The Poised To Triple Methodology: Your Guide To Hitting It Big In The Stock Market
This article will reveal many of the techniques that helped Mark Gomes to turn a $2,000 credit card loan into a multi-million dollar fortune. Mr. Gomes’ Methodology is the basis of his selection process, as well as his asset allocation and trading decisions. This is required reading for anyone who follows or seeks to invest in Mr. Gomes’ Poised To Triple stockpicks.
The Multi-Millionaire Methodology
by Mark Gomes
After semi-retiring from a successful institutional consulting career in 2008, I started donating time to write for Seeking Alpha (in early 2009). For four years, I dedicated myself to helping people make money. It was my way of giving back to a world that has blessed me with so much.
The results have been nothing short of extraordinary.
Over a four year span, most of my picks tripled in value. Many of the rest doubled or were acquired before getting the chance to triple. The average stock in my Core Portfolio rose by well over 100%. I was most proud of being publicly recognized for being the first analyst to provide proof that Himax (HIMX) would be the display engine behind Google Glass. The stock tripled in six months and went on to be named the #1 tech stock of 2013 on CNBC.
My readers made millions.
As a result, in early-2014 my following grew to exceed over 5,000 readers on Seeking Alpha and 25,000 followers on Facebook.
It sounds like a lot of fun, but helping people to get rich (or richer) is easier said than done. My skills required six years of formal education, over twenty years of experience, and two multi-millionaire mentors (one of whom was taught by the famous billionaire investor Jim Rogers).
I quickly realized that my readers would need something that could help them learn my secrets in minutes, not years — a methodology. A methodology details the process by which something is done. Based my personal experience, if you’re not making money on our picks, we’ve probably done a poor job of explaining how.
So take a few minutes to read this article. It will give you the ground rules I use in my investing. More importantly, it will arm you with the secrets I have used to make millions in the stock market.
Let’s get started!
First things first. Before you act on anyone’s stock analysis or advice, you should know as much as possible about that person. The Internet has made it easy for anyone to sway public perception regarding any topic, including the value of stocks. Many of them only want to do one thing – rip you off.
I’m not ashamed to admit — in my early 20′s, I actually fell victim to a rip-off newsletter. The profit they promised was too good to resist. As it turned out, the editors weren’t Wall Street professionals. They were crooks…and I was just a patsy in a pump-n-dump pyramid. So beware of “analysts” who tout penny stocks. Most of them don’t have the credentials to pick stocks. As a result, their picks are pure gambles
As for me, I started learning how to evaluate stocks in the mid-80s, a few years before the crash of ’87. In 1988, I earned a Track & Field scholarship to attend Northeastern University. It was the only way I’d be able to afford such a school, so I took full advantage of it. I studied Finance and spent as much time in the library as I did in class. I wanted to become the best stock-picker possible.
By the time I graduated from college, I thought I knew a lot. In reality, it took another 10 years of training and real-world experience before I really started to know what I was doing.
Looking at the stuff I see on the Internet and written in newsletters, I can tell you one thing for sure — most of the what you read is just as likely to hurt you as help. It’s very clear that most “analysts” have no idea what they are doing. They cite P/E ratios and regurgitate press clippings with no real analysis. This is because most “analysts” don’t have the necessary training.
This is why you should always do a background check. Many aspects of my background are posted here. But don’t stop there. Google me. Learn more about who I am before listening to a word I say. Your fortune is on the line.
OK, let’s get down to the fun stuff!
First of all, I find that it is best to buy my picks when I first pick them, being mindful of my Risk/Reward philosophy (continue reading for more details). In other words, be careful about chasing a stock up or placing market orders. Doing either of these things is asking for trouble.
In my opinion, the proper process is to read our reports in their entirety first. Then, create a Risk/Reward Chart and use it to decide on a reasonable limit price. Then, place your limit order and stick with it. If the stock runs away from you, don’t worry — there will be many more picks and opportunities in the future. I’ve been doing this for 20+ years and I can tell you with certainty — the world has never run out of picks.
Similarly, jumping in months later or after a pick has graduated can create confusion and uncertainty. This often sends readers into a desperate search for help or guidance. This is not healthy investing behavior. Similarly, I view selling one pick to buy another as poor investing behavior. Investing and trading decisions should be mutually exclusive. Under my Methodology, I do not sell one pick to purchase another, unless the pick I am selling has “graduated” (i.e. tripled, been acquired, or abandoned for fundamental reasons).
I developed this Methodology over the course of many years because I cannot provide individual guidance cheaply. My followers number in the tens of thousands. If I answered just ONE question from each person per year, I would have to work 24 hours per day, year-round (literally — I did the math!). Thus, if you are not an experienced or sophisticated investor, my advice is to read and re-read this Methodology until you know and understand it completely. In fact, I wouldn’t want anyone to follow or act on my picks until they have a full understanding of this Methodology, from start to finish.
“12 Easy Moves To Double Your Money In 12 Months” showed how even a child could have doubled their money in 2013. All it required was following our picks and utilizing this Methodology. My picks are very close to being a simple matter of buy-and-hold…but not quite. You have to do at least a little work yourself. For example, you can see my ongoing comments on any covered company by tracking my Comments and/or Instablog. Those sections allow you to click on the ticker symbol(s) you care about and see my commentary regarding those stocks.
I also invite you to read my articles titled Why Aren’t I Making Money Yet? and How To Draw a Risk/Reward Chart. Both are critical aspects of how I pick and trade stocks. If you aren’t committed to a buy-and-hold strategy, it’s your responsibility to learn my lessons on drawing and utilizing Risk/Reward charts.
