Guest Interview: Richard Moglen
(Edition Number: Fourteen)
Today we are kicking off the fourteenth edition of the Investment Talk guest interview series by welcoming Richard Moglen.
Richard’s investing style is one that lays importance on picking market leaders and preventing the exposure to stage four declines. In this way, he can afford to wait patiently for the upside and jump out before any significant drawdowns.
In Today’s interview, we discuss Richard’s background, his mentors, the rationale for undertaking a CANSLIM approach to investing, and risk management.
Richard is a pupil of William O’Neil’s CANSLIM method, which we shall be discussing shortly. The CANSLIM method is a process that makes use of both technical and fundamental analysis.
Coming from a background in mechanical engineering, Richard feels that his engineering and analytical background translates well over to analysing charts and businesses.
You can find Richard over on Twitter, under the handle @RichardMoglen.
Richard shares a huge amount of free education on his YouTube Channel, where has amassed over 26,000 subscribers, and more than 1 million views.
Each week, on the Stock Market Outlook segment, Richard shares his own analysis on the market conditions, as well as potential set-ups. The outlook segment also details how Richard views the current market based on trends observed across indexes, market leaders, sentiment, and other technical indicators.
The Market Chat Podcast segment, my personal favourite, is where he brings on fantastic traders and investors to discuss various topics. I personally find these useful as most of the guests have styles wildly different from my own, so there are always some learnings in there.
A recent favourite of mine was the episode with Chris Perruna.
The Weekly Watchlist videos share Richard’s focus list for the following trading week, based on the CANSLIM method, where he pours over the charts and fundamentals, as well as discussing his desired set-ups for trading the positions in the focus list.
Lastly, the Winning Characteristics segment is where Richard, and his colleague Ray from Trader Lion, go through case studies of historical super-performance stocks.
Trader Lion is a mentorship platform that Richard is a team member of, that aims to teach members how to effectively trade growth stocks and provide unique tools to produce edges.
“Even if all the fundamentals are there, I won’t invest unless the chart matches the thesis. This is because the chart provides all the information when it comes to the supply and demand of the stock” - Richard Moglen
Good morning Richard, thanks for taking the time to answer some questions today. We typically have longer-term investors here, so it’s going to be great having a more trading-focussed investor with us today.
We will get into your trading style shortly, but first, it would be great to learn a little about your history, your background, and how your journey led you to investing.
I am aware you are from a mechanical engineering background, so it would be great to get some flavour on how you ended up investing?
First IT, I just want to say thanks for the interview! I’ve read many of the others you’ve done and it is always very interesting to hear about how other people think.
No matter what timeframe someone invests/trades upon I always think we can pick out a few things that can help our own processes.
As for my background, I recently graduated with my Bachelors in Mechanical Engineering from the University of Maryland and I am currently pursuing my Masters at UMD. I’ve found that my engineering and analytical background translates well over to analysing charts and businesses.
I was first introduced to the stock market my Junior year at UMD when I took an Honors Seminar called Introduction to the Stock Market and Technical Analysis taught by Dr Eric Wish and David McCandlish.
Dr. Eric Wish (@wishingwealth on Twitter) is an Associate Professor at Maryland and the Director of the Center for Substance Abuse Research (CESAR). Outside of his research on substance abuse, he is a passionate investor with over 50 years of experience.
Before taking the class, I did not know anything really about the markets, interest rates, ETFs, what have you. But through the lectures, I quickly got up to speed.
The highlight of the course was the class competition where we traded a simulated portfolio for 8 weeks and then analyzed our performance with an extremely comprehensive final report. After taking the course I worked as a T.A. for Dr Wish and helped out for the next 3 semesters, helping teach the material through presentations and discussions.
As of right now, I am trying to continue to learn and improve my process by reading books, attending seminars, conducting interviews, and studying past trades.
You seem like a very productive guy, which I respect. You churn out great YouTube content over on your page, on a consistent basis, where you are aiming to help investors understand financial literacy and technical analysis, with over 26K subscribers, and over 1M views. Great stuff.
