Put your hands up if you can remember the big money we made in the ‘Nifty Fifty' – those stocks from the ‘60s and ‘70s. Or what about the Four Horsemen from 1999 to 2001? The famous FANG stocks of 2015 – Facebook, Amazon, Netflix and Google – had many of the same similarities. More on that in a minute.
Tensile Trading is a methodology that teaches you how to metabolize your investments and digest your profits. Let me explain. It's been my experience that new investors rush to lean their financial ladders immediately against the growth stocks' wall. They don't appreciate that this ladder tends to get you to the wrong place fast. They are often disappointed when I suggest that their financial ladders be leaned against the asset protection wall first. Their personal narrative seems to get in the way. They have a vision of big gains to quickly grow their assets.
To quote Dave Ramsey, "Building wealth is a marathon, not a sprint." The growth ladder has its place, but this blog is actually about growth stocks. However, it is unreasonable of me to go there without addressing the caveat that, with our methodology, asset protection and allocation comes first.
Going full bore for growth right out of the starting blocks inevitably results in poor financial returns, and more often than not, in FEAR (i.e. "False Expectations Appearing Real"). That's my disclaimer. I invite you to download for FREE the first chapter of our new book, Tensile Trading (Wiley Trading, 2016), for a much more detailed explanation.
Okay, as promised, let's now focus on growth stocks. In 2015, my portfolio was distributed across 19 different asset classes that I covered with best-of-the-breed ETFs or no load mutual funds. My twentieth asset class was filled with ten individual US growth stocks. In a nutshell, the 19 asset classes were designed for asset protection and modest growth. The basket of ten individual growth stocks was for pure growth alone.
2015 was a great year. Why? It was very profitable because I had positions in the four FANG stocks. You see, the Tensile Trading approach is all about going fishing in superior ponds and avoiding inferior ones. In 2015, if you managed other people's money (which I don't) and you were not fishing in these four ponds, you probably underperformed – plain and simple. It's my money so I really hate to underperform.
This blog is all about empowering you to find these sensational fishing ponds (which is really what the whole Tensile Trading book is about) and to do so early on, just as the fish begin biting. Our Tensile Trading ecosystem is most easily understood with the aid of some graphics straight out of the book. Once again, our approach with respect to the individual stocks basket is this in a nutshell:
So how do you execute this approach? Remember that the stock market operates on the basis of groupings. You are only as strong as the group to which you belong, so the four questions we ask of candidates are these:
Chart 1. Is the stock outperforming the market (i.e. outperforming VTI)? Chart 2. Is the sector to which the stock belongs outperforming the market? Chart 3. Is the Industry Group to which the stock belongs outperforming its sector? Chart 4. Is the stock outperforming its peers in its industry group?
The fifth leg that unites these elements is Money Flow. I look for On Balance Volume to show that institutions have discovered my pond and are active fishermen. Review these examples and you will understand what I mean. NOTE: These charts can be easily reproduced by simply using the ‘ChartStyles' pulldown menu and looking for ‘Gatis Roze' under the ‘Predefined Settings'. And don't forget to download the book's first chapter for FREE at https://store.stockcharts.com . Here's to good fishing!
Trade well; trade with discipline! -Gatis Roze, MBA, CMT
Presenter of the Tensile Trading DVD, Stock Market Mastery.
Developer of the StockCharts.com Tensile Trading ChartPack.
P.S. Click HERE for information on my future appearances & seminars.