four times a week at least, often every day, to just go through the market, to deal with institutional clients. Um, after about a year and change, Bill invited me to manage some money for the firm um while I was there. So that was an invaluable experience, like you said, a a blessing for sure. Um, it was a matter of being in the right time at the right place and really just making things work for me. Um, while I was there, I got to work on all kinds of proprietary research, my favorite project being um the 98 through 2000 proprietary model book. I also had the opportunity, you know, I was working side by side with Bill every day. I got to uh do the IBD workshops with them, so I traveled around the country for a couple years doing that. Um, so after about five years of you know getting to work with Bill side by side every day, again, a client of the firm um from Fidelity, it was the manager of Fidelity's Mid-Cap Growth Fund, had decided to go off on his own and start a hedge fund. Um, he's, he saw the huge value, as you can imagine, in the fundamentals mixed with the technicals. Um, so anyway, that was my opportunity to uh, I guess you know, move on and up and run some money uh you know with a guy who did the fundamentals. And again, I'm not, I wasn't all technicals, and we're gonna get into this shortly. If you ask Bill, um, it's amazing. You know, in in institutional sales, you run into a lot of people who will tell you Bill's the chart guy, but Bill will tell you that it's 70% fundamentals, and that's what we're gonna get into here, get in here to today. So enough about myself. Let's go ahead and take a look at our first slide here.

So I've tried to tailor this presentation understanding that many people won't know who Bill O'Neil is or his methodology and haven't looked at charts or even considered owning growth stocks. Um, and so I'm here to I guess share my knowledge and let you know whether you're you know in college learning to trade and you know you're ready to be super aggressive, or you're closer to retirement and your risk tolerance is lower, there are ways to have exposure to high quality growth stocks and manage risks such that you can you know you can actually benefit from the mega performance, the super performance of you know the big leaders, without exposing yourself to too much risk. So that being said, and you'll see, you'll, you'll hear me harp on risk management, risk management, and again risk management, which is tied with your mental emotional well-being, but you'll, I'll, you'll, picking stocks is the easy fun part. It's all about managing risk. So that being said, we're going to go through uh a couple of well-known, starting with Tesla. Big leaders from uh, Tesla's been going for a while now, but it was a big winner of 2020. It's the leader of the in the electric vehicles group. There are several in there now um from here and from China as well, but no, no one touches Tesla in terms of uh its fundamentals. Let's just start there. It you know, it's the clear leader. Um, it's become the household name of electric cars, although it is a little on the expensive side, no doubt. Um, now what we're looking at here is Tesla's run or move in 2020, starting from the bottom which formed as we can see in March of last year. The market ultimately bottomed and started moving in, and we're not going through this chart in detail. That's not the point. The point, what I'm going to show you here and what you'll notice as we go through a few charts, is typically the big high quality winners like a Tesla [Music] like in all you know those big names, you can you know starting with the Apples, the Amazons, Tesla is one of the more recent ones. These are big liquid names. They attract the big smart institutional investors, which lends to a liquid stock that will find support at what I call logical areas. And so this is what I'm showing here. I mean, we're going to get into this in detail. Once you've honed in on a high quality name and you have the wind blowing at your back, and you can have ex, so even if you are closer to retirement, there's no reason that you can't have at least some exposure to a Tesla as long as you're following a discipline and managing risk along the way. And uh you know, risk management, a big part of that is position sizing, overall exposure. And so that's my point here. And the big liquid high quality names give you tons of places to uh enter a stock with not only logical but tight logical sell stops. And if you're again following the discipline, um you'll, you'll see, really having it, it becomes counting cards to me. You've really got the odds on your side. Um, risk managed, you can benefit no matter who you are. Um, so what we're starting with here, as I had mentioned, you know, Bill might be known as the chart guy out there, but he'll tell you um it's 70% fundamental. We're going to take a breeze through here because we're going to get into this in detail after, but you can see we've got huge um triple digit and high double digit quarterly growth. This is quarter over quarter growth that we're looking at here. 140, 300, 95. You can see we've got solid revenues or sales that are backing up those quarters, that are backing up the quarter of a quarter earnings. You can see we, we've got a a slight dip here, but as long as we recover and go back to new highs, that's no issue. This is institutional sponsorship, which you heard me discussing before. So you see the increasing number of funds, and we'll get into this in more detail later. This gives you an idea of the quality of the sponsorship, which is very important. Next one we're going to take a look at here, we just wanted to go through a couple names to give you an idea of um you know the power and not only the power, the you know the super performance of one of these names, but also how you can manage risk um so that you can you know participate in this no matter who you are. So Fiverr, this is for those of you who don't know, it's basically a website where you can um look for people to help you with your online tasks. Let's say you're building a website, whether it be a logo or a script or whatever it may be. Um, as you can imagine, with the uh virus and everyone at home, that helped um push Fiverr even further. Um, but anyway, so again, like we looked at with Tesla, Fiverr made it really easy to buy and manage risk along the way. You can see where it respects um major or logical support at moving averages, which are all these squiggly colorful lines here, which we'll get into. Um, so it's liquid, it acts um constructive at logical areas of support. So again, you can participate whether you're buying, you know, and the beautiful thing about these is you don't have to be the first one to buy it. You can be the third or the fourth one to buy it and still make a ton. And really, you know, whether it's the meat of your portfolio or a performance enhancer, um, there's no reason to stay away from these stocks as long as you're focused on the high quality names. So here's a quick look at Fiverr's earnings. We can see here we've got N/A, and that's only because we're looking at quarter over quarter growth that you know we're looking at losing less than the prior quarter, so there's no actual math for that, but we can see that's clear um growth, and then we go solid triple digits 163, 200. Um, not only do we have solid revenues backing up those earnings, um you've got it, you know, straight up acceleration for the last four quarters at this point. Um, institutional sponsorship here is, you know, it explodes from 37 to 197 in eight quarters, and this gives you an uh an idea of the quality of sponsorship. Um, so the question on everyone's mind, as I've been saying, you know, it's all about risk. Everyone um can benefit from these. So, and this, you know, the answer will be different for everyone, right? It depends on how much time you have until retirement, what are your objectives, what you know, do you have kids, do you not have kids, what is your overall risk out, but you know, it at the end of the day, what it's going to come down to is when you have that exposure, whatever you've decided, and you'll hear me, you always start small and work your way in, how how do you feel inside um holding it? Are you losing sleep? Are you nervous during the day? Then it's too much exposure, and we'll, we'll talk about that a little bit more as well. Bill had a saying, and you know, anytime you were feeling um anxious with your positions, you tell you sell down to your sleeping point. There's no reason you should not be anxious or worried about your exposure. That's a clear uh sign that it's that it's way way too much. Um, so fortunately, Bill not only figured out a way to kind of you know, I I look at it as the counting cards of the stock market because it really puts the odds on your on your side and allows you to manage risk. Um, and you know, you can have your pinky exposed, or if you want, you can jump in the tank and you know have them dump water on top of your head. That that's a personal choice. Um, the bottom line is though, as long as you're disciplined, it's like counting cards. You stay away from the cold deck, you keep the wind at your back for managing risk and enforcing yourself stops. You should have no problem having at least some exposure to whether it be two or three or five of the five of these names. Um, there's, there's a way to do it for everyone.

So really quickly, who is William O'Neil? Um, Steve mentioned he is founder of Investors Business Daily. He also, as I mentioned before, um advises maybe 90, 95% of the largest institutions out there. Um, but what he did, what he actually started off as a retail broker in the business. Um, one of the first to actually uh put charts on computers and really put it all together. But his, the "How to Make Money in Stocks," what that book is about, it explains his methodology. C-A-N S-L-I-M is the acronym. Um, those are the seven letters that stand for the seven most common characteristics of the biggest winning stocks before they began their massive moves to the upside. Now he studied this back to the early 1800s. Um, you know, I've had the benefit of looking at the model books from early all the way up until the one I've created. I haven't seen any after that, but I have stayed in touch with those guys who've continued to study, and I can tell you that um absolutely nothing has changed from that until now. Human nature stays the same. Um, it never changes, and you know, uh, Steve can probably tell you plenty about that. That's, and you know, all of that sentiment, that's why that seems to uh work so well, those contrarian sentiment gauges at extremes. So that being said, we are gonna move forward and take a look at what these seven letters stand for and take a look at what they, you know, examples of what they might look like going forward as you're looking for that next big Apple, Amazon, Tesla, or what have you.

So starting with C: current quarterly earnings. You know, you want to know, is there significant growth from earnings quarter over a quarter, quarter of a quarter? By the way, what that means is this quarter versus a quarter, the same quarter a year ago. It's not this quarter versus last quarter. You want it, you want to match quarter one quarter to the same quarter a year ago. That also helps get rid of you know um account for seasonality and that sort of thing. But let's not get off track here. Um, the important thing here, what Bill figured out, is the biggest winning stocks have at least three quarters of quarterly growth um of 25% or more. Um, but I will tell you this, is there, that is a bare minimum number. Um, at least from my little experience, you know, doing this um, I look, started learning at '95, I started doing it for you know managing money for a living in '98. That's definitely on the low side. You can, I would say, insist on bigger earnings. Um, [Music] that's a that's a great guide, but if you really want to hone in on the best of the best and really eliminate the garbage, insist on, excuse me, earnings of mid to high um double digits at a bare minimum, if not triple digits and above. As you can see in "How to Make Money in Stocks," when they did their study um from '52 to 2001, three-quarters of those stocks um had increases of 70% in their most recently reported quarter before they began that major advance. So big earnings is important, right? You want to, you want to be buying the companies that are making the most money. Isn't that the idea of investing, right? For get your return on on your money. So you want to invest in those companies showing biggest profits on the books, backed by the biggest revenues in sales. If there's uh, we'll back up well, anyway, we'll get to that. Um, on an annual basis, annual earnings, the idea is to look for three, at least three solid years of growth. Um, acceleration is is icing on the cake. It's fine, so it's fine if you see a little bit of a jump in earnings as long as they're positive and growing. Um, and here it, you want to see in excess, I guess I should have marked it, of 20. We're going to get into some examples so it'll be easier to explain there. So in any event, the idea is to find at least companies that are showing at least three years of annual earnings growth, and as we get into it, we'll see annual earnings estimates, what the analysts are looking for in the next year or two for the company as we go forward in time is a big consideration as well.