How did this YouTube journey start for you, and if you could share some of the insights into what you have learned along the way, as well as goals for the channel, that would be great?
Also, please feel free to inform readers exactly what you do over there.
Haha, I don’t know if I’m a super productive guy but I like to work hard when it comes to my passions and helping others.
I started my YouTube Channel in May of 2019. I decided to create the channel in order to help democratize trading and financial literacy concepts. Not everyone gets the chance to take an investing class in college and I wanted to create a place where people who were serious about learning to trade/invest could find high-quality information.
I feel like the world would be much better off if everyone knew a bit more about how to save, budget, and invest, and I hope my channel can help make that happen in some small way.
Looking around YouTube especially in the finance space, most channels are focused on building hype around stocks, salesmanship, flashing money and day trading. My channel is hopefully the exact opposite of that type of environment, a place where people can learn a proven process with a focus on managing risk and long term results.
This is not to say that I believe how I trade/invest is the only way to do it, it's just the right way for me. The most important thing I want viewers of my channel to take away from my videos is that you need to have a defined process and manage risk properly.
In terms of insights that I have learned along the way, I think the biggest thing is that in order to grow a channel you have to produce consistent videos and always be looking to improve the quality. This is really the key to learning how to do anything (including trading/investing) you have to commit, work hard, and strive to be better than you were a month ago. Over the long term, this is what will lead you onto the path of success whatever that means to you. Steady consistent improvements go a long way since effort, like money, compounds.
I’ve also found it very helpful to have a few recurring series on my channel. This way my audience knows what to expect each week and when they see one of my thumbnails, they have a good idea of what the video will be about even before watching.
The most popular and my favourite series to do is my Market Chat Podcast. These are long-form interviews with top traders, investors, hedge fund managers and U.S. Investing Champions where we discuss their investing/trading methods comprehensively. A few examples of past Interviews:
● Oliver Kell, US Investing Champion of 2020 (+941% verified Return in 2020)
● Ross Haber, Former William O’Neil & Co PM and Hedge Fund Manager
● Kathy Donnelly, Growth investor and co-author of the Lifecycle Trade
● Jim Roppel, Hedge Fund Manager
Everyone has their own style and timeframe, but I strongly believe that listening to experienced stock market participants who have developed their own process is an excellent way to learn. If you would like to check out the interviews you can find them here:
In addition to The Market Chat Podcast, each week I perform my own analysis of market conditions and potential trading opportunities. I present my due diligence in two different videos each weekend.
My Stock Market Outlook video presents how I am viewing the current market based on the trend of the indexes, stock market leaders, sentiment, volatility and other indicators.
My Weekly Watchlist video presents my focus list for the upcoming trading week based on both technical and fundamental analysis. I go through each stock’s growth numbers and chart and discuss the setup I would use to trade each one and how I would manage my risk.
Additionally, I have a series called Winning Characteristics where Ray from Trader Lion and I go through case studies of historical super-performance stocks. We identify characteristics they all shared during their large price increases. This is a great series to dive into if you are interested in sharpening your technical analysis skills.
For a stock to 5X or 10X, large funds and institutions must be accumulating more and more shares. That accumulation leaves identifiable clues on stocks charts such as large volume signatures and price contractions. This series is all about developing a list of those clues that you can use along with fundamental analysis to build conviction in a stock.
Finally, I also have my Python for Finance Series where I’ve produced many different videos starting from the very basics all the way to building your own charting software and back tester. Coding is another skill that I have been developing for a few years now and it's quite amazing the useful tools you can create quite quickly. I’ve found that learning Python or another programming language is also quite helpful when it comes to investing because it teaches you how to use logic to make decisions objectively.
My overall goal for the channel is to become the go-to place on YouTube for traders/investors to visit in order to learn how to trade/invest in growth stocks properly and learn other essential financial literacy concepts. I plan to develop a few free series that will teach the basics of the market and bring anyone up to the level of being able to consistently invest with sound risk management.
You somewhat recently joined the TraderLionteam. Can you tell us what your role is with Trader Lion, and perhaps a little about what TraderLion do?
