Buying like Super-Investor Jesse Stine
Jesse Stine is one of the super-investors who has influenced my investing style. He is an independent stock trader, just like us, trading his own hard-earned money. He produced a staggering 150-times returns, turning $46K into $6.8M in just 28 months between 2003 to 2006. He is neither an intraday trader nor a long-term buy-and-hold investor. He is more like a swing-trader with positions lasting weeks to few months (not days!). His longest hold during this period was only 8 months. His method of investing is documented by him in 'Insider Buy Superstocks', a must read book for all investors and traders (link below). In his book, he has explained the trades that he made supported by clear charts. You may follow him on Twitter or check out his website.
Now, Jesse is a technofunda investor and does both technical and fundamental analysis of a company before entering into a position. Here is an extract from his book:
We are seeking an undervalued stock that has the ultimate technical setup backed by world-class fundamentals. The idea is to purchase these stocks at such a point when the potential upside outweighs the downside by a substantial margin.
His investment process starts with first scanning through the charts and selecting those stocks which justify further fundamental research.
...you should search tirelessly for the most powerful chart patterns the market has to offer. And it is only AFTER you see a blockbuster chart pattern that you should begin to look for blockbuster fundamentals.
He analyses charts on Weekly timeframe only. Here is one more extract from his book:
Throughout history, the market’s biggest winners have adhered to weekly technical patterns much more consistently than daily patterns. For this reason, institutional investors tend to base their buy and sell decisions based entirely on weekly (and sometimes monthly) patterns. If the smart money is doing it, I’m not going to argue.
The first and foremost thing in trading is to have a Watchlist. The watchlist defines the 'What are you going to BUY?' question of your trading plan. Only when you have the answer to this question, you decide when to buy & exit and how to manage the risk.
Now, if we want to be a successful trader like Jesse, we must be studying the same stocks which he is considering. For this, our watchlist should be getting those stocks too. So, in this post, I will explore whether we would have got the same stocks in our Watchlist at a time which Jesse bought them during 2003 to 2006, that made him a millionaire. If you are a user of the Pro-Setups script, you get a Watchlist everyday with stocks forming the setups on Daily & Weekly timeframe. In this post, I will consider only weekly timeframe watchlist, since that is what is used by Jesse too. Remember that we get a stock in our Watchlist whenever a blue dot appears at the bottom of the chart.
In his book, Jesse has mentioned 11 charts that changed his life. I will check them one-by-one only to see if they would have appeared in our Watchlist. I will not discuss whether I would have put money into them or not, because knowing that Jesse bought them, will make me biased.
1. Dynamic Materials Corp (NASDAQ: BOOM)
Jesse bought this stock on the pullback after it had given a big breakout.
We would have got the stock in our watchlist when the blue dots appeared on the chart prior to its breakout.
So, yes, we would have got this stock in our watchlist few weeks before Jesse bought it, although before the big breakout. In fact at the time of those blue dots, the stock's 10-week & 40-week EMAs were also very close to each other, a factor which is given special consideration in our watchlist. Also, the trend of the stock was Uptrend, as indicated by the green bars on top of the chart.
2. Forward Industries (NASDAQ: FORD)
Jesse bought this stock after the breakout on its pullback to 10-week moving average.
We would have got this stock in our watchlist when those two blue dots appeared. In fact we also got a star sign, which means that the ATR at the time of those blue dots was at the lowest level, when compared to the ATR of last 20 weeks.
So, we got this stock also in our watchlist, before the big breakout happened.
3. DXP Enterprises (NASDAQ: DXPE)
Jesse bought DXPE after the breakout, when the stock revisited its gap-up opening seen on Daily timeframe chart.
We got this stock in our watchlist much before the breakout, and much much before Jesse bought it. This means that we would have either entered the stock much before than Jesse did, or we would have forgot about this stock by the time breakout happened unless we keep such stocks in our watchlist or use an alarm trigger. Well, I personally do use TradingView alarms extensively!
4. FreightCar America (NASDAQ: RAIL)
Jesse bought this stock on breakout. He mentioned that it was not a low risk buy, but he got lucky here.
At the time when Jesse bought this stock, it didn't have much history of stock price data to give us blue dots, hence this stock would not have come in our Weekly timeframe watchlist. This stock would have come in our Daily timeframe watchlist though, but since we are discussing Jesse's style of investing in this post, lets say that we would have not considered this stock.
5. Apple Computer (AAPL)
Jesse bought Apple on breakout. This was the time when Steve Jobs launched iTunes. Rest is history!
Apple would have come in our watchlist as it gave multiple blue dots and star signs on the charts before the big breakout.
Other six companies traded by him during that 28 months period have either been acquired or delisted, and hence their price charts are not available on TradingView. If their charts are not available, we cannot check if they would have given blue dots and appeared on our Watchlist at that time.
Conclusion: Out of the 5 stocks for which price history is available on TradingView, we would have got 4 stocks in our weekly timeframe watchlist. All these stocks came in the watchlist few weeks before Jesse bought them, which means that we would have had ample time to study them fundamentally also. Yet, getting a stock in a Watchlist is one thing, and buying & exiting is another.
Below is a video of the script on YouTube.
Link to Jesse Stine's Book 'Insider Buy Superstocks':
Please feel free to leave your comments below. If you want me to check other stocks which would have come in our watchlist at some historic time, do ask me know in the comments.