So anyway, let's go ahead and take a look at some of these names. Um, this is not a recent chart of COUP, um, but in any event, we can take a look at this point in time. We can see we've got one heck of a move here from the uh 30s up to you know almost tenfold at this point. But the important part is here, we're just going to focus in on earnings. Um, so here is our quarter over quarter earnings and sales. Here is our earnings, here is our sales. This is the most recent quarter um at the time this chart was printed. We can see here, so you know, while high double digits is nice, this is the kind of thing I really um want to insist upon if I can. So if I can find, if even if it's only eight or twelve stocks out of three or four thousand that have this size sort of earnings growth, um, that's more than enough. And Bill will tell you, if you can't make money um with the highest quality leaders making the most money, you have no right um trading the ones you know, the the laggards are the ones that are simply you know in the same group but not as powerful, not making that same you know those not having the same returns. So again, let's get to annual earnings where I kind of uh stumbled before. As we can see here, going back to 2015 was in the negative zone, but we can see we start to come for, we go from losing 89 cents a share um losing less and less, finally we jump positive. So even though we've got some a couple years of negative earnings here, this is still fine because we're growing, we're growing. And then at this point, these estimates were for oh, we got, we're looking for a little dip in 2021. Again, these estimates are are not current, it's from when these charts were printed, but you can see they look for a big recovery uh 2022. So 64% growth in annual earnings is a big deal. Um, it's that would be solid quarterly growth, so an annual estimate that size is um something to keep an eye on. Another thing I like to keep an eye on to our earnings revisions. So at this point in time, revisions analysts were revising their estimates higher. That may not be the case now, but that is what you, what you are looking for in terms of quarterly earnings, revenues, and annual earnings. And I think I forgot to point out, accompanying these huge triple digit earnings, we've got solid you know high 30 to high 40 percent or actually higher, make 50% sales. So even though we don't have a a solid stream of uh acceleration here, this is still more than satisfactory. And again, even though you've got a dip into the 40s, you recover to new high ground here. So enough on that one. Let's go ahead and take a look at ENPH. This is a solar stock during that same period. Um, again look, we'll take a quick look down their last quarter of earnings growth. Um, massive triple digits across the board. Even though you fall from 800% to 375%, not too worried about that there. You can see in the very beginning, sales were a little bit um didn't match exactly, but they caught up quickly, and that sort of acceleration is worth noting. Even though we've got a dip in this most recent quarter here. Um, so this is the, you know, keep an eye on this sort of thing. Anytime I, I confuse her the stocks when I, I I ten, I tend to be more of a position trader. For me to have the confidence in my stocks, I i want to know that not only are they a leading name, you know a leader, you know based on their product, their service, their management, I want to know they're clearly making the most money in the group, that they're liquid, the big high quality institutions own them. That's the sort of thing that's gonna, that's what gives me conviction. So again, here uh back up to their annual earnings, a little from negative to positive, but eventually we go from losing a dollar four to only losing 25 cents, then we go positive and start growing. At this point, again, we weren't expecting huge growth for the end of 2020. Um, we'd have to take a look and see how that ended, but still, 2021, 41% growth for the year um that's solid. At this point, and we're on to the next slide. We have, bear with me. Okay, I wasn't sure if we had ever so. That is the C and A: current quarterly earnings and annual earnings. Now we are on to the N in CANSLIM.

So, is the company or stock you're looking at currently innovating? Um, does it have the history of innovation? Are they the the new disruptive company in the group? The Uber, the you know, the Apple, the Tesla, whatever it may be. Um, PayPal at the time, you know, hasn't disappointed from from early till now. Um, so that's that's the the the kind of thing uh also that I'm looking for. I really want to know that there's a fundamental story there. I don't want it to be um hot garbage, so to speak, with uh you know, you're not anyway. There there is a difference um between those those hot laggards that you can make money on when you really have a hot market, a hot solid trending market. No particular group is on fire, and you know you can find that high relative strength stuff along with it. But you know, the real test comes when the market corrects. The idea is to have the highest quality stuff, and you want to be in the ones that are you know the absolute best of the best. So this is a very, you know, as far as fundamental, the fundamentals go, this is a very important aspect to uh be aware of.

Now, S: supply and demand. The S in CANSLIM, this what it used to really um discuss was, you know, all things being the same, does stock A, let's say with a 60 or 70 million share float, versus stock B with a much larger float mill, um which you know, all things being equal, you're you would tend to want to stick with the the one with less shares outstanding. Just makes sense. Less supply of stock to move, so when the institutions do start to pile in, um you get that explosive move higher. So you know, I think you know, is the the 98 through 2000 model book was, I don't know if that was the um the point where it all changed, um but it it it became very clear that you could make plenty of money on a very large cap company, whether it be an IBM, the Dell, you know Dell turned into what have you. So um, the S in CANSLIM is a lot less important now, and that really hasn't changed since. So at this point, you know, given the 60 million share float versus the you know 600 million share float, I'm gonna tell you to stick to the one um that has the better earnings, the higher relative strength, and the better story, and focus less on how many shares are outstanding at this point.

Now, L: this is extremely important. You know, so Bill, yeah, I'll, I'll explain the the the technical part. Um, it's kind of like Russian dolls. You know, the M in CANSLIM, we'll get to, that's that's going to be um the market. But essentially, what Bill figured out is you want to buy the highest quality stocks based on these um seven fundamentals that we're going through, the CANSLIM. But what we're looking to do is once we know that the market's ended up trend, we were looking for the strongest stocks and the strongest groups. You know, every bull cycle or major you know uptrend is led by at least two or three leading groups of growth stocks. Um, within those groups, how do you? There's a few ways to separate them out. Earnings is one way, and a very important way, because the other way, as you'll see here, is by relative strength. So when I come up with the list of stocks, I'm usually I've already excluded all of the garbage, and you know, as far as I'm concerned, and I will when I, anytime I pull up a list of stocks, I want to sort it by relative strength. I'm going to look at those top five or six stocks, and we're going to get there. The strongest ones and the strongest group in that uptrend. When you have those three things working for you, um you're gonna, and it, and you follow your stop-losses, it's gonna be very hard not to make money, to ultimately make some money over time. Um, with proper discipline and stop losses in place. So we're gonna, we're gonna get into uh a little bit of relative strength in a little bit. Um, and it's a, and here's one thing I would point out. While we are, you know, markets a little bit weird right now, and I don't want to get too off track here, but keep in mind um, when a new, when I, when a new trend gets underway, you know, the Nasdaq is uh kind of in its own little mini correction now. What you'll notice, and this is just the fact, the stock stat will lead, um that will lead us higher again, we'll tend to the newer names and not the same ones that have already run up five and ten, ten five and ten times from the cycle prior. This is um, so that's what you're looking for. As a market corrects, the leaders kind of poke their heads out and make themselves known. Um, those are the, those are the stocks you're, you're looking for.

Now on to I: this is institutional sponsorship. Those are those those are our the big investors: banks, mutual funds, hedge funds, insurance companies, trusts, what have you. Why is this important? Seventy percent of the market's volume is directly related to the institutions, you know. So what we're ultimately, what you want to do is figure out what the highest quality institutions are buying and increasing exposure to, and um try and ride their coattails. How are you able to do this? Well, that's another thing that we'll, we'll look at. Again, I don't want to get too far off topic here, but using their, using daily and weekly charts, it's very hard for large institutions to hide their buying or hide their selling. They can do it for periods of time, but let's say for example, when an aggressive Fidelity fund decides that you know they're going to pile their money into a big growth name that's showing explosive growth that you know at the beginning of a potential move, you've got to understand that these guys are managing in many cases tens of billions, hundreds of billions of dollars. And then after Fidelity sees it, maybe Putnam sees it, and the net, and it takes weeks and often months for these guys to build positions in many of these stocks. Um, and so that's, you know, when you, and if it's Fidelity and Putnam and Vanguard and what have you, like I said, it's it's the effect of the elephant jumping into the tub, you know. They'll, you'll see at the beginning of the moves, you'll, you'll see that explosive volume, and that's what we're looking for. That's um, so there's two ways to look for volume: you'll see it on the charts, but you can also analyze it in depth fundamentally, which we'll get into.

Okay, on to a little example of what we're looking for. There, ZM was a big leader during 2020. You can see here it went from number of funds 278 funds within, what do we have here, one, two, three, four, five, within seven quarters, that was up to 1,413 funds. That's a huge increase in a short period of time. What we're looking at down here, IBD mutual fund index ownership. Um, what IBD will show is not well, this is from MarketSmith actually. Not only let's show you the number of funds as they're increasing, but what they consider high quality sponsorship or their flagship funds. So Fidelity Contra Fund's got a small position. Um, I like to see at least one or two um in there along with the big increase. So that is what ZM looked like uh right about the mid, middle of oh no, actually this is end of 2020 all the way through December. Um, again, we've got it, we're looking at the same thing for COUP: 427 institutions, eight quarters later we're at 1,105. Um, you've got a big showing of high quality funds in here. You've got five of them with uh decent positions, so that's great to see. And one more example, ENPH we looked at earlier: from 160 funds to 1,008, and you've got a couple of uh high quality, high quality guys in there along that stock.

Now on to the M in CANSLIM. So this, Bill would tell you, was, if you don't get the M right, nothing else matters. Right? You can be right on, you can be a thousand percent right on everything else we just discussed, you know the C through the I, and if you don't get the market direction right, it's you're gonna ultimately lose money. Um, when the mark, oh, the market trend is very important. Three out of four stocks, the majority of the stocks out there, will follow the next, will follow the trend of the general market. So again, this is one of those things that Bill uh fortunately, there there's a quantitative, which we'll get into, called the follow-through day, which is a very specific way for knowing when the market um follows through and an uptrend may be beginning. Um, and that is uh, we're going to take a look at that. That is one of the major things you've got to get on your side. And then once you're in an uptrend and you're honing in on the highest quality stocks that are the strongest ones and the strongest groups leading that uptrend, um you've already got a a ton of wind at your back. And then it really comes down to exposure and how you're managing your losses along the way. So but that M in is an extremely important part of the equation. If you're you know, you even if the market's chopping back and forth sideways, it becomes very difficult to make money, and that's our, and that's what we're trying to do here. So I look, you know, cash is a position. I would just say that even for the most aggressive traders, so it doesn't, it's never all or none. Um, but with the market either chopping sideways or working against you, you're again, that's you know, let's put it back to counting cards, that that's not a hot deck at all. Um, if the market isn't clearly trending higher, um and I'll tell you, the leadership will typically let you know anyway. You won't find many stocks worth owning.

So as I mentioned in the beginning, risk management is what it's all about. Uh, you know, Jesse Livermore, okay, from the early 1900s, he is uh, I'm going to say one of the inspirations for for Bill O'Neil. His trading uh was was very similar, although he lacked the risk management. Point being here, he had a good buddy named Bernard Baruch, another phenomenal trader but also well-known statistician, who proved you can be right as little as one-third of the time. That means you can be wrong 67% of the time and still make a fortune in the market as long as your position sizing correctly, making sure you've got you know, you've got to make sure you got a hot deck in place. That's the bottom line. It doesn't matter how you, I can give you 100 stocks in a row that were that were all perfect, and it, you could lose money on most of them if you're not managing risks correctly. Um, that's when emotions come in and all of that sort of thing. And when you're, when you're managing money uh based on emotions, what you think, how you feel, all of that sort of thing, that's when it gets sticky out there. So you know, look, yeah, again, so you can be right three out of ten times and still make a fortune as long as you cut losses. So I can, I cannot uh say that enough. That is going to be your saving grace. It is not, as long as you are disciplined, manage risk, cut your losses, the money will follow. If you are buying the highest quality only when you should, and you're not gambling in a cold deck and letting your emotions rule you, it is uh this this game works over time. And here we go, we're going to take a little look at why it's so important to cut losses, right?