Of course! Trade Lion is a comprehensive mentorship platform that aims to teach members how to effectively trade growth stocks and provide unique tools to produce edges.
Our goal is not to give stock tips and call out trades but instead teach our members how to build their own processes, rule sets, and routines. We have the Top 10 report which is for longer-term investors/position traders, private access for more active traders, as well as MoneyFlow which uses data-backed methods such as option flow analysis to identify stocks with institutional accumulation signatures.
We also have a growing library of blog posts and videos that help teach essential concepts. These are available to everyone on our website and YouTube Channel. At TL I'm focused on developing more videos and series as well as other content. My goal with the TL Channel is the same as with my own while leveraging the experience and knowledge of co-founders Ray and Ross to pass on essential concepts they have each learned through their many years of trading.
One of the projects I’m currently working on is a series of video walkthroughs with Ross Haber of our Model Books Stocks of 2020. Each year, TL collects the charts, fundamentals, and stories of the best performing growth stocks in order to analyze common characteristics both fundamentally and technically that they all shared. The video walkthroughs with Ross go through these key characteristics as well as discussing how to manage the position based on his experience working as a PM for William O’Neil and as a Hedge Fund manager. If interested you can find the Youtube series and free 2020 Model book at the links below:
Now, let's move onto your investing style. I gather you are primarily focused on technical analysis. What does your investment process look like? Are you primarily concerned with technical analysis, or do you allocate some portion of your capital to long-term, or perhaps fundamentally based positions?
Would be great to get an overview of what your process looks like, as well as some comments on your overall investing style and philosophy.
Great questions, first I would classify my style as a techno-fundamentalist and a trend follower. I want to buy the fastest-growing companies with the greatest stories.
However, it's extremely important for me to preserve my capital and be in stocks when they are most likely to trend and make me profits. I use technicals to determine when the risk/reward for buying/holding shares is favourable.
I think there is a misconception out there that people who use charts believe they can predict a stock’s movement with 100% accuracy. I don’t view charting that way at all, instead, I look for signs that institutions are accumulating shares which adds to my conviction in a company and I use charts to look for entries where I can manage risk and determine trends. It's a matter of using all the tools at my disposal in order to gain an edge.
It’s similar to how doctors both ask their patients about symptoms as well as order blood samples or MRI’s to help with diagnoses. As a techno-fundamentalist, I take into account both fundamental information and analyze charts of price and volume action to build conviction and manage risk.
Anyway, rant on TA misconceptions over here is a brief summary of my process:
First I assess the general market conditions by analyzing the charts of the leading growth stocks as well as market indexes.
75% of stocks follow the trend of the general market and therefore this analysis is extremely important to get right so I know the opportune times to enter and exit positions. In terms of the indexes ( I mainly look at the Nasdaq, S&P 500, and Russell 2000) ideally, I want to see them trending above their 21-day exponential moving averages and 50-day simple moving averages. This generally shows me that the trend and overall current of the market is up.
I am also on the lookout for signs that the trend may be changing such as distribution days. Distribution days on an index occur when they are down more than 0.2% on a day with a higher volume than the previous day. Clusters of these distribution days occur near the ends of trends and can signal an impending pullback or correction.
In addition to the indexes, I also pay attention to the trends of the leading growth stocks. For me, a leading growth stock is one with outstanding earnings and revenue growth, in a leading group and industry, with strong price and volume action. I keep a running list of stocks that meet this criterion. If many of these are breaking out into new all-time highs, trending above their moving averages, and in general advancing on higher volume than during pullbacks I want to be invested in as many of the leaders as possible.
If the indexes and leaders are volatile, showing distribution days on high volume, and breaking key moving averages, I want to ideally be out of the market waiting for conditions to improve.
Above is a chart of the SPX before the March 2020 Correction. The Distribution Days are highlighted by red lines and the blue lines show “stalling days'' which are more subtle signs of distribution where there is high volume but little price upward movement. There are clear clusters of distribution days with high volume and 4 straight days in late February. At this same time, the market leaders such as AMD DOCU and NVDA were breaking expectations, and my own positions were getting hit knocking me to cash gradually with my last position being sold on 2/24.
