In 1983, Mark Minervini made a lot of money on the first stock he ever bought: Allis-Chalmers, a maker of forklifts and tractors trading at $4 a share near its 52-week low. "Wow, stock investing is easy," Minervini recalled thinking.
But the market soon humbled him. Despite hitting other big winners in his first six years of trading, losses piled up. By the end of the 1980s all his capital was gone.
Losing all his money in the stock market, though, was a bullish game-changer.
In the early 1990s, Minervini took a timeout to figure out what he was doing wrong. He studied market wizards like Jesse Livermore and read books about what makes great stocks different from laggards. After analyzing his trading tape like an NFL coach reviews the videotape after a loss, Minervini identified two big weaknesses. He let small losses balloon into big ones. And he lacked investment criteria.
After that, he never let a stock trade go against him again. He also stopped betting on cheap, beaten-down stocks. The days of incurring big losses were over. And stock blowups disappeared.
A new Minervini trading rule was born, one he still follows today.
"I'm going to cut my losses when they're still small," Minervini explained. "If the stock market is going to beat me, it's going to have to nick me to death. If I'm going down, I'm going down one small loss at a time."
Be A Great Trader Like Mark Minervini
Today, Minervini, who started with a few thousand dollars, is one of the top stock traders in the nation. In 2021, he won the U.S. Investing Championship, putting up $1 million of his own money and posting a 334.8% annual return, a tournament record. He also won the title 24 years earlier in 1997 with a 155% annual return.
Those big gains (and strict risk-management rules) generated by Minervini in the 1990s were recognized by Jack Schwager, author of "Stock Market Wizards: Interviews with America's Top Stock Traders." In the book, Schwager wrote: "Minervini has run circles around most Ph.D.s trying to design systems to beat the market."
The best thing that can happen to an aspiring trader, Minervini says, is suffering a big loss early on. Losing teaches you a lot about the stock market. And makes you respect risk. "Without a risk management plan (as a trader), you're a walking dead man," Minervini said.
Dream Big
As a kid, Minervini lived with his mom after his parents got divorced. Some days there was no food in the fridge. "I grew up very poor," Minervini said. But his mom's unconditional love helped him overcome what he dubs a poverty mentality. "She was a living angel," he said.
Not having money didn't define him. It propelled him. Why? He envisioned a better future.
"I always knew that I was more than my circumstances," Minervini said. "The key was I saw myself not as I was, but what I could be. I always had big dreams."
Follow A Winning Mindset
When he first started trading, Minervini struggled. He wasn't a natural, despite having a good mind for probabilities and a love for card games and numbers. Nor was he psychologically equipped to be a trader.
"I don't believe there's a natural born trader," Minervini said. "I think traders are developed."
Unlike sports, he says, where athletic prowess, such as being bigger and stronger or jumping higher or running faster than someone else can provide an edge, there's no genetic advantages in stock trading.
But traders and anyone in life can achieve great things with the help of a winning mindset, says Minervini, author of "Mindset Secrets for Winning" and "Think and Trade Like a Champion."
Minervini describes his daily self-affirmation before he was crowned champion in 1997's U.S. stock trading competition. "Every day when I got up, I would look in the mirror and say, 'Good morning, U.S. Investing Championship winner,' " Minervini said. "I just kept telling myself I already won. It's more than belief. You have to live in that space. I just kept plugging away at my subconscious to get me there."
Study How To Win
You can change your life narrative by learning from the best, says Minervini. Reading books — thousands of them — was how Minervini went from the wrong side of the tracks to the winning side. Growing up poor was not going to define him.
Down to his last $500, he invested in himself. His goal? Gain knowledge about what it takes to achieve success. He used his remaining cash to buy books and attend courses from motivational speakers and life teachers like Tony Robbins and Brian Tracy. He read Dale Carnegie's classic tome "How To Win Friends And Influence People." He sneaked into a college library in New Haven, Conn., and pretended he was a student.
"For a penny a page, I'd copy all the books and take them home," Minervini said. Today, he has more than 4,000 books in his personal library. And he's read them all. Some dozens of times. He doesn't necessarily read for pleasure, but to learn how other successful people made it. "I'd internalize the books," Minervini said. "(It's a way) to become the person that you want to become."
Minervini formulated his own stock investing strategy by studying the great stock market winners. Just as an aspiring athlete can learn from what sets Olympic gold medalists apart from silver and bronze medalists, stock pickers can learn a lot from what the top stocks have in common, Minervini says.
"If you were to study an Olympic gold medalist, you're going to see similarities in diet, training and mindset," Minervini said. "You look at successful individuals or stocks, and ask, 'Do they have anything in common?' Well, that's important information."
Use Rules To Boost Profits
To become a great trader, you must respect risk, Minervini says. You must consider how much you can lose in a trade, not only how much you can make. To make money in stocks consistently requires discipline and skill.
There are four "Minervini rules" for growth investing.
First, specialize. You're not going to be good at everything. "Be a master of one strategy or style," he said. "I can't switch gears and be a value investor and then short-term day trader and then swing trader and then back to a growth stock investor."
Second, avoid big losses and never "average down." Don't fall in love with your losers. Or buy more shares of a stock when its price falls. "You want to compound money, not mistakes," Minervini said.
Third, only trade big when you're winning.
Fourth, tune in only on winning stocks. "I tune into the stocks that are doing well," Minervini said. "I want my stocks to be moving up right away. So I'm going with the names with high relative strength (RS) scores. That way you're automatically putting yourself in the elite category of stocks."
Be The Caboose, Not The Engine
Minervini says he never tries to outrun the market, which he dubs "the engine." It's better to be "the caboose," and let the market "pull me in its direction," he says.
It pays to be a trend follower, Minervini said: "I never get the low, and I very seldom get the high, but I get a nice meaty part in the middle right."
Minervini's advice to aspiring traders? "To live the life you truly desire, you must be true to your passion and make that passion the highest priority," Minervini said. "There's got to be sacrifice. I can assure you that for an Olympic gold medalist, winning gold is at the top of their list. It's not the third priority in their lives. It's number one."
Minervini's Keys
- Top stock trader won the U.S. Investing Championship in 2021, posting a 334.8% annual return, a tournament record. Also won the title 24 years earlier in 1997 with a 155% annual return.
- Overcame: Growing up poor with his mother and also a lack of advanced formal education.
- Lesson: "I don't believe there's a natural born trader. I think traders are developed."