Yeah, the typical thing, you know what we would, what the typical person will do, especially beginning along the way, is we'll buy a stock and let's say it's one we really really like, whether it be a Facebook or an Apple, and we see it now down 7%. Well, maybe I'll give it, we'll just give it another percent, another you know, before you know it, now you're down 11. Don't, I'll give it 15. It's gonna bounce. It, listen, no stock has to bounce. All stocks are bad, unless you know some people tell you unless they're going up. I'll tell you unless they're making you money. Um, the bottom line is that that's the first thing you, you've got to get used to doing: is take, taking those losses in a hurry. And you can see how fast it can get out of control here. A 7%, a 7% loss, you need to, you only need 7 and a half percent to get even. Once you're down to 20, now you need a 25% gain to get even. Um, last I check, I I have high standards uh for for what I do for you. I i I manage my money I guess more aggressively, but most people would be very happy with a 25% return on the year. So you don't want to put yourself in the position where you now have to generate a 25% return just to get back to even. And you see how ugly that gets in a hurry. Once you stop dropping under 20, very few people ever make 50. So having to generate that sort of return just to make your money back is not a position you want to be in, no matter who you are, how good you are, really. Um, let me, I'll point this out along the way too: there's no way to uh quantify it. You really, it really tears up your uh your psyche, hurts your emotions along the way, which is the emotions, and and that's a, it's equally important to protect your emotional capital as it is your financial capital. So that should be said along the way. Um, so you can see here, let's say you're up 20. You can take three 7% losses in a row and still only be down 3%. You can be up 25%, three 7% losses in a row still leaves you up 1%. It's not fantastic. Sure, you're, and trust me, your your ego, your psyche, you're not gonna feel good about whether you know, you're not gonna feel good about giving back that money. But it's very easy to battle back from a 3% loss or a 1% gain. You back, you know, if you're wrong, you're wrong, you back away, you clear your head, you start small again. Um, so these are the thing, this is the most important part about investing in growth stocks. The, I always say the fun easy part is is finding the the good stocks to buy and then stocking and waiting to buy them. How you manage your emotions and the losses and your risk after that is what it all comes down to. We could all, you know, think that you know stock ABC is going to the moon and it has the earnings, and listen, if your position's too big, one big shake out in the market, you may not be along that stock anymore on on what just happened to be a normal shakeout because your position was too big and you become emotional and get shaken out of the stock. Um, but anyway, you can see here that's one big reason to to keep it at a max of 7, 8%. I would say this personally, a lot of times I keep it to 5%, um give or take, and we'll discuss that more more along the way. The 7 or 8% also um applies to what Bill figured out: when a stock is breaking out in its earliest out of its early stage basis, let's just, and and we'll look at but anyway, a state an early stage based breakout that meets all of the CANSLIM characteristics, the majority of the time should never close back below that pivot point or entry point. Most of the time, it should never close 7 or 8% below that. So as long as you're following that and everything else is um the way it should look in terms of CANSLIM, it's early stage, the earnings are there, all of your fundamentals, most of the time, as long as you're following that, you should get stopped out of your stock. So that's one way to keep you in those 7 or 8% um max losses. Are can be much too big dependent depending on where else you might buy that stock or what your goals are or whether you own it already, so on and so forth, where it is in its move. But um, so anyway, that that's enough on that. You know, 7 or 8% is your max, just to keep you out of trouble. And there's also a statistical reason for that. Um, when when it comes to buying leading stocks with CANSLIM fundamentals coming out of early stage bases.

So while we're talking about risk management, we're going to start, we're going to discuss distribution days. What a distribution day tells you or gives you a sign of um is that one of the largest or the group or the large institutions are distributing or selling their stock. The the technical definition, let's say we're looking at an index chart. We want to know, you know, we're looking at the Nasdaq or the S&P 500, and we want to know whether we've got a distribution day or not. The first test is: did it close down at least 0.2%? And was volume heavier than the prior day? So that is your technical definition. Um, within an uptrend, distribution day here or there is not a big deal. It's when you start to see clusters, especially ask, after you started to move higher, and uh you know, institutions try to distribute or sell their stock on the way up. Um, again, like we mentioned before, it's very hard to hide this, especially when they you know they start to panic and sell together or really you know start to you know get on that same path of "it's time to take some profits." You'll see distribution days show up. You'll also start to see uh leading stocks start to maybe act funny, get volatile along that same, along those same lines. Um, there are so, a very easy distribution data spot would be a day that closes down on the day, let's say you know 0.87% like we use in in the example here. Volume's heavier, very easy to see. It was a red day, volume was bigger, we're down well over 0.2%. However, um, and we're going to look at a few of these, there there are what I call subtle days of distribution, where um Bill calls this churning or just um turning or stalling.

Hey, Ross, we've got a couple questions. Sure, sure. You answer at this point. Perfect. Um, you don't mind me breaking in here? Um, Helen Flynn's asking: "Could you tell us a little bit more about your your sell stops and enforcing them?" Oh, yeah, absolutely. Um, so me personally, I have the benefit of being able to sit in front of the screen all day, so I set alerts. I'm constantly setting alerts on the stocks on my watch list that are you know high priority, as well as the stocks that I own. Um, and so if you know, you know, as far as sell stops go, that's how I'll do it. I don't put them in the system. I know plenty of people who do. Um, there's a way to do it. So I don't know if you're, if you're asking it with in reference to you know whether you know being in front of the screen or being at work. Um, but as far as sell stops go, you know, there's no carbon copy recipe for it. It's gonna, um, if I'm buying a stock out of a proper base early in its run, I'm going to stick with that 7 or 8% because on a closing basis, because I want to, I want to give that stock its full potential based on the work that Bill did. Remember, you know, it's not Bill's rules, that's just what he figured out. So I want to give myself that 80% chance of that stock actually not shaking me out and you know going on for um the larger gain along the way. I'm managing my sell stops depending on where I'm at, what my um, so how much am I adding? What what is my average cost already? Where are we? Are we am I adding coming out of that first stage base? Is it is in an early add-on and where are its moving averages? And you know, is it a stock that respects its 10-day, like um, this isn't a stock, but if you look at the the net, this is the Nasdaq, it respects its 10-day. If I see that as stock respects it's 10-day historically as it's moving up and out and it's an early move, you know, if I'm adding to a position that I've already began as a core, um I will keep a much tighter sell stop, like uh like what that's why I always say tight and logical. Let's say this stock doesn't hold its 10-day moving average and it's one that holds its 21-day moving average, maybe I'll use that, assuming it's not too far away. I i'm not going to pick a moving average that's um that's that's going to be too far away, that's going to force me out of out of that position too early. I'm always coming from risk management perspective. If I can't manage risk, I don't take the trade. So I always, no, I say this: if you don't, when you take a trade, you've got to know where your stealth stop is and why before you put that buy on. And it doesn't matter if you actually put it in the system, as long as you're watching to make sure you can enforce that that sell stop. So it's going to be, you know, does that make sense? Depending on the trade, the stock, and what your goal is at that point versus everything else. Um, [Music] that's how you know, that's how I'm setting my stops along the way.

Okay, I think that did a good job because she asked about you what was the time frame? A 7, 8% sell, was it a quarter of a quarter or what time frame? I think uh you're, you're looking at the support lines, uh 10, 21 day, whatever. I think that kind of helped answer her question. Okay, another question we have from John Woods is: "Peter Lynch used to say that he had no business owning a stock for which you don't understand what the company does, i.e., COUP and ENPH. What's your, what's your position?" Well, yeah, you know, though those are going to be names that are not household names, but COUP was a big leader, right? So you know, Bill will talk...