I did not get out at the very top but I preserved my financial capital until conditions were back on my side and better yet I preserved my mental by not having to sit through 30% drawdowns in positions. I then waited for accumulation signs to appear again in leading stocks and the indexes and gradually increased exposure.
In terms of stock selection, I follow the CANSLIM methodology developed by William O’Neil, founder of Investor’s Business Daily and author of “How To Make Money In Stocks” which I thoroughly recommend. He studied the greatest winning stocks going back to the 1800s in order to determine common characteristics they shared before and during their large moves. CANSLIM is an acronym with each letter signifying one key characteristic:
C - Did Quarterly Earnings grow at least 25% in the most recent quarter?
A- Is there Annual earnings growth of at least 25% in the past 3 years?
N- New. Are there New Price Highs, New Products/Services, New Management?
S- Supply and Demand - Are there Technical Accumulation Signs?
L- Leader or Laggard - Is it in a leading industry group and the leader among its group
I - Institutional Sponsorship - Are more funds buying it and are there quality funds invested?
M- Market Direction - Is the Market in an Uptrend?
Ideally, stocks that I invest in have increased their earnings rapidly with the most recent quarterly earnings growth up over 100%, sales growth also up over 50%, with strong estimates for the year, increasing fund ownership, and with a compelling story and a growing TAM. Not every characteristic needs to be there but ideally, that's the case. I will forgive poor earnings growth if revenue growth is fantastic or there is extremely strong annual estimates/fund ownership.
Even if all the fundamentals are there, I won’t invest unless the chart matches the thesis. This is because the chart provides all the information when it comes to the supply and demand of the stock. This is what ultimately leads to dramatic price increases, large funds and institutions have to invest, soak up supply, absorb selling pressure, and ultimately swing the balance so that buyers are in control.
I want to be buying shares right at this pivotal point when the probabilities are stacked in my favour, and then ride the uptrend the institutions produce. Once sellers regain control, as shown by large drops on high volume, increasing volatility, and the stock breaking down through moving averages, I’ll shift my capital to cash or focus on other opportunities.
These trends are created by the big money in the markets, and they don’t invest unless the fundamentals are sound and they feel the company has a strong future. Only price pays and I want to be involved when the environment is best suited for me.
During a strong uptrend, I try to be invested in 8-10 high growth stocks with strong price action. This concentration means I do have to be attentive and manage the positions, trimming as they become extended and cutting quickly if they move solidly against me. However, this concentration is what leads to outperformance versus the indexes. If you have 25 stocks in your portfolio with equal weighting and one doubles, sure it may feel good and you can post on Twitter about it and look smart, but it only moves the needle 4%.
I have two accounts that I manage, a Roth IRA and a regular brokerage account. In both, I employ the same strategy essentially treating them as 1 larger account. I have in the past held Index funds in my Roth, but actually, the Roth is better suited to more active management due to the tax benefits and I may in the future make the brokerage a mix of longer-term holdings and index ETFs.
Why do you favour investing coming from a place of technical analysis, as opposed to more bottom-up fundamental analysis?
I actually do start with fundamentals. If a company does not have excellent earnings growth/sales growth, increasing fund ownership, or high-quality fund ownership I will be hesitant to take up a concentrated position. The stock must also have a great story (be a disruptor) and ideally, be in one of Investor’s Business Daily’s Top 40 Industry Groups.
Technical analysis is a tool that allows me to enter a position when supply and demand characteristics are favourable and at a price point where I can manage my risk properly.
I always say that an investing philosophy should ideally match one’s personality. Not everyone can sit on their hands and not everyone has the capacity to monitor the technical aspects of trading so actively.
So, how do you feel your investing style matches your personality, and what are your thoughts on whether investors should adopt a style that matches their personality?
I completely agree, life comes first and how you navigate the stock market should reflect that. In the end, what are we investing in? We want to invest so that our families can have better futures, so we can spend more time with friends/family doing the things we love to do. The end goal is to be away from the screens not in front of it every minute the market is open.
A more hands-on style does not necessarily lead to better performance so the key is to find what fits your lifestyle and what will accomplish your financial goals. One of my favourite trading books is How I Made $2,000,000 in the Stock Market by Nicolas Darvas. Darvas was a professional dancer and set buy stops and sell stops across the world by telegram and was able to make a fortune. That is what fits his lifestyle and after moving to New York and watching his stocks more closely he actually experienced worse performance. If Darvas can do it by telegram and by looking only at closing prices, I should certainly be able to do it with all the technology and software available nowadays.
Personally, I like to set alerts on my stocks so I only have to watch their action when something significant is happening. I also have stops in with my brokers, so worst-case scenario. I don’t need to be available at all during the day.
On your YouTube page, you state that investors should always do their own research, use stop losses, and manage risk. This reminds me of Mark Minervini, where the impetus is on risk management and the avoidance of significant drawdown.
Mark has been strikingly accurate on some of the more recent market corrections. I recall he was correct about the tech bubble, before it occurred, as well as going all cash just before the March 2020 market crash. All done intuitively through technical analysis.
This kind of goes against the typical buy-and-hold mentality, where some are willing to take on significant drawdowns, all at the prospect of not interrupting compounding. Different strokes for different folks.
What are your thoughts on managing risk and using stop losses, versus the idea of buy-and-hold where presumably no stop losses are placed on positions?
Mark Minervini has had a large influence on my trading style. I’ve read his books multiple times with my favourites being Think and Trade Like a Champion and Trade Like a Stock Market Wizard. I’ve also attended a few lectures he's given at IBD meetups and also to Dr Wish’s Class.
I completely agree with Mark that if you are trading you should always have a stop loss in place which triggers when the setup fails. If the goal is to compound your money then doing some simple math is all it takes to realize that a 33% drawdown can dramatically set you back since you then require a 50% gain from that point just to get back to breakeven.
Buy and hold works as long as the companies bounce back, and not all of them will. Most companies in the high growth space suffer incredible drawdowns. I would rather trade the uptrends in between and get the meat of the move than sit through those types of losses.
It's all about what fits your own goals and personality, for me, I always use stops and follow what the chart is telling me no matter how much I believe in a company. If I get stopped out I can always buy it back on the next setup. I will have drawdowns off the top and I won’t get back in at the bottom but if I can get the most of the uptrend that is good enough for me.
Who have been some of the biggest influences on your investing style, and why?
The biggest would have to be Dr Wish. He was the one who introduced me to the stock market and taught me his methods.
Second would be a few of the great authors I've read, Minvervini, O’Neil, Darvas. These books have a tremendous amount of value in them and need multiple readings in order to start to grasp it all.
Lastly, through Twitter, interviews, and webinars there have been so many helpful people. Ben Bennett, Jim Roppel, Mike Webster, Ross Haber, Ray TL, Kathy Donnelly, Oliver Kell, Matt Caruso, Pat Walker, Leif Soreide…. the list goes on.
I’ve taken bits and pieces from the mindset and process of many different individuals and found what works for me and fits my own style.
Some of the typical “big-tech” leaders such as Facebook and Alphabet are supporting valuations that are somewhat fair, in my opinion. This is despite big players like Facebook growing revenues at 33% last quarter(impressive for their size), as well as containing a great deal of baked-in optionality.
As I am sure you are aware, all big market leaders eventually lose their space at the top of the table.
What are your thoughts on big tech such as Facebook, Apple, Microsoft, Netflix, Alphabet, and so on, and their 5-year outlook? Perhaps from a technical perspective?
These are what Minervini calls Institutional favourites, big blue-chip companies. They each have huge total addressable markets and are continuing to grow. However, their hyper-growth periods are in the past and eventually, each one will start to lose favour and decline. When that happens no one knows but it will occur and show up in both the fundamental numbers as well as on the price chart.
Below is a chart of General Electric during its strong run-up and then ultimate top in 2000 when it was one of the largest companies in the world. The red line is the 30-week simple moving average and the blue line is the 100 week SMA. When a stock is above a rising 30 week moving average that is what is called a Stage 2 Uptrend, and that is when I want to be involved and buying breakouts and hopefully riding the trend as much as possible. When a stock is below a declining 30 week moving average that is a Stage 4 decline and can suggest significant downside could be possible in the future. I never want to own a stock in a stage 4 decline.
