JUST LETTING YOU KNOW
The One Common Denominator
Investing acumen is fluid. Trading acumen is fluid. Life is fluid in anything you do.
And what do I mean by that? Always strive to do better. Always strive to fix what you do wrong. Always strive to make better what you do right. And never ever, ever give up on it…in anything you ever do in life.
It’s easiest to talk about athletes because they’re out there and we get to watch them. And frankly, we get to live through them every day.
I still remember. I played college tennis. I was decent. I went and played in something called the Penn Circuit. It was a satellite tour for tennis people wanting to turn pro.
I won a total of zero matches in 5 months because it’s just very, very competitive and I put my best foot forward. And I remember around that time, I would watch Connors, Borg and McEnroe and all I wanted to do was be them.
Well, I do the same in the markets. I’ve had my great years. I’ve had my average years. I’ve have some stinky years. The good news is that my stinky years have never been during bear markets.
But I’m always wanting to do better. And even if I’m having a bad day, I’m working on just a bad day, let alone a week, a month, a quarter or a year.
So I’m letting you know that I have been doing massive studies of what works and what does not work. That’s what William O’Neil did. I go over my good and my bad. What have I done right and what have I done wrong. Where did I screw up? How can I fix that?
And a couple of things hit. A common denominator, if you will. And I’m pretty sure it goes for everyone who does what I do.
And that is the holding period.
Jesse Livermore once said, “It’s in the sitting that you make big money.”
William O’Neil said that “It is a sin to sell that big winner too early.”
I can tell you throughout my lifetime in this business that I’ve sold too early plenty of times. Satisfied with a 20% gain…a 40% gain to watch it go up 100%…200%.
You see I consider myself to be one of the smartest people in this industry of knowing where the leadership is in the market. But that means squat unless you know how to hold those stocks…
as they ascend and pullback
and ascend and pullback
and ascend and pullback…and ascend.
And in years past, I have nailed some. I’ve had some where I’ve bought it perfectly and rode it all the way through. Sometimes we entered a bear market and I had to get out and then get back in. And then when final tops came in, I knew and I was gone.
But I want that to be more often. Out of the past 60 days, I have spent (I’m just guessing) 60 real hours of just going through past bull markets. And figuring out what is that one common denominator that enables somebody – robotically to stay in that big winner until it decides not.
I went though 2004, 2005, 2006, 2007, 2009, 2010, and 2011. I did a little work in 1998 and 1999. I went through O’Neil’s book where he has a hundred charts going back to the 1890s. I went through all my old O’Neil seminar books that go through the big leaders of the past 50 years.
And they all had one common denominator. It’s something that I talk about often on this show. And I kinda had a good understanding, but even I needed the convincing. That, MAN, this is so good, so successful that I must adhere to it.
In the market, we have something called moving averages. In my study of the past few bull markets, the one constant was the ability of a stock, even if it is extended above the 50-day/10-week moving average, to stay above that…ascending. And every time pull back into it. And most of the time hold it to the penny. That was the defining characteristic.
Now here’s some issues:
Very often you buy a stock on a breakout and it goes up pretty quickly. And you find the stock you bought at 50, is now at 60 and you’re now up 20%. But that 50-day moving average needs time to catch up. So by the time it’s 60, the 50-day moving average is just crossing 50 and it’ll take a few weeks.
And you ask yourself the question, if you know you’ve got to hold no matter what – what happens if it goes up to 60 and then pulls back to 52? You’ve given back most of that gain.
But it never broke the 50-day. It bounced off and moved higher. And the 50-day moving average kept going higher. And every subsequent pullback was to a higher point.
Well that’s the constant.
It’s not easy. A lot of them that I studied…you had to sit through things where you bought at 40, it went to 48 and it came back to 43.
“Man I was up 20% and now I’m up 8%.”
I’m just letting you know. Strip away everything and just use this one statement:
As long as that stocks stays above the ascending 50-day moving average, you are in good stead.
The other thing I noticed was that many time a stock was taken back down there on heavy volume, making people believe this thing is done.
Many times, it went a little bit below and then finished above. Closing price, ladies and gentlemen. Many times it went below it, sat a little bit below it for a few days, and got back above it. Those are tougher.
I’m just letting you know, nobody’s saying it’s going to be easy. I’m just letting you know that if every stock I have ever bought, I just held until that stock really broke below the 50-day moving average with volume…in earnest – I’d have a lot more money right now.
And that’s all I’m interested in for the future. What can I do differently to enhance returns.
And that is the one common denominator.
Editor’s note: In his show, Gary goes into more depth on this topic. To get the full details, click the player below to listen to his show in its entirety.
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Gary Kaltbaum owns Kaltbaum Capital Management, LLC (“KCM”), an investment adviser registered with the U.S. Securities and Exchange Commission. The opinions expressed herein are those of Mr. Kaltbaum and may not reflect those of KCM. The information offered in this publication is general information that does not take into account the individual circumstances, financial situation or individual needs of an investor. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results.