About this, the leading name isn't the one that everyone necessarily knows. Like, the it, those are the ones that become the household names. But let me, when you go through, you know, the William O'Neil and Company proprietary model books, they're loaded up with companies you've never heard of before, but they were the leaders. Why? Because those were the stocks in the leading industry groups in the strongest sector. So, um, yes, you might find a Tesla or an Apple along the way, but ENPH is a solar stock, right? So how do you know that that's a leader? Well, you know, it's really not all that difficult. MarketSmith will give you a blurb right at the top what it does. You can check the company's website and go through, you know, you can find quite a bit online. Um, so yes, you do have to do a little bit of work to really, um, to get an idea of the story, what they're doing, who's their competition, are they a leader, you know, is there a reason for the... Now, remember, I'm only checking these companies because they have those explosive earnings, right? So what makes a leader are, are the companies with the most explosive earnings, the best fundamentals, the highest quality, that have the highest relative strength, that are in the group, you know, that are the stocks that are leading the groups that are leading the market higher. Does that, does that make sense? So ENPH was one of those stocks. Um, was it COUP? So software was extremely hot. That was the larger software sector, whether it was enterprise, security, desktop. It could, there was really specific stuff, you know, software specifically for, you know, the medical industry, so on and so forth. Um, so COUP was one of those. And how, how do you figure that out? Well, like I said, I checked out the website. You know, I talked to some, I, I, I've got some friends that helped me out, um, around, buddy. But it was really more than anything, what, what draws my eye to that? When I'm screening the market for stocks, I'm, I'm automatically looking in that group because I know that sector is huge. So I'm constantly screening all of the industry groups within the software sector and trying to figure out which are the ones with the high, you know, those most explosive earnings, the highest relative strength. And then if I've, you know, get it home down to two, three, maybe if it's a huge group, sometimes, let's say the biotech stocks, you know, just that's an enormous group. I'm gonna say six or seven hundred names in there. Some have as little as, you know, it depends. The solar group isn't huge, so some are as little as 25 or 30, maybe even less. Some are 80 or 90. Um, but always the leaders are... So if a biotechs, you know, even if you've never heard of those six or five companies that with the highest relative strength and the most explosive earnings in the biotech, um, sect, you know, industry group of the medical sector, it doesn't mean, you know, those are your leaders, whether you know we're talking about them at home or not. That's, um, so anyway, that's what defines your leader really. And sometimes it's not as easy as... But story and you, you, Amazon, you know, a lot of these big leaders didn't have their, you know, you had to kind of figure it out along the way. So, but, uh, anyway, so I hope that makes sense. But I, I would tell you that the majority of the stocks, um, in the model books, and those are the model books of the biggest leading stocks over every market cycle, you've never heard of. Okay, great. Now Lily Liu kind of asks a parallel question with, "Can you talk a little bit about the current rotation out of tech and when you think this rotation may end and the tech area will start to strengthen again?" Well, you, I, I never, you know, I'm going to tell you what, uh, Bill and his son Scott used to, used to always say, you know, our job isn't to predict but to interpret. So I would, you know, it's a very, very funny spot as far as market status goes. You know, we had a, it's, you know, the first time for me. I've, I haven't been watching for 50 years; it's only maybe been a little over 20. I've never seen where you get like a private correction in one index while the rest go on to make all-time highs for three days in a row while the other struggles below its, you know, key moving averages. Um, the rotation, no, I mean, rotation has been super fast, um, up until this point, and that's a big part of also what helps the market, you know, hold, you know, it stay in melt-up mode and hold its shorter-term moving averages, right? So it's a weird... So we right now we've got the Dow, the S&P, and the, the small-cap Russell 2000 all in pretty good shape. They've been making all-time highs since, I'd have to look, last week or the week before. Um, the Nasdaq is still struggling to catch up, flirting with its, uh, 50-day moving average. Technically, we're looking for a follow-through today. Follow-through day, they're still on the Nasdaq. Even though we're generally, I consider the market, we've got three out of four indexes making new highs and looking fine, so market status we've got an uptrend. And it doesn't mean because the, we're still looking for a follow-through on the Nasdaq, you can't buy Nasdaq stocks. Um, however, it'll be a huge, uh, positive to see the Nasdaq finally follow through. And so to me, there's just a huge divergence now. I couldn't begin to tell you whether, you know, there's a huge gap down on the other three indexes to match the Nasdaq on Monday, or the Nasdaq follows through on Tuesday and matches the other three, and, and group growth kicks back in again. I would say this. Okay, um, going back to what I said before, well, you know, we're here to interpret, not to predict. I can't, based on my interpretation of the way leadership looks right now versus how it did five to eight trading days ago, there's a big difference. You know, five to eight trading days ago, I was more concerned with the wide and loose action on the stocks that had run up five, eight, ten times, um, gapped higher, some showing, uh, you know, classic climax signals and rolling over. Yet there's still plenty of stuff on the Nasdaq that I can find that now, especially, that either still looks fine or has the potential to shape up again, whereas maybe a week or so ago, I had a very difficult time finding anything except stocks that, you know, looked like they were in the middle of possibly topping. Um, the rotation at that point, um, it's, it's switched up. You know, at that point it was, uh, the immediate rotation was into oil, mining, steel. Um, and I know people ask, "Do you know, will those stocks also go up, you know, now that, uh, the economy is opening back up again and all that?" And yes, they will. Those stocks that they can work in a bull market. Um, I would say, let me put it to you: you do not have to have technology and biotech in mass leading a bull market. I've seen plenty of times where you can have, um, some slower, less volatile names in the healthcare and medical industry working, financial names, um, specialty retail, that, you know, like those luxury retail and leisure sort of stuff that you see now, whether it be Lululemon or, um, Deckers and Crocs and, you know, those, those things as a whole. Like I said, you need at least two or three industry groups to lead a market. I always love to see at least some, you know, technology and biotech and that sort of thing in there, because those are, those are the companies that are truly changing the way we live, the way we work, the way we communicate. Um, the other ones, the oil stocks, the steel stocks, the more commodity-related type, what... So I would say this: what I learned from Bill in the very beginning is he would typically stay away from gold and oil. And why? Because, you know, even though some of those companies do have some solid earnings there, they generally, generally follow the price of the underlying commodity. He knew nothing about that, so he just stayed away from those, you know. So then, of course, we saw that period where China absolutely exploded. And, but I would tell you this: the one thing I did notice is during that time, when we saw the agriculture and chemical and steel and, um, all of those stocks going crazy, first you still had tech and solar and, you know, the biomed names going with them. Also, within those industry groups, there was clearly, you know, five or six liquid names with institutional sponsorship that were growing their, uh, earnings at, you know, like growth stocks, and there was a fundamental reason for it. So I'm always a little, and I'm always a little bit, um, skeptical at first, I guess this is the word I'm looking for, when I see the rotation into those names. I always, I'm like, I start to think those are more names that that guys try to hide in more so than, uh, rotate into. However, that doesn't have to be the case; we can see. So I know this, I'm going on and on, and this isn't answering a question as to when. But I would tell you this: as long... So it seems like a little bit more, uh, three to five year medium term within the context of rising yields. Say that again. I'm sorry, she was looking, uh, you know, her question was more medium term, uh, say three to five years, as we expect interest rates to troll and slowly return to the normal range, right? So I would tell you that I wouldn't be surprised to see the net... Like I said, we could watch the whole mark. I have no idea. I'm prepared for anything any day. I'm not bull. I'd say based on the way that leadership has been shaping up, I wouldn't be all too surprised to see the market follow through sometimes next week. I'm sorry, next week. And what you'll see is it, you know, the rotation and those tech names. You'll see the ones that have started to fall apart probably continue to fall apart. Um, the ones that ran up less, so there's the new names that will work. They new doesn't necessarily mean new; you they didn't work in the last cycle at all. Maybe the last cycle they just started to work, and they've still, they're still early in their own cycle, and they're still in a group that, uh, has potential, that are still early in their cycle, meaning, you know, first and second, second stage basis. So the rising inte... It, you know, I, I, I was talking the macro economic picture. It's so hard. It's great, you know, you want to understand that, you want to understand in general where interest rates are going. But I've watched the market go straight up as rates are coming down. I've watched the market explode while rates are going higher. Um, everyone will tell you the reason for that after it happens and never before. Um, so I would try, for me and I'll tell you, it's, it: watch the leaders. The leaders will tell you what's going on with the economy. To me, I that's one of the... You'll hear very simple: watch the leader of the act. It, that's something that I, I think with time, once you start to hone in on what the leaders are and what they look like in a, in a strong upcycle versus when the market's choppy or not working, it gives you an idea of the overall health of the market. That's how I try to, I gauge it on very, um, qualitatively, that you know, I'm constantly looking to... [Music] Anyway, I, I digress. I get that. So I would vote, I would focus less on, um, I've inverted yield curves or, you know, crazy political situations. And I don't even mean here, whether it was Brexit or, or what have you. You know, I watched a ton of, um, people panic and get shaken out of the market then too. It's just so... Over the next two to three years, I don't see what, you know, what are we taught, you know, in terms of growth in a bull market right now? I don't see anything that, that would say we're in for, uh, I'm not, I'm not looking at a major, you know, any major topping action right now, like, you know, you should run for the hills. Although again, I, I wouldn't predict. But based on my interpretation of what I'm seeing now, I don't see why we couldn't shape up and get going again as early as next week. Okay, wait. Well, let's, uh, I'll let you get back to your presentation, and we'll weave in a few more questions later. Absolutely, I have no problem. No problem at all. Um, so we'll quickly, uh, go through this. We're just looking, what we're looking at here is the Nasdaq chart prior. This is, um, 2019 back here, December 2019, the beginning of 2020. This was the correction, and then, you know, all of last year coming out here. But as we were in 2019, as we were beginning of 2020, as we were approaching this top in the impending correction, what we're doing always is counting distribution days. Folks familiar with Investors Business Daily know that they're, you know, in several places they keep a distribution to account. Um, a couple distribution days along the way, like I said, there's no, no big deal. But when you start to see them cluster up over a period of time, um, that's when they become more of a worry. That's when you want to start watching the action of your, your leadership, where it is, what it's doing. Um, very quickly, I'm going to point out the stalling or churning action. You see how these days both are blue because they close higher? The point here being is volume picks up and they close at the lows of the day. So even though it doesn't meet that technical definition where we were down point two percent on more volume, the fact that we stalled or churned, that we were, you know, much higher but by the end of the day everything just fizzled out, that's, uh, what I call subtle distribution. But also, um, what Bill has turned stalling or churning. Um, so, but anyway, so we can see here these days we're down clearly 0.2. I'm not going to go through the percentages. Volume picked up, so that's a distribution day. These are the, these are the easy ones to pick out where you're down a whole bunch, volume picks up. Um, you've got a stalling day here. And then as we roll over, you've, you know, you've got a cluster within the last few weeks and you're breaking down through major moving averages, um, on, on a stock. At this point, I will tend to give a stock that breaks a major moving average a second, you know, a second day to break below. But when you see this sort of, you know, the, the distribution piling up and you get a big gap down below the 50 and you start, you know, you're, that's a clear sign to move out of the way. Which, you know, depending on where you are, um, sometimes it feels really tough to sell there. You wish he had done it along the way. Um, but let me tell you, I don't, it doesn't take, uh, much to see that getting out here is a lot less painful than trying to wait for that bounce. Um, you can wipe yourself out doing that. So this is just one way to, uh, watch for institutions selling as, as the market goes higher. Here we're going to look at the Nasdaq, I'm sorry, the S&P 500. The last was the Nasdaq, and in here we started to cluster up with some distribution days. You see I've got the mark, the, um, we don't have any, uh, of the subtle days to mark, just clear down days on more volume than the prior day. Um, here I in these light blue lines I have quit, you know, so we're down by closing the upper end of the range. But if you stretch the line up to the... So these two blue days are, uh, would count as distribution days, um, based on the technical definition, but they're light, uh, just because they closed way up off their lows for the day, which gives you, you know, some indication that they're, that everyone wasn't just bailing straight into the bell. A lot of times Bill will tell you, if a stock, I look, I try to use the 50 mark as my gauge of, um, accumulation distribution depending. But, um, Bill would tell you, as long as, you know, a stock is at least 40 percent off its lows, that's at least marginal distribution. Um, so and you can see here that same sort of thing, distributions starts to cluster up. You can clearly see the big volume come in here, um, as the stock rolls over again, or I'm sorry, the index, SMT, rolls over again, breaks down below its major moving averages. I guess so, 65 day, even if you were to give it a second day, um, with this massive weakness, you're not waiting until the end of the day; you're, you're selling it that undercut right there and saving yourself. And that's it, you know, at the, at the dead, dead worst that could happen to you. And again, you're remember, I would tell you nine out of ten times, the leading stocks you're in are gonna have kicked you out way before the market gets down here. Um, I rarely find myself, um, bailing out of stocks after our market is broken down below a 50-day moving average, as long as I'm following myself stops. Which is why I'll tell you: watch the leaders, watch the leaders. Because if you're in the, the right leaders, then you know, nine, eight, let's call it seven or eight times out of ten, they'll kick you out before, before you need to, uh, watch this happen. Okay, so follow-through day. Now we're out of this is the, the opposite. This is, so let's assume the market's in a downtrend. Just so now district, we've got a downtrend. We're going to look at a couple of, we're going to look at the follow-through day or the technique or method that Bill created, or didn't create, but figured out looking back historically over time, as a way to determine that the market's back in an uptrend. So as I tell it, so there's never been a bull market or major up cycle that wasn't preceded by a follow-through day. However, not every follow-through day leads to a new bull market; there's plenty that fail. Um, there are sometimes, they it becomes extremely frustrating sometimes. Not so much, the follow through day scenario we're going to look at here was, was a powerful one at the beginning, or, you know, in the first quarter, second, beginning of the second quarter of 2020. Um, I would, before we get, and you can see, so once this stuff, so let's get into a follow through today. What a follow through day is, is it's got to be either the Nasdaq or the S&P 500. Only those two indexes, and it only has to be one of them that follows through; it doesn't have to be both. One, one of those indexes must rise a minimum of one point seven percent on more volume than the prior day. Volume doesn't have to be above average; it doesn't have to be explosive. It just has to be bigger. But it has to be at least one of those indexes up a minimum of 1.7 percent. Um, as I mentioned, some of them fail. Some of the... So what to watch for after a follow-through day happens? What is the quality of it? Um, is it going to work? Is it going to, are we on our way to a sustainable rally or not? First thing to look for is, are we getting distribution right after we follow through? Immediate distribution, as you can see looking at the slide, um, right, you know, right after a follow through day decreases the probabilities of it actually working. Um, that's the quantitative factors. The qualitative factors, and the one that you, you're, you'll develop a feel for and have an idea along the way as you're watching for follow through to set up, is the health and breadth of the leadership. You know, are there at least two or three groups that are, you know, groups of stocks that, you know, tend to lead bull markets historically, not the ones that have worked, um, less often, you know, as participants sometimes? So that's enough there. Let's get on to exactly what a follow, follow-through day looks like. We were just looking at the distribution days back here. So we've got this massive correction that happens back in March of 2020. And you can see here, then we've, we've got up we finally got a bottom in the Nasdaq. So the process works like this. So now we've broken the markets in correction, and every time we're coming down, we're watching for the market. What we want is the market to make a low and bounce. That's where the beginning of the count is. Right? So let's, here is the beginning of, you know, we make a low and actually begin to rise. Here's a day one of our potential rally to follow through. Day two, day three, day four. Now, a follow-through day, I never got to it, what we're looking for should happen on day four through seven of a rally. Um, that was important, that was important to explain. So what, what you're looking for along the way is, as you approach day four through day seven, is it, what you're looking for is the Nasdaq to rise 1.7 on more volume than the prior day. But as we count along, you see we undercut the low of the, the rally attempt. So now we're falling again until our next rally a day. So this would be a day one again that immediately fails, and so on, until we finally get a rally day that hits bottom and we count without undercutting. Right? So what happens here, we find this is day one of our rally. And again, it's a little, uh, in the same way that, uh, churning or stalling a subtle distribution, this is the opposite here. So even though we've got a pink day which would indicate we were down, you can see we're only down slightly; we closed well into the upper half of the range, if not the upper