Risk/Reward charts are arguably the most important part of my initial-investment and trading strategy. Risk/Reward charts make it easy to see when a stock is relatively cheap (or expensive). This helps to decide when to buy (or sell)…and how much. As my picks ascend within their Risk/Reward channels, I will generally look to trim my position (assuming that market liquidity allows for a prudent exit). Conversely, if one of my picks moves to the lower end of its channel, you can bet that I will strongly consider adding to my position.
Keep in mind, technical traders believe that “the trend is your friend”. Because of this, once a stock has hit the top-end of its Risk/Reward channel and begins pulling back, the short-term downtrend will have a tendency to gravitate towards the bottom of its channel until it gets there (or until something else causes the downtrend to revert back into an uptrend). Also keep in mind that I am not a technical trader (though I was in the late-80s / early-90s). As a result, short-term trading calls is not a part of my Methodology or service.
Risk/Reward Charts can also help you to avert a market correction by default. It is very common for the market to correct when most stocks are sitting near the high points of their Risk/Reward channels. If you do a disciplined job of hedging your positions (by shorting the market, shorting stocks with poor fundamentals, selling calls, buying puts, or raising cash by trimming your positions) you will often avoid much of the pain that a market correction can inflict. Occasionally, I will warn readers when the market feels frothy, as I did in late-2013′s “Stock Market Yellow Alert“.
FYI, these alerts aren’t calls to run for the hills and sell your favorite stocks (especially if they aren’t high in their Risk/Reward Channels). If I don’t like the market, I generally short the market or sell my ETFs, not my favorite stocks.
If a correction does hit, understand that it is very common for investors to panic. Indeed, emotions (especially fear and euphoria) are an investor’s worst enemy. They compel you to buy (or hold) when you should be hedging or selling. They also compel you to sell when you should be buying (or at least holding on). Look up “capitulation” to see the result of extreme emotion in the investing world. It will illustrate how powerful and dangerous emotional investing can be.
Worst of all, when stocks are falling, fear will compel you to look for reasons to justify that fear. For example, when my picks are falling for no apparent reason, innumerable readers will flood my inbox with comments like, “Insiders are selling. Something must be wrong!”.
I can sympathize with the sentiment, but one of the first lessons I learned (over 2o years ago!) is that insider selling is not a data point. Therefore it should always be ignored. In reality, insiders often have most of their wealth tied up in their company’s stock. Thus, it is wise for them to diversify their wealth (even if they have 100% faith in the future of their company’s stock). The only way for them to do that is to sell shares of their company’s stock. It is right. It is just. It is normal.
For an in-depth explanation of this subject, check out my December 2013 article, “Glu Insider Transactions — Why You Should Buy“.
Most of what I have said so far brings up another important lesson — chasing a high-flying stock can be very risky. A weekly move of only 1.1% will more than triple your money in just 2 years. Since 1996, I have “only” tripled my money every three years or so (and that has worked out very well for me). Accordingly, this is my initial/default timeframe when calculating my charts and planning my investments. Of course, things can be adjusted accordingly as situations dictate.
My latest Risk/Reward charts and updates are occasionally made available to subscribers, but it’s important to learn how to create them on your own.
Information Priority: PTT Research Newsletter subscribers and members of our premium services (i.e. Pipeline Data; PTT Elite) almost always get first priority, if not exclusive access to our picks. Subscribers to our free PTT Insider get second priority. We generally share all of our best picks with PTT Insider subscribers. However, the delay relative to our paid-service members tends to be substantial. The same policy applies to the general public, who takes final priority.
Based on this policy, our free (PTT Insider) members get a lot of value…but our paying subscribers get much more. Our free services are meant to give new investors the opportunity to make enough money to justify paying for our premium services. Our premium services often take a customers’ investing profits to a whole new level. In other words, as long as I continue working hard and making great stock picks, everyone wins!
By the way, we highly recommend that our Newsletter subscribers continue to subscribe to the PTT Insider (and Follow me on Seeking Alpha), so they can stay abreast of what we’re telling those subscribers and the general public (so be sure to sign up!).
*** FYI, an annual subscription to the PTT Newsletter costs less than $4 per day. The average expense at Starbucks is nearly double that, but they don’t offer picks to triple your money! Keep that in mind – just $4 per day. Just one triple can pay for a Lifetime subscription many times over! ***
Another thing you should do is monitor the news and SEC filings made by the companies whose stock you own. Understand this — in most cases, I do not make earnings predictions. Almost every winning team takes losses on the way to a championship. Guessing when those losses will occur is a losing strategy. Further, earnings estimates are often a poor (and incomplete) way of judging a quarter. Many of my picks only have one or two analysts covering them. I hope we can all agree that two people’s expectations should never be given “God” status. Similarly, how a stock reacts to earnings is often not a good indication of whether the company made good progress during the quarter.
Most people don’t listen to the earnings calls, so their trading reaction in uninformed…and therefore invalid (and often wrong). In fact, I make a lot of money by taking advantage of overreactions and wrong reactions. This is how professionals invest (and beat the average investor).
Make no mistake, when something major happens, I will look to provide my analysis on a best-efforts basis. That being said, if you don’t hear from me, the proper interpretation is that nothing major has occurred (and therefore, my opinion remains unchanged). As you read more and more of my reports, you will learn what to look for. When you see it, you’ll be better armed to act, even before I provide my analysis. This is an important part of becoming a successful self-investor. Honing this skill can give you a critical advantage terms of reacting to news and events before everyone else does!
What kind of stocks do we pick?
By design, our picks often focus on unknown, unloved, or even hated stocks. After a careful screening process, we only choose stocks that we believe will reward investors for navigating its three major investment cycles, which we define as 1) Great Find, 2) