We all want to have monster stocks in our portfolio, don’t we? Common notion that discovering monster stock is a matter of luck is not entirely true. At the start of one’s investing journey it may seem as pure luck to stumble across a monster stock, but as one spends more time with markets/equities it slowly becomes clear that there could be a process to finding monster stocks.
That is what is this page is all about – Philosophy, nuggets of knowledge, technical tricks etc that would help us find & discover next monster stock.
It only takes a few monster stocks to change your financial life. As per historical data of longer bull markets, average gains realized in a stock is 40% but monster stocks deliver above average and exponential returns. This is when they really shine. Hence it is important to be patient with monster stocks. One of the main characteristics monster stock is they often look like past monster stocks and majority of investors avoid investing in them.
Monster stocks come in all time periods. However, it is important to learn to spot them and one tool that helps majorly is technical charting. One must know which methods monster stocks usually follow and start screening stocks you own on those methods. Once discovered, it is just matter of staying invested.
To spot monster stock and stay invested is relative easy if you eliminate noise. Just a few technical parameters such as 50-200 moving averages and growth in earnings and RoE are enough to spot a massive stock. When these stocks breakout, and if earnings get even better, that is how a monster stock should be judged.
No stock can become monster stock with fundamental or technical alone. Monster stock need both fundamental strength and technical push to bring all the intensity that changes your financial life.
Identifying a monster stock is not enough. Neither is riding it along. However, knowing exit strategies to retain profits made from the monster rally finally completes the circle.
Few retail investors have a monster stock story to tell about how it changed their life. The reason is very simple. Market is a forward looking barometer of the performance and most often rallies and exhaustion happen way before things start reflecting in fundamentals of the company. Retail investors miss buying in early because fundamentals are not supportive and exit late because fundamentals are still supporting. Only relying on fundamentals of the company is not enough. Therefore, result always leads to disappointment and waste of time. Sometimes great stocks become monster stocks only because retail now see a consistency and safety and take stock price even higher.
One key technical analysis that helps spot a breakout in monster stocks is correlation with index breakout. Especially, after a huge crash, which usually brings similar draw-downs in many stocks, monster stocks usually breakout just ahead of index. This should ideally happen within a few weeks of broader market breakout. The early momentum then puts stock into next gear. So watch your stocks and make a mental note of which ones exhibit characteristics of monster stocks and which ones really follow above correlation.
One key characteristic of potential monster stock is it initially falls with broader market during the first leg of crash. However, later when broader market is falling, this stock exhibits resilience and does not fall much. It continue to trade in line with broader market until base formation is done and then it simply breaks out just before broader market does.
This takes stock to next level momentum and when growth supports the momentum, we land up with a monster stock.
Certain ways a specific stock moves can speak volumes about its potential to be a monster stock. One key parameter is how it respects its 50-day low MA line during down turns. A monster stock usually respects it 50-day low MA line even during massive falls and then smartly move up to trade above all its moving averages – 15, 50, and 200.
Any stock that exhibits such behavior & is extremely resilient during periods of massive falls can quickly take out 52-week high and resistance once market turns positive and give massive rallies, taking stock 60-80% up in short time. And stock simply repeats the cycle again until its moving averages catch up to price and breaks out again.
Be on outlook of such stocks and hold them dearly. If you missed buying them, then buy them when they kiss their 50-day low MA. That is the best price you are ever going to get.
When stocks respects 50-day low MA is one of the most important and critical indication that big guns are still holding and haven’t given up on stock during the down fall. Such signs must not be missed by investors because these are characteristics of future monster stocks.