third here. So that's an indication of strength support, um, and actually in a key and an accumulation day. It's also relevant and constructive that it shook out below this low. In any event, so we gap up the next day. Here's day two of the rally. Three, four, five, we're not going to count them all. Day 11, we I forget what it was; it was up over a little two percent on this day. Volume picked up from the day before, just happened to be above averages as well. So that was our follow-through day. What does that mean? Does that mean, "Oh my goodness, we need to hurry up and be first to Russia and buy stocks"? No, it doesn't. It means now we start to look at our lists and see which of our highest quality names. Um, first of all, do we have two or three or preferably more groups that, if you look at their daily charts, I'd like them to in general have a similar look to the indexes where they've bottomed, um, and started to come up the right side and have the potential of base building at a bare minimum? Um, the strongest stocks will often, often be stronger than the market and might lead the market up the right side. And you know, the very strongest names, not all the time, but can break out even before a follow-through day. Um, but once the market follows through, that's simply an indication that it's time to start looking. Um, I will always try to buy at least one or two stocks, assuming I, um, assuming I believe that, you know, the leadership is, um, solid enough, has the potential to sustain a rally as time goes on. I'll always test out one or two small positions. If I get put, if I'm not able to get traction, I get pushed out of the way. That's usually an indication to me as well that something's not quite right yet, or it may just be an indication that I'm not quite right yet. But the idea is again, it doesn't matter; I keep I lost small, and I continue to watch. Are we, do you know, as long as the market continues to act constructively after the follow-through day, we don't come across immediate distribution, and leaders continue to look healthy, and more and more continue to look healthy, the number rises, the number of industry groups grow. That's what healthy leadership looks like. Um, so that's, that's the quali, the qualitative side of follow through. Um, now we're going to take a look at the, um, S&P 500, which I keep calling them as that. So the S&P 500 again, we didn't have to wait for it to follow through, but we're just looking at it here. It took six days longer; it took the S&P 17 days to follow through. If you were to look at the Nasdaq, it also followed through on this day. So you wind up with what I would term a follow on follow through day on the Nasdaq as the S&P follows through. Again, remember, all that matters is that one of the indexes followed through at least once. But this is, like I said, this is a power, powerful situation. This is giving you, you know, a further clue that the market is, you know, got a lot of strength behind it and that, uh, potential powerful uptrend is in play here. And at this point, remember I was talking, um, when we were instant, when I was answering a question earlier, at this point if you were to start to evaluate and interpret what the health and breadth of leadership looked like, it was clearly in much better shape than it is today. So getting back to kind of, you know, in the beginning where we started, let's say you're, you're just getting started. And this is going to look for, uh, this is a very aggressive example, um, but like I said, even if you're closer to retirement, you're only available do it small, let it work. Um, one of my major rules is again, like you know, when I'm starting to buy stocks after a follow-through day, if I don't get immediate traction, I'm not allowed to add until I start to make progress. Without progress, you can't add. You don't want to average down; you want to be averaging up. You want to either continue adding to the stocks that you started to buy, let's say, you know, you're, you're scaling into a position, or continuing to add maybe one or two new names that are popping up as you, um, work your way into the market and figure out where, you know, as you continually interpret and let the market either push you out or in to the best names as you interpret it on a, on a daily basis. So this was just, I'm not, we won't, we won't go through and do the math here, but this just, I just wanted everyone to have a, a simple example of how the position sizing might work once you decide how much you're comfortable, um, putting in the market with exposure to growth stocks. Um, just want to make sure we're not missing. So yeah, let's say, and I, I would say this also, maybe here's a, and also an important point or from the beginning: let's say you've decided 20 of your portfolio is what you want exposure to growth stocks. Again, scale in; don't do it all at once. Start with, um, you know, five percent. Wait to make a little money. Add to that, you know, be really, really disciplined as you work your way up to your 20 exposure. And if you're losing sleep before you get there, maybe 20 is too much. Or if you're not, scale it down until you start to get, once you start to make progress, you'll build confidence and you'll start to, uh, really you get into the swing of things, which is, um, extremely helpful. Um, so putting it all together, so again it's, uh, and then we'll get to some questions. It's like I look at it as those Russian dolls. The big, the big one is the general market. It's super important. You've got to right the debt; you got to know that the deck is hot, right? We got some, we got, we got we at least got a hot deck. The big, the big cards are in there for us. You want to know that that's in play, because like I mentioned, if you, it doesn't matter how great stocks are you think you have in front of you; if the market's going down, they're not going to work. Um, so from there, once you've got that, you the that you're in an established uptrend, hone in on the strongest sectors and industry groups, and then just determine what are those highest quality, most liquid, highest relative strength names in the group. Um, and then, you know, we, I'm happy to, and this is the part, you know, so I say you want to maintain watch lists. I keep them on paper; I also keep them in my software. Um, and then, you know, we're not going to get into this today. That's when you get down, once you have your, your, uh, the fundamentals, um, all sorted, and you know, you've got, you know, your, your little treasure of stocks in front of you. Let's say that you've got 15 names, or it could be 25 names, the top five from the strongest five groups with the biggest earnings. And now you're watching these where they are in their base, possibly setting alerts and constantly watching, uh, just the overall health of the leadership. As, as long as you're seeing those stocks not do anything wrong, you're not seeing, um, distribution pile up, and essentially, and you're ultimately seeing more and more stocks, um, join the ranks, you know, breadth is increasing, you're typically in good shape. Um, and now, um, I'm have I wanted to leave, leave some time. I know I've been jabbing on here for a good hour and 15 minutes. I wanted to answer some questions and then if we had some time, I, you know, I'd be happy to, uh, you know, run through a basic screen on MarketSmith and give you an id, you know, tab through a few stocks, show you how, you know, a stock or two that might be worth, um, adding to a list and alerting. And just, you know, and it's, and then it's a rinse and repeat process from there. It's, um, so anyway, I'm gonna, Steve, I'm gonna hand it back over to you to see, uh, where we're at in terms of questions. Oh, I think you're on mute. Are you there? Maybe not. There we go. All right, hear me now? I can, I can. All right, I just got hired by Verizon. You can hear me all right. The, um, Aaron Garcia asked, uh, you know, "What kind of characteristics should we look for, you know, you know, during a market correction and as you come out of the market correction to spot the new true market leaders?" Okay, so exactly what we just discussed here. So I've got a constant, I, you know, whatever your software may be, to be honed in on, and I'm watching the, uh, some of the, uh, the big earnings growth stocks, and even in some of these less, uh, growth type industries, like the... But ultimately, I'm starting right there. I'm, I'm scanning the market for what's got the highest relative strength and the most explosive earnings growth. And then I'm making a list of those stocks, and then I'm watching those charts for bases to form. And like I said, I'm very, I always say this: yeah, you've got to buy them right. What is buying right? Means it's, it's being disciplined. You can't just, you can't worry about this guy over here making money on the stock you wish you bought yesterday and, "Oh, it's, you know, it's really past this buy point, but I don't want to miss it and I knew it was gonna," and then you buy it and then it shakes out. And that, that's not what you want to do. So you want to just keep track of those stocks that, you know, until they give you a reason to buy them. I'm constantly, if you saw what I did, it's, it's a painfully tedious process. I've been doing it since forever, since I started using O'Neil software in 1998. I sit and draw real-time trendline alerts across more stocks than you could care to ever look at all day every day on to what I can, what, what I consider the, uh, the leading stocks in the leading group. So I always know where they are up or down throughout the day. So at the end of that day, I mean, I've got it burned into my head, you know, what, where I'm seeing rotation, what looks like it has potential. Um, I think I was, if you look, when I was, as I've been watching over the last week or so, if you look at the homebuilders, um, POLTI, PHM, TOL, BEEZER, HOME, DZH, HOV, I think is the big explosive leader there of Nainian. That group clearly, um, built bases, formed the right side, and started to break out together. Um, if you look at the top five or six stocks in that group, they've got their liquid, they're fairly high relative strength, they've got institutional sponsorship. And even though we're in a rising rate environment, you know, it depends on who you talk to. You know, people in the, in the real estate business will, will tell you now that this is a point where you get a real big rush, because people are like or start chasing those low rates, like, "Oh my goodness, we haven't bought a house yet, we wanted to buy a house." And so rising rates will sometimes it has the effect of propelling those people who have been waiting and waiting and waiting into buying. So I guess, you know, I'm just trying to give you my fundamental feel for why that might be going up. You know, a lot of people look at lower rates, you know, as the, you know, the fuel for higher real estate. But so anyway. Um, but other than that, that group, it was the, like I said, the oils, the miners, transportation, shippers. And there's a few, I see them in there, the ZIM, I think there's another, uh, in the transportation shipping group, and they've got big earnings and they're breaking out. I've just, I, I've tried playing that game before, and I think at the end of the day, I don't, that's not where I make my big money. Where I make my big money, and what I'm looking for is, um, a group like the home builders that has that potential that I know. But I'd also, I'd like to see that, like whether it be some high-end specialty retail somewhere in, you know, I think we're starting to see, uh, you'll start to see, we're seeing strength now in data storage. Although I wouldn't tell you that those stocks are strong already. Um, they're not forming bases, they don't have potential, but they have been exhibiting clear strength. And so those are your, I think it's Teradata, TDC. You've seen Dropbox starting to work. Google has been the most stellar FANG stock, so that's drive. So there's a... But what I would really like to see, forget even two or three, three, four, five of those, um, but closer to what I want to see them is, remember when we were just looking at those follow, those follow-through days, as the market bottoms and starts making the right side, I want to see two, three, four, um, solid growth groups with that sort of high quality leadership forming that in that same sort of building the right side off the bottom. To me, once you get a follow-through day in there and those stocks start to work with the big earnings, and you know, they're built, they're forming early stage bases, meaning first or second stage, that's what I'm looking for. To me, that's when the market really starts to, uh, trend and clean up my mistakes. I wait for the layups. I, I think the, the big thing is everyone is all is very concerned about, "Oh, the interest rates and how does it matter," and you know, there's a lot of, you know, they want to be first and you don't want to miss it. I'll tell you, once the market bottoms and we establish a clear uptrend and leadership really starts to, to make itself known, I was telling, uh, the guys who I work with this the other day: I'd rather be 10 days late than 10 days early any day. I mean, it is hard enough to, to sit there as it is sometimes in a powerful uptrend on a volatile day. Um, so that, uh, anyway, I don't want... That's great. Yeah, in terms of, uh, David Enriquez asked, in terms of portfolio management, "Do you only increase your exposure when you start to have profits from the first buy, and what percentage of profits do you kind of use to decide to increase exposure in the market?" All right, so let's say I buy, I put on three pilot positions or starter positions in, in stocks that really got my eye. Um, let's say two of them are working and one isn't working all that great but hasn't done anything wrong. Um, as long as I see two start to progress and I'm watching other things that I'm watching start, I might add at that point. But as I'm doing it, I'm constantly keeping track of what percentage of my invested and what would happen if I had to hit the sell, you know, when I'm just getting in, right? Because I'm trying to, but my goal is to build a cushion and, and add along the way. And, uh, it's something you got, you've also got to get a feel for, right? You can eat, you can do it too fast, you can do it too slow. Um, and, uh, there's an again, that's something I've discussed it with Ray, one of the guys that I work with, the trader lion and his fri, and he'll tell you the same thing. Once you get an idea for what the rules are, I would always suggest starting slow and starting to get a feel of things small. Now, yeah, I don't have a carbon copy. It's going to be so if stock A and B are starting to work and C is still holding up, I might buy stock D. What happens? Are we still work, you know? And then maybe I have five small positions on towards the end of the day, and I knock out the weakest one or two, so I go into the next day maybe only long, um, depending on, you know. So right now, let's say if you, if you think about it, you could have been 10 days late to that last follow-through day. It chopped around; you might have even saved yourself a lot of hassle, right? Everyone, you know, you got to let go of that fear of missing out. I think that's the big thing, and just really wait for the stocks to make to say, "Hey, we're coming up the right side with the market now and we're the one with..." And what I tell, what I call the layups. I'm very, I've, look, I'm very fortunate to have had, you know, sat there with Bill and learn how to sit in cash for long periods of time. It's, it's not an easy thing to do. Um, let's forget not weeks and months yet; we had to do it for years, right? And when the market topped in 2000, there wasn't much to do really until the beginning of 2003. Market didn't really cooperate, if I remember correctly, until May or June of '03. So didn't even matter that market followed through, and it was really tough to make money following this methodology. Um, [Music] I think I might have gotten off track. What did you, what was the question again, Steve? Oh, he's just looking for the percentage of... Oh, right. So is it 10 or what's, what's it? What is it that's gonna say? I need to, you know, throw a little bit more. It's gonna, it's gonna be more like, "Am I getting traction and this stuff moving and the stuff that isn't work right?" So I'm interpreting how it's going along the way. I don't have, um, but yeah, I mean, I want to see at least a, you know, a few percent get under me. It's not going to be a half a percent or one percent and, "Oh, it's working!" I want to see a few, you know, a nice little push. I'm typically buying things early and, and I'm already ready for what I might be buying next and replace, you know, my head probably works is working a couple steps ahead of where I want to be at that point. As, as I'm getting along on com, I'm constantly watching what the market's doing versus the leadership and, you know, where the strength may or may not, may not be. But maybe a few percent. And then as I add, I'm just constantly watching. If all of a sudden I lose traction and all of my realized gains go away, I'll do my best not to let my... So if I get started and I'm up three or four percent and all of a sudden everything looks like it's about to fall apart at the end of the day, I may, I will often ignore my stops. I don't want to go red on what I had green. So if I'm, you know, if I'm getting towards that where I'm just getting into the market again and I'm getting it, I'm losing traction, I want to, I'm going to pop myself out while I still, you know, sometimes it'll be with small losses, but preferably with while I'm still up a percent or a half a percent. So that when I go back, what I'm saving there isn't my money so much as my brain. It's very easy to lose, you know, and I probably haven't emphasized that enough. Keeping a cool head is what it's all about. Um, it's very easy to let the, you know, like Bill says, it'll wear you out or scare you out. Um, [Music] Okay, did I, did I go on too much or not enough? What would I? I think, I think that kind of gives them a good, good answer. Um, here's an interesting question from Bob Landberg. He goes, "What are your thoughts on stocks that have no earnings but have great sales numbers? There you guys are going up in price significantly but have no earnings. IBD states that sales are more important of an indicator than earnings. Are these stocks part of your watch list, and are you willing to trade them?" Absolutely, 100%. Um, you know, that a very common place to find those that that situation is in the biotech group. Very few of those companies actually have solid earnings. Um, a lot of them, if they're lucky, have small sales, but some are generating big revenues. Um, so yeah, and sometimes that doesn't immediately, you know, with the big research and development, that may not immediately spill through, whether it be biotech, I'm just using that as an example, to their earnings. So what I, you know, what I was teaching those workshops with Bill, you know, the IBD workshops, what I would teach is that as long, you know, it's a weight of evidence thing. So yes, it's fine if we're, if you are missing those earnings, but everything else is there. You've got the sector and industry group working for you. That's another big, you know, I, I've harped on how important the market trend is. Just so you know, SEC and IBD folks know this already very likely, sector and industry group's a big deal. 37% of a stock's move is directly related to its sector, 12% is directly related to its industry group. It's a total of 49% of a stock's move. It's directly related to its sector and industry group. Getting that right and having that wing that you're back in, in addition to the market uptrend, is, is a big deal. So I'm always trying to traffic in just the, the strongest indus, you know, the highest quality and the strongest, um, industry groups. Um, okay, well, um, Jack Glasser, he missed as you were going through the CAN SLIM, uh, a discussion. He's wondering if you could go back and pull up the, uh, the end slide real quick and just kind of walk that, walk him through that briefly. The M, right? So, no problem at all. So here: new products, new management, new, new services. Um, you know, like that's, that's when I was, we were talking about the, you know, the, the disruptive companies that are, that are really, um, changing things, whether it be the Ubers, you know, the Apples of the world, the, um, [Music] you could call it Xerox back when was Xerox from when I was a kid. Um, that became the, uh, household name, and it, you know, never has, never done anything again, which is so... Anyway, that is, um, that's just another part of, you know, of the CAN SLIM, of, of the big, of, of those big leaders. So you may not know, like I said, if you were to go through, um, the more recent model books, you're probably going to know a lot more than names.