And here is a chart of AMZN, still riding its trend upwards. Stocks will cycle back and forth between the different stages and as long as a company keeps innovating, growing earnings/revenue and funds increase sponsorship, the majority of the time price will trend in a stage two and the other stages will be short-lived.
However, as with the case of GE, the ultimate top will be followed by a stage 4 decline in price often when fundamentals still have not yet shown a problem. Funds and institutions have the best analysts and models on the planet and when they start net selling, that is the start of the end. No sign of this yet from the FANG stocks and big tech.
Next, I wanted to discuss position sizing and concentration. Everyone I interview has a different view on this topic, so I find it useful to gather perspectives from several different investors.
So, I am wondering if you can provide us with some colour on your allocation approach. Is there an upper-bound that you will allow a position to grow into? What are your thoughts on the sizing for new positions? How do you feel about concentration? I would be keen to hear you share your thoughts on this matter.
I think for superior returns you need to be concentrated in just a few positions that meet your risk tolerance. However, with increased concentration, it does require you to be more hands-on.
I like to concentrate on 8-10 high-quality stocks during a strong uptrend. I usually start with a 7.5% position and increase that as the stock increases in value. The max position size that I generally feel comfortable with is 20%.
I don’t believe that diversification in the stock market protects you from drawdowns. Growth stocks especially are highly correlated. I would rather focus on just a few, know their stories and follow the price action closely than spread out my attention.
During more volatile environments I enter with smaller position sizes with tighter risk management until conditions improve. I want to be heavily exposed to the market when my last few trades have been working and the indexes are in strong uptrends. When I’ve gotten stopped out of my last few trades and the indexes and leading stocks are showing distribution, I trade less with smaller size. This is what Minervini calls progressive exposure.
Another one that I like to ask everyone. What are the three most influential books that have changed the way you think?
The Way Things Work- David Macaulay and Neil Ardley.
This book spurred my interest as a kid into engineering and made me look around me to the things we all take for granted and wonder about the mechanisms that drive them. Even something as simple as a door hinge is awesome to see explained visually as this book does with anything you can think of from Nuclear Reactors to TV screens.
Ready Player One - Ernest Cline
This is a great story but it has also made me think of the future, what it will be like and how we will interact with it. It seems inevitable that we all eventually put on our own haptic suits and interact in our version of the Oasis with our minds being our only limitations.
How I Made $2,000,000 In the Stock Market
I had to include one Trading book right? This was the first one I ever read and I really enjoy how it's a narrative as Darvas walks us through his mistakes and eventual successes while trading. I think it's a great book to start out with since it's a quick and fun read.
When assessing a company. What are the must-have factors that must be present in the company before you would even consider allocating one ounce of capital into their business?
The only must-have for me is strong price action and trend, with a setup present where I can manage my risk and know that my timing was off within a less than 5% drawdown in the position (ideally less than 3%)
However, I’m unlikely to enter the position unless it has outstanding earnings or sales growth in the most recent quarter (Greater than 40%) and has increasing fund ownership.
There are a number of financial idioms that investors like to recite during certain periods in the market. Most are fairly solid, but all of them require context, in my opinion.
During market downturns, investors often express that they will ‘buy the dip (BTD)’. This isn’t just a single act of buying a downturn for some, who instil this philosophy into their investment process and tend to act upon each time the market pulls back.
I am interested to hear your opinion of the BTD mentality?
The Market in the long run trends higher with stocks doing the same, there are, within the overall trend, dips, pullbacks, corrections, and bear markets. Depending on your timeframe and style “buy the dip” works.
However, many people use the term light-heartedly with an errant disregard for risk. Lost capital is lost capital, paper losses are real losses. I never average down on a position and only add at new points in the charts that I can manage risk properly and treat the adds as new buys.