Um, but even going back, it's amazing. Even as I go through, uh, the model book that I, that I, you know, the list of the stocks, it's amazing how many, you know, I remember, but how many I forgot. Most people wouldn't know 90, 95% of the names in that model book. However, during that, um, bull market, during that cycle, those were the, the companies in their groups, whether they were very specific software companies, medical companies, whatever they were, the ones, um, the five, you know, the Fibers, the Zooms of the world that all, you know, that, uh, the big, big ones, of course, are the ones that, that become household names. But, you know, the point being is, they don't all have to become household names. You just want to make sure that you're looking at that something, um, how do I explain, you know, new is going on that, uh, a lot of, for example, a lot of people aren't going to know what Fiverr is, that, um, you know, internet company, so on and so forth. Uh, and another 20 years from now, even less people are going to remember it. However, um, with in this particular cycle, Fiverr, I think the other one was Upwork, is a, as a similar one where you go online and you hire people for, you know, as little as five dollars or very, you know, you can pay up for stuff too, and they help you whether you're, I think we discussed it before, with building your website, essentially, or, or, um, something like that online. So, you know, if I were to mention Fiverr, probably to have my friends and family, though they'd never know what a, what that stock or company was. However, it was one of the biggest leaders of last year.

Um, you know, they were, they, what they do is, um, is, is, I guess, revolutionary for, for in that field. They are, you know, the leader, and I mean, that was one of the biggest winners of last year. So it's, it's that sort of thing. You got to really figure out why a Fiverr or maybe a Documentum or that, you know, well, everyone knows what Docu is, right? The OCU, that was a huge leader. We all know that's the one where you, you know, someone sends you something and you can sign something online. You don't have to print it out and mail it back or email it back or do the whole scanning. So that, so Docu is another one that we may be more familiar with. But there's tons of other companies like that that run four, five, ten times that are, you know, the big leaders. So whether it be a service, a product, and sometimes it's a, you know, less often am I, uh, telling a story about new management taking over a company. Um, it's, it's much more so, you know, the, the, the big disrupters of the world. Um, you stopping high mask, uh, you know, he said that the, the market trend is crucial. Um, what would you say are some of the, the top three key things that determine, um, you know, the market trend in your mind?

So it, I'm always going to tell you, watch the, you know, ultimately the leadership. Um, the value stocks, I've, I've watched in there are some that are working incredibly well, and some financial stocks that are working incredibly well, and they were working while the market was going. Whether they, you know, you can look at Goldman Sachs. Goldman Sachs has been going straight up while the market was going straight up, and, you know, it continues to exhibit relative strength along with quite a few others in that group. Um, but it, so we're, we're talking about what am I looking for as far as, say, it again, as when the market, um, as far as, yeah, you know, he said that the trend is crucial, right? So what is it that you use to determine that the uptrend is, is, uh, so right now, I would say, right, so technically, uptrend is in play. We've got three, three out of four indexes, um, you know, that we're making all-time highs. I'm not looking at leader, you know, and especially now, I'm not looking at leadership, um, that's going to fall apart. The Nasdaq, if I had to get, like I said, is, you know, working on putting in a bottom, making a right side. Um, so while the trend is higher, I think the more important question is either, so to me, we're in an uptrend, but it's the, the more important question is what the overall environment right now is extremely, uh, choppy. So because we've been in an uptrend, I think there were a couple days last week, um, I put on some small starter positions, like we were just discussing, I got kicked out of them. I put on two one day, three another, I was kicked out all three, and or actually, I think I made a day and a half of progress and then was kicked out in three minutes, you know, one of the following mornings. So right now, it's choppy. Yeah.

And, um, like I said, you can have a follow-through day that I, I've watched it takes weeks and months for everything to, so the real question is, yeah, however you, it doesn't matter what you label the market uptrend, chop trend, sideways trend, until then, that, you know, like I said, we could see confirmation. We could see the other three roll over and confirm the Nasdaq's weakness. My guess is, my interpretation of the leadership and what I'm looking at so far, I'm guessing that we'll see the Nasdaq, um, follow through, and we'll see more stocks working and starting to look like that Nasdaq as it, as it puts in its bottom. Um, so I, I put less importance on that status and putting pressure on myself because the market's in an uptrend, so to speak, and go, okay, the market's in an uptrend, but what does leadership look like? Are there stocks setting up right now with the, the K, you know, do I have the weight of evidence in, you know, behind me? Do I have a solid uptrend? Can I clearly pick out leadership? So right now, it's still, you know, you still don't have the, you know, you still don't have that. So even though we're in an uptrend, until I see the qualitative factors shape up a whole lot more, I'm only going to put on, you know, and like anyone else, I'm, as I see things shape up, I might try one or two. Bill did the same thing, but meaningless. I put on such small positions that if I walked away and the stock went to zero, I wouldn't be happy, but it's not, it's not going to make a difference. You don't need to put on a lot of money to get the feel. However, you, you want to put on a couple, and, and, and it gets your emotions going, even if you put on just what you consider small, but you don't want to do it to the point that you can hurt yourself. So again, while I might tell you that the market is technically an uptrend status, for the next two, you know, it might take two or three weeks for it to really, um, cooperate, is what I would, you know.

There's a point where they all start to set up and work together. You can see it in the groups. Um, moving averages start to converge up underneath price and cross, and a bunch. There's a very specific look. Now, this is, now mind you, this is my interpretation of, you know, my perspective of canceling. That's why Bill kept six or seven money managers around because of all of the different perspectives. Believe it or not, you can have six or seven guys looking at the same exact stocks with Bill mentoring everyone, and two guys could call the trading desk in the middle of the day to buy and sell large positions of the same exact stock. So that had huge. So anyway, and that's why I get into my point, you know, you've got to balance it. It becomes emotions. It becomes, it doesn't matter how right you are if it, if you're not, you know, and most of the times what will get you to throw, you know, what I call vomit of stock like that is when you, you just can't take it anymore, and you throw 150,000 shares of whatever it is out the window at dead lows. Um, anyway, that, that gets scooped up by the other guy who's managed his emotions over here and goes, wait a minute, that's right at the 50 or whatever, that's the buy point. But, you know, listen, I'm guilty of selling stocks at the buy point many times, and I can look at it and I know, but I can't, that, you know, and, and you learn, but the emotions overtake me. But I don't want to get too far, too far off. But, um, again, it's not so much, are we in enough? Yes, it doesn't matter. I think we're in an uptrend. Someone might say, no, Ross, you're crazy, the market's gonna roll over next week, we're in a downtrend. Then as next week, that's the leading, um, the leading index. I don't care about the other three. It, it doesn't really matter until the stocks start, you know, are they working? Are you making money? And does it, doesn't it meet your discipline? You know, is the deck hot, or are you gambling?

Okay, got a question from Edward Rodriguez. He says, so if you take, say, 30% of a portfolio is in growth, if you invest using the Cancelling methodology, uh, does this infer that the other 70% of your portfolio should be invested within one or more different methodologies? And oh, no, no, no, not to be competent in, if that's the case, not at all. So me personally, you know, and again, it depends on where you are in, in your life and what you're looking at. Now, if I was, um, closer to retirement and needed money and had my money already in annuities and some mutual funds that I was very comfortable with, I'm, I'm not going to recommend someone go blow out their annuities and, you know, have to pay taxes on their mutual funds that they've been building and they're up on for the last 37 years to go, you know, pile it into William O'Neill philosophy, especially right as you're, as you're learning. Um, yeah, um, so that, you know, maybe you're a real estate investor and you've decided that maybe you're a younger guy and you've made all your money in real estate, or you've made all your money and whatever it is that you're good at, and you've decided it's time you need to learn how to invest in the stock market. Um, no, then yes, then yes and no, right? So it depends if you've already had your money invested over here and something that's been working, I'm not asking you, you know, um, but if it's not working, let's say you have your money with, uh, your, you know, um, have all of your money, um, in an area that's not working, and you need to just move it to where it is, yes. I mean, I, this is Bill's book is my bible. I've never managed my money any other way. Um, I'm convinced I could, you know, I could show some really smart people a portfolio of what looks like a, a really leveraged concentrated portfolio of stocks that would make, you know, the average person want to dry heave at a glance. But if I showed you how I put it together, where I bought it, and how I managed risk in the entire way it's built along the way, I, I, I could make the case that I could have a stock buried in, I could be 200 long, three to five stocks, and as long as I've managed my risk and built that along the way, I'm, I'm going to tell you I have, um, less exposure to risk than some guy who just might be, you know, spread out on 37 or more stocks, as long as I'm following my discipline. Um, I think, did that, did I get off track there?

No, no, man. Good, good answer. He said, thanks. Um, here's what I've got. Um, you know, the, the chip sector currently is, uh, has been impacted by, you know, supply, uh, since supply interruptions because of the pandemic. Um, so if any sector, just say the chip sector in this example, um, decision yet, does this reshape your view and give and give you, um, you know, is it, you know, is it something that's in the company's control? Is obviously going to knock them off their sales growth, etcetera? Um, does that still knock that whole sector out of the, the leaders group until that issue is resolved, which could be years away? Right. So I mean, I typically, I will just watch that particular group to see. I know as I, as I look through, I can see a lot of the semiconductor equipment stocks, you know, of that entire sector, those are the ones that are holding up fairly well. Obviously, you know, that, uh, that bleeds over into to many other industry groups, whether it be, you know, cars, computers, so whatever. We've got computer chips and, you know, absolutely everything now.

[Music] Honestly, so again, that's one of those, uh, macro things that is, is worth paying attention. I would tell you this, just, you know, let's say I go all the way back to my days at, uh, Olde Discount, 95, 96, 97, chip stocks were run, and then I mean, Micron, Cirrus, all that, you know, those were still around, Applied Materials, along with many others. I, you know, a lot of those are cyclical. More of the commodity chips are very cyclical, um, in nature, and are sensitive to price. To specialty chips like the Nvidias of the world, I know those are the ones you can't get a hold of because all the kids are home playing video games instead of at school. I don't have any kids, but I, it's funny, my one of my, anyway, so I, I've got the store. I've, I've been to. I can't, it's amazing the the markup to get, uh, an Nvidia graphics card if you're a gamer, I guess. But, um, so yeah, that being said, that's going to affect things to a certain extent. Um, you know, back then, everyone was super focused on the book to bill. And so, but ultimately, semi conduct, you know, they ran their cycle. Um, and if you watch them, it may be a, a temporary, um, pull in in some areas on some, on some companies. But ultimately, I, you know, I don't think that a semiconductor shortage is gonna, um, I don't think is gonna create a, a huge problem for the entire market. And that, as long as you're just, you know, if you stick to the discipline, it gives you a whole. I keep it very simple. I don't want, when I tell you, I, I don't remember, I don't even know what channel CNBC is on my remote control. I don't watch it. I don't watch the news. Um, you might all be ashamed at me. You've got to let me know when there's hurricanes coming to Florida. That's how little I pay attention. Um, I've been yelled at a few times now. But, um, yeah, so I find if you try and ignore all that, and who was it that says it was a great, uh, uh, a great quote on YouTube or, um, I'm sorry, on Twitter this morning was, uh, most people would rather understand the market than make money, right? So, and it's very, you always want to understand why. But I've, you know, I've had this dr, I've haven't had, I had the benefit of not having to unlearn anything when I guess I had a business degree, but I didn't know, I really knew nothing about the stock market besides, you know, your basic finance books. Um, you know, so Bill's book was the first one put in front of me. So I've learned that if I just kind of put on blinders and focus on that, all the rest is noise. And not to mention, even the best, you know, macro economists on the planet could take all that into account and still get it wrong. I know I can't.

Okay, great. Um, uh, Alan Flynn has one more question about, any thoughts on the best mutual funds for growth? So, you know, if you read Bill's book, he talks about this. If you really don't have the time or the care to sit in front of the screens all day and really do it yourself, the way, you know, what he would tell you is use Morningstar to find the funds with the, the best long-term growth track record. So they got, forget the one, three, five. Maybe you want to look for the guys with the 10, 15, and 20 year, four and five star, um, ratings for growth. Buy them all. The market's up, buy them all. The market's down. I know this works very well because my brother is very risk-averse. He lets me manage a few stocks for him, but the majority of, you know, he can't take it out of his, uh, 401k where he's at, anyway. But so that's what we do. We constantly use Morningstar, um, to go over the funds that he's allowed to buy and based on, you know, based on the risk tolerance for him and his wife, how much they want to have, and, you know, um, risky versus conservative. And that's all we do is we watch Morningstar for the funds that he has access to with the highest long-term ratings. Now, what areas of the market in that, I don't know. You know, whether you want to put that into international, small cap, or domestic mega caps. Yeah, I'm not, I couldn't tell you. You know, that's something you kind of want to get a feel for and, you know, yourself, how much explosion. Um, anyway, I would tell you this, if you keep a good balance, um, that suits your risk tolerance and stick to the ones with those high, um, high ratings in the long-term growth, you'll be in, you'll be in good shape.

Okay, awesome. Um, what would you say is, is there a preferred percentage of management ownership of a company? Because you, as you went through some of your previous charts, you would laid out, you know, how much institutional ownership, and then but you also had a little blurb up there for management ownership. Is there a level that's either too high or too low in your opinion? You know, when you're looking to buy a stock, what you want to see is that it at least has some management. Right. We saw ones that started with as little as 27 funds in the beginning to maybe 200 some odd funds in the beginning, and that's also going to be dependent on how many shares are issued at, at what price, and who can have how much exposure to what, um, on, on the buy side. Or when I'm looking for, you know, I, I just want to see it, let's say, whether it starts at 27 or 57 or 227, um, I want to see that continue to grow as a stock goes on. Um, and my question is more in line toward the kind of insider, insider ownership, management ownership, right? Right. So, yeah, so that, you know, in the beginning, you know, so I mean, that's different. A lot, it depends, right? So let's say in the beginning of a stock, you got an IPO, you got the lockup. The lockups typically come undone when management can sell in what, six months? Is, I, I think your, your first, uh, lockup period where managers are allowed. So no, I don't, I don't have, um, a specific number. I'm definitely very aware of when those lockups are, uh, um, coming on the newer stocks. As far as more mature stocks, let's say, um, what might be too much management? What about, you know, I'm, I'm making this up. What about the ones that we've looked at that I've already grown from, you know, 227 funds to 1400 funds? How much higher can that go? And what is over owned? When does that become become dangerous? I don't really start paying attention to that until I see a lot. You know, that becomes more important to me after a stock has already run up a bunch. Um, what has been going on with sponsorship and where they're at? And, uh, and that sort of, and all right. But anyway, like you're saying, it was more a function of insiders, right? So, yeah, so it's, it's, it's tough. Um, I, you know, I would say this, when I'm watching a company and I see those insider sales pop up along the way, you can watch them. You can even, I think you can even mark them in, uh, Market Smith. Insiders can sell for a million reasons, to buy, to pay their taxes, to buy, to whatever. But they'll tell you they only buy for one, because they believe their stock is going up. Um, how do you really get a feel for that? Well, I guess when the lockup comes undone, um, you see how the stock acts at that point, and, uh, manage risk accordingly. But I don't know. I don't have, like, if I see 99 or only three for whatever those numbers that you might see at the very top of institutional sponsorship on Market Smith, I don't have, uh, a magic number that that makes me drool or stay away.

Okay, John Woods has a question about the, you know, how about the components versus the end products? Say like a Legg & Pratt versus Restoration Hardware. Honestly, if they're in that top five, whichever one has the earnings, the sponsorship, the relative strength, the one that has the, the, the group confirmation, that's another big thing. When I find a group that's working, I don't want to find a group that only has 15 or 20 stocks in it, and there's, you know, the one stock that's working is kind of thin, doesn't really have sponsorship, has a few sales, never made money, and then the next two are, you'd never look at anyway. That, I stay away from that. So that doesn't really matter, you know, whether it's, uh, whether it's Restoration Hardware or the guys that are making the parts that put them all together. Whichever one of those companies, assuming that, let's say O'Neill or Martin Smith puts them in the same group, whichever one is at the top, highest relative strength, with the big triple-digit earnings, and, you know, everything we just talked about, that's the one. Um, no matter what you think, the market's always right. So within that context, you know, some people have asserted that Tesla is an energy company versus a car company, like a battery technology, etcetera. Um, where would you want to, uh, bend them as an energy or a car company? That's a really tough one. I, I think about that all the time. I mean, I look at, you'll notice when I, it's funny that you mention that, because when I make my lists, I tend to put all of my, I have a handwritten list. I put my biotechs over here, I put my technology in the middle, and the retail and other stuff on the right side. And I used to just ignore GM and Ford and the auto manufacturers, because now the electric vehicle thing comes out, and it's kind of messed up that industry group. Well, now if you look, when's the last time you saw, I think I don't remember. I think maybe Ford and GM last quarter, both, I think they're left, they're showing like big pickup and growth the last two quarters, and I think triple-digit quarterly, uh, quarterly growth for the lap. GM and Ford. Why? Well, my guess is, you know, Tesla makes the, so it's kind of in the middle. I don't know. I'd say it's, yeah, it's more of a technology or a battery company, energy company, more than an auto manufacturer. I don't know. So now this is where being a, I guess, uh, you know, knowing the detailed fundamentals goes. I don't know, um, how much of what business is under what umbrella, right? Um, but yes, so Ford and GM, well, I have trouble now. Do, so I've always put Tesla in the middle under my technology stocks. But now Ford and GM, that they're popping up, they're liquid, they're strong, they've got it. And I, I can only think the most basic is, while Tesla's making 60, 100,000 cars, most people aren't spending in that. But Ford and GM will probably come out with something more affordable. You know, we've seen Chevy take a stab at it. I don't think it was super cheap, but, you know, for the electric vehicles to really become commonplace, I would imagine it's, you know, they have the infrastructure and obviously the, you know, the tooling and the money to do it. So if you've got the Fiskars and the Tesla's making those fancy ones, so I'm, I'm assuming so. Now, while Tesla, the leader, does wallet, you know, maybe it never goes up again, um, maybe it builds a new base and goes up another three times from here. But you've clearly seen a lot of that, uh, Tesla money, the electric vehicle money, looks like it's been finding its way into the Fords and GMs. And I haven't looked, but I would imagine that there's probably, uh, something beyond their, you know, the normal, you know, building their normal gasoline running fleets going on. So yeah, so yeah, that's a great question on, yeah. And so do Ford and GM have to move to the middle of my list now under technology with Tesla? I was going to ask you that. So I'm joking. No, that's a great question. I, it, you know, so yeah, those things are right in the middle now. I'm trying to, but yeah, I mean, for me, it's hard for me to consider Tesla as just an auto manufacturer. The same way when I see Ford and GM, you know, which are usually not doing anything much, start putting up triple-digit earnings of growth, that makes, makes me do that. So it's probably the technology, um, you know, bleeding in that whole electric vehicle, battery, environmental, you know.

Okay, great. Team, we got the one last question, um, and, uh, because we're, we're kind of running a little bit long, but not bad. Um, this is, uh, you know, one of the attendees asking, can you tell us a little bit about Trader Lion? And is there any special offer for today's attendees? Huh? Yeah, once you're on the spot. But, you know, that's funny. So Trader Lion is, is, is the name of, uh, you know, the company. Uh, I guess I found it. Work with, work for. I work with a couple of other guys. It started off as my Top 10 Newsletter, which is essentially that. Started out, that's my homework that I used to, um, share with my friends and decided to turn it into a newsletter. So what you're looking at there is basically my, my homework. A couple times a week, those are the, uh, the, uh, when I tell you that's my homework, um, I eat my own cooking and I eat it heavily. So what you're looking at there, um, when the market's rocking and rolling, I usually have, you know, big concentrated positions in the stocks I'm talking about. Along, you know, along the way, I'm not just, uh, I've, I've got plenty of, uh, I got plenty of skin in the game, I guess, you, um, you could say there. In addition to that, there's a ton of other stuff we do now too. One of the guys that I work with runs, uh, our private Twitter feed, which is much more geared to swing trading, whereas the Top 10 Newsletter is position trading. And without going on and on and on, we've got a bunch of other little, um, services that related to money flow and options and that, that sort of thing too. You can check it out on, on the website. Now, as far as a deal goes, you know, we didn't get one going, um, specifically, but I would imagine, I can't, you know, what we'll typically do is a 50% off deal. So I've, you know, I haven't talked to, uh, the powers that be about that, but I'm, but I will make that happen.