Personally, I also vastly prefer a gradual low relative volume pullback to a key level versus a few straight days of high volume selling with each day finishing near the close. The former shows little distribution and is just normal price action while the latter tells you there is a lot of downside pressure that needs time to work itself out.
In summary, a stock dipping means selling pressure is outweighing buying pressure at that moment. Depending on your timeframe, cost basis, style, stomach it could be a buying opportunity. However even while buying pullbacks I still wait for the stock to start increasing in price again so the momentum is with me. There is a difference between buying the dip and catching a falling knife, but the difference isn’t always clear until you made or lost money.
As long-term investors, a great deal of the discussion can often circulate around buying, with less emphasis on selling. For me, I operate under the option that I never sell my positions, unless they trigger a pre-defined batch of sell-allowances. This can range from funky movements in management, an acquisition I do not like, the original thesis being broken, and so on.
What are some of the conditions that must be apparent for you to consider selling a position?
In addition to that, I am wondering if you could share with us your thoughts on the importance of time horizons with respect to the dynamic between buying and selling.
I buy on both technicals and fundamentals but I sell only on technicals. I sell when the stock breaks character and trend which is usually when it closes on high volume below moving averages that it has previously respected.
Time horizons are very important when considering sell rules. I know traders who use the 10-day moving average as their guardrail and also traders who use the 40 week. Both types of traders can be very profitable depending on their batting averages, average gain, and average loss but their statistics will be quite different. It's the same with long term investors who may not use charts, as long as you manage your losers and ride your winners, in the end, if you are focused on the right batch of stocks your winners should by far pay for your losers.
I am wondering if you can share with us some of the companies that you passed up on, that went on to perform very well, perhaps sharing with us why you passed up on them, and what you learned from that?
I think in just 2020 alone I either passed up on or got stopped out of multiple stocks that went up a further 100-300% even. GSX and DQ for example were both Chinese stocks with killer growth fundamentals and price action. However, with the LK fiasco in mind, I didn’t really want to risk capital on these companies that could be posting fraudulent numbers. I don’t actually mind that decision because it’s one more facet of managing risk.
Biotech companies similarly have tremendous potential, but I would not feel comfortable holding a large position in one given the gap down risk if they miss FDA approval or similar news event. What good is a 200% move if you don’t have enough conviction to invest enough capital for that gain to be significant?
Lastly, I like to round-off this segment with my favourite quote, which comes from Graham. The one concerning the short-term voting machine and the long-term weighing machine.
I find it helps me reconcile the irrational price action in the near-term.
I do not know who first coined it, but another of my favourite quotes is “If you don’t laugh, you’ll cry”. I find this quote helps me appreciate the randomness of life and the lack of control we have over external factors.
What is your favourite quote, and why? Feel free to pick a few if you like.
“We rise by lifting others” - Robert Ingersoll.
I’ve always liked this quote for its simplicity and truth. I’ve always found the most meaning through teaching and otherwise helping others.
“Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do.” -Pele
I love this quote because it's from a legend as well as sums up how I feel about learning new skills in life. Anything is possible if you put in the work and are passionate.
“It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with the experiment, it's wrong.” - Richard Feynman
You might guess how I would apply this to the market since I weigh price action above all else. No matter how much you believe in a company and what their growth numbers say, only price changes matter at the end of the day.
Questions from Twitter:
In this segment, we collected questions from the Twittersphere, and present them to Richard.
@HowIWithWOLF: “Coming from a mechanical engineering background, what drew you to investing and creating financial content?”
Engineering and Trading are very similar in many ways, both require the interpretation of data and the optimization of systems. My mind is very analytical and so I found my background has helped quite a bit while learning how to trade. I also loved the competition aspect with myself and discipline.
In terms of creating content, I’ve been interested in making videos since I was in middle school and teaching is a passion of mine whether it's engineering, trading or sports.
@IrnestKaplan: “Would you say you have learned more from studying and reading or interviewing other successful traders and investors?”
This is a really tough question to answer (and a great question). I would say I have learned more from books like How To Make Money in Stocks by O’Neil than my interviews but the interviews have provided nuances that you can’t really learn from books but can make all the difference.