Okay, great. I think they do whatever, whatever, uh, they usually put up there. I think it's, uh, 50% off, uh, for the year. Okay, well, we really appreciate your time today, Ross. Um, I think at this point, we'll go ahead and transition back the, um, the host duties back to, okay, and then we will go ahead and wrap up the seminar. There was one last question that was asked about, uh, will this, uh, presentation be available later? Yes, the recording of this Zoom presentation, as well as, as well as the slides, um, deck will be emailed to each one of you, uh, sure, probably a little bit later today or no later than tomorrow. So just give me a little time on that, and we will get to get you all set up that way. And I want to thank you all, um, for everything and for being here today. And David Canar, can you walk us through his method? I think he talked quite a bit about his method, uh, previously. Is there anything else about your method you want to add there, Ross? Um, in terms of anything in specifics, it was very just kind of, can you walk us through his method? I think if you go back, David, and take a better look, watch her, just listen to the program, then, um, you know, please, uh, if he doesn't answer your question, when we can contact, uh, Ross offline, he's agreed to field questions later. No problem. So you can, uh, you, he said he mentioned that you were going to show us an example on the screen. Oh, you know what? I was going to do if we had time at the end, and then we wound up ceiling fielding some questions. I was going to turn on Market Smith and run a screen and go through, and then I think we started, and for those of you that want to stay a little bit longer, um, we'll do that. Um, I'll transfer the host duties back to you. Um, sure, you know, we're going a little bit longer. I want to apologize for those, but those who have to go, um, this will be on the recording, so you can watch it later. And those that want to stay for the demonstration, David, thank you for bringing that up. It went right past me. So I'll get the host duties turned back to, um, to Ross here momentarily, and we'll be back in business here. Just one second. So you are back to the host, and, um, you can share your screen again. Let's do that. We'll share Market Smith. And, uh, so what, uh, what we're, what I'm gonna do here, and, you know, funny thing is, these are Market Smith stock screens. They come inside of Martin Smith. This is up on volume. We're gonna click. You'll see it's running down here. We're gonna open it up in a second. It's my favorite one. I've since I had their institutional product in 1998, I've built all kinds of screens. At the end of the day, I always, you know, I've got a, um, ones like this that I've, where I've just cut off all the cheaper or less liquid stocks. But this basic one inside of Market Smith is my favorite, right? So what I do, here's our list of stocks. Came up with 895 stocks. So I immediately, my thing, I'll typically sort them two ways, um, by relative strength, as well as by price, because a lot of times when you sort by relative strength, it'll have a lot of tend to have a lot of low-priced junk at the top. Hold on. So here we go. So we're sorted by relative strength from the top down, 99 being the highest. And what we're going to do now is we're just going to tab through, um, and take a look at what's working here. So here we go. We've got another Big Five, and you can see Market Smith makes it, um, super easy. So, and again, this is another one of the groups that's finally shaping up now. So this is one of the first things I'll look at. What group are we in? You know, now I don't get too stuck on the ranking book, industry group, and rank. So this industry group right now is number 63 out of 197, which is great. That's well into the top, you know, well above the top half. So let's, so let's say our first stock automatically makes me go, let's take a deeper look. So I go to the weekly chart now, right? So we see strong group. I also know from the top of my head that I think it's ASO, ASL, um, DKS, as well as some other ones that I know are working. Um, HZO has been on our Top 10 report. So now what I'll do, so I've got a Big Five sporting goods. I see it. We saw it on the daily chart. I mean, normally we don't, I won't come across one this quickly. But so I see that this one happens to be, all have already broken out. It has huge triple-digit quarter over quarter for the last three quarters. Um, the sales are nothing spectacular, but you can see they've picked up along with earnings. I've got no problem with the way that looks. Um, annual earnings, you know, everything we just went over. We went from a loss to 39 cents to, um, two dollars. That's a huge jump. So, uh, pull back, you know, the estimate, they're looking for a 25% um, decline. Well, it'll be interesting to see what they're expecting for 2022. We just don't have anything there to look at yet. So that's what'll make me. So we know it's a solid group. And remember, I was saying I want to see stocks in a group that have confirmation and other stocks with high relative strength. These are the relative strength numbers. So what does some of these look like? Let's just take a quick look. We'll type them in. Hibb.

[Music] And we can see this one has already broken out. Um, what we're, so HZO, so this is one, this isn't one that is forming a right side with the market. These are the ones that were exhibiting relative strength while the market was weak. Um, but this gives you an idea. Let me go back to the weekly and we'll look at a few more of these. And look, you can see the HZO. Here's another stock in the group. Trades 585,000 shares on average. We've got the annual earnings in line, quarterly earnings and sales. You can see you've got the big triple digits, double digits. We didn't look at sponsorship on, um, the prior stock, but we're going to look at this one.

[Music] Owners and funds. And you can see we've got not a whole lot going on, but in the last three quarters, we're starting to pick up sponsorship. Nothing in the way of, uh, high quality, you know, that as an IBD, um, looks at it. So anyway, that's what I would do. DKS, I know is another one that's been on, uh, the Top 10 reports. So this is a group that's working. This makes me much happier to see stuff like this work than, um, oil and machine. You know, the, the, the stocks that, uh, I, I think that a lot of people will tend to, you know, the big monitors will go hide in while rotation takes place, and it can, it could get uglier from there, or or it could, you know, all of, uh, uh, selection of those stocks can be working with the market. These I like a whole lot better. So I mean, you've got a, a great theme going here. So here's our third stock, same group, same thing. This one's just breaking out. We were trying to catch. I think we started, uh, this one popped up on, on our newsletter, um, in and around here. And just off the top of my head, here's another one, ASO. I believe is an IPO, um, in the same group that has, um, right, Academy Sports. And check out these earnings, big triple digits across the board. So that's a group worth paying attention to. That's a growth group. Um, a lot of the stocks aren't. So what I would say is, you know, that's a group that has exhibited strength while the market was weak. You want to keep an eye on that. Nothing there is, is, um, screaming, um, we're going to be buying that anytime soon. Let me go back to Big Five now. We're going to go to the next stock on that list. CLNA. What do we got here? Energy Alternative. Can we see the price? Apparently not. So anyway, we've got eight. So what I will do is typically I'll go through and I'm, you know, we're getting stuck at the first two stocks. And, you know, if there's a hundred stocks, this one's 800. I'll tab through and any, um, pattern that catches my eye that looks like it may have potential in terms of a group, in terms of the earnings, in terms of its relative strength. So here, this pattern, first of all, this stock's a little bit on the lower priced side. We're getting cut off. Let me get this out of the way. I think it's about 15 bucks. Yeah, roughly. Yep. So we got a $15 stock here, which which makes my list. But we've already come up a ways. It's a little bit, um, it's not super thin. You can see we traded 50, 16 million shares almost on Friday. On average, it's trading a little over nine. Um, but we've got no earnings. We've got no sales. The group, however, you know, and that's what we were just discussing with Tesla. What group is that really in? Industry sector? This energy alternative has been, um, hot. So this is one of those things where I would use, I'd look at this as a performance enhancer, assuming I went, you know, so. But let's just say this is, but this is what I'm doing. So let's say I thought, I will go here. This is how I'm keeping track of alerts. I draw an alert line. Let's say this made my, I want to add this to a watch list and add it to an alert. I might draw an alert right there, set my alert, that's done. And then if I want, I can come up and click add to a list. And what I would do from here, again, every time I find something, now this one doesn't have the earnings. If this had triple-digit earnings and a couple of high-quality sponsors and everything else that I'd immediately be looking at, I'd pull up the group because we see it's at the very top of the 197. It's number, number 29. Remember I was telling you that's it. So that's a big part of what's going on. And this, like I said, you can see this one's starting to put in a bottom and move up the right side with the market. And so, just to kind of follow on from there, let's do that. Let's just assume this had the earnings and take a look at the rest of the group. We'll take a look at the next, you know, these top three. I think I already know what these look like. A lot of these things have exploded and and, uh, come apart. So it's something you want to take a look at, though, right? So, yeah. AMRC, that one has not been anywhere. That's not nearly as strong or as good looking. It does have the earnings and sales, though. So that's worth pointing out. Take a look at FCEL again. FCEL has no earnings and sporadic sales. This thing's had a huge run. An artist, you know, so now that I'm looking at this group, and now I'm looking at the next two stocks, if anything, to me, we've got a stock here that just broke below its 50-day moving average. Volume's been picking up, um, and now it's wedging back underneath. So I'm done looking at this group now, right? So I go back to, um, what was it? CLNE that got us there. And I continue to go through that group. Sometimes I go through hundreds and probably thousands of stocks a day, resetting alerts, running screens. Anytime I see a stock that catches my eye, I may or may not draw an alert, add it to a list. I go through the group, I see if it's a legit group, and I'm constantly organizing, organizing, adding names, deleting names, and drawing alerts. So I have an idea of what's coming up the right side, what was already strong that may need to pull back and form a new base. And I'm writing down, okay, so alternative, you know, this is, this is a, the energy industry group. There's a lot of tech going on here. I don't necessarily consider this defensive, you know, you've got the, so there's, there's a lot of powerful growth stocks that come out of this, you know, that larger sector is connected to the to the electric vehicle group. But that, so anyway, that was really it. I run a screen up on volume is my ask. Yeah, I tell the guys I work with, I can't tell you enough how much I like that. Um, but the only other thing that I would point out, just so that you don't miss stocks when you have almost a thousand stocks pull up, um, from that day, what will happen as I mentioned, if you sort by relative strength, a lot of times you might wind up with, um, lower priced stocks that you'd never look at in the three, four, and five dollar range, or you might wind up with, um, very illiquid stocks. So what I'll tend to do after that is sort by just the, the stock's price, which is not on here, but I'll sort by, whoops, by price from highest to lowest, um, just because the highest, highest price stocks tend to, the big institutions. There are some very expensive stocks that trade very few shares, but in general, just so I get the, um, the larger, more liquid, bigger cap names. I don't want to, I don't want to lose those in lower relative strength, because sometimes you might have a lower relative strength name that's been improving, that may not have the 90 relative strength at the moment, the 1995 plus that you don't want to miss. So I'll, um, to just kind of get all of those thinner, lower priced ones out of the way after I'm done looking, especially if it's a huge group like this, and I'm down, you know, below the 90s and I'm into the 80s, I might then sort by, um, highest price first to make sure I'm not, um, you know, missing anything at the bottom that might have caught my eye that, um, didn't have that 90 plus relative strength, because I don't automatically throw it out just because it isn't a 1995 plus. That's my typical, um, that's what I typically like to have a position in once it's built and working. But, you know, there are cases, an IPO, for example, may take a while for, um, relative strength to show up, for sponsorship to show up, that sort of thing. So, so anyway, yeah, I mean, that was it. That's the, honestly, that's my whole process. So from here, I'm just constantly looking at patterns. Doesn't meet those. Doesn't meet my criteria. What list am I adding it to? Is it worth drawing an alert line on? And rinse and repeat all day, every day, until I'm, until I can't open, you know, hold my eyes open anymore. That's basically it.

Awesome. Well, that was great. I think that was, uh, I'm sure that, uh, answered what David was asking for. And, and we had a lot of people stay on extra. So thanks so much for taking the extra time. We're running up on noon, so we'll go ahead and close things out now. So if you want to, uh, transfer back the, um,

[Music] Right now, we'll go ahead and stop the recording at this point. Um, but I do want to, you know, thank everybody, uh, for, for being, uh, with us today. Uh, like I said, the, the video, as well as the slides, will be made available. Um, you know, Ross, I want to thank you so much. What a great, great, awesome presentation. So I know Anish had mentioned that that you were going to rock the rocker world, and you really did. So I just want to say thanks again, and we look forward to having you back. And if we get any additional questions or whatever, I will, uh, I'll follow back up with you offline on those.

Well, thanks for having me. I had a great time. We can do it again. Let me know.

Okay, that sounds great. Thanks so much. Alrighty, guys. Bye, everyone. Okay, everybody, take care. Be safe, and we'll be in touch. You.