I view the books as the foundation, with the interviews being the finishing touches. I find the interviews to be extremely helpful because they give you insight into the experiences of top traders that you can’t really communicate through text. For instance, charting is an especially difficult thing to teach by writing because of how visual it is. Would you rather learn technical analysis by reading about candlestick patterns or by watching Oliver Kell or Leif Soreide, the two most recent US Investing Champions, go bar by bar through a base and breakout explaining how they are interpreting the price and volume action?
@aeternallyhere: “What was the first recurring expense you had for a service, a stock tip feed, a charting website, or other service, and if picking the first one again, would it be a different one?”
The first subscription I had was to Investor’s Business Daily Digital. If I had to start again I think that would still be an excellent choice given the amount of education material on their website. TC2000 was my second and likewise, it is still my favourite charting software.
@RayTL_: “What drives such a high level of productivity? Any tips for procrastinators like me who mostly just sit and do a lot of thinking, and not much doing?”
I actually work best in short focused periods and tend to procrastinate quite a bit. However, when I do get to the work I get it done. Being passionate about the work is also extremely important, that will keep you going even when there are setbacks and challenges.
For productivity, I find it's best to get your thoughts on paper and just get started. Prototyping and planning allow you to see how you want the final product to turn out and sets you on the path towards that goal.
@illuzium: “For those of just getting into this and learning about the different platforms that are available, which are the best tools to start with? Moreover, which tools should we start with if we can’t afford all of them?”
My current workflow is MarketSmith for Fundamentals and Worden TC2000 for charting. These are both subscription software. However, there are so many free options out there that will get you 95% of the functionality. To match what I do most closely I would use Finviz to scan for growth stocks and then use TradingView for charting.
However, If you are just getting started with trading investing I think investing in knowledge rather than tools at first is the best way to go. Here are some book and video recommendations:
1. How I made 2 Million Dollars in the Stock Market- Nicolas Darvas
2. How To Trade In Stocks- Jesse Livermore
3. How To Make Money in Stock-William O’Neil
4. Trade Like A Stock Market Wizard- Mark Minervini
5. Think and Trade like a Champion- Mark Minervini
6. How to Profit in Bull and Bear Markets - Stan Weinstein
1. IBD Mike Webster and Alissa Coram: Trader Education: IBD's Top Investing Rules For Beginners
2. Mark Minervini and David Ryan 8 Rules for Super-performance:
3. Crash Course on CANSLIM - Ross Haber
4. IBD Irusha Peiris and David Ryan - Finding Top Stocks
5. Richard Moglen and Pat Walker. Analyzing Price Action and Using Moving Averages
6. IBD Mike Webster and Alissa Coram - Analyzing the Market and Price Action
7. Leif Soreide and Richard Moglen How to Trade Stock Breakouts
8. IBD Irusha Peiris and Jim Roppel - Focus on the Market Leaders
9. IBD Irusha Peiris and Mike Webster - How to Grade Your Stocks
Richard is another superb young talent, who shares a wealth of free knowledge for those seeking to master risk management under a more trade-centric investing approach.
I certainly learned a great deal from this interview, so thank you to Richard for participating, and taking the time.
Remember, you can find Richard over at @RichardMoglen on Twitter.
Stay tuned, as we have more excellent guests coming soon.
You can find previous editions of the guest interview series below:
• Edition One: Bill Brewster
• Edition Two: Kris FromValue
• Edition Three: ValueStockGeek
• Edition Four: AdventuresInFI
• Edition Five: Brian Feroldi
• Edition Six: Brad Freeman
• Edition Seven: Mostly Borrowed Ideas
• Edition Eight: Richard Chu
• Edition Nine: Kermit Capitál
• Edition Ten: Liviam Capital
• Edition Eleven: David Belle
• Edition Twelve: Mark Cooke
• Edition Thirteen: 10-K Diver
• Edition Fourteen: Richard Moglen
• Edition Fifteen: Matthew Cochrane
• Edition Sixteen: Michael Mitchell
• Edition Seventeen: Pythia Capital
Lead Analyst at Occasio Capital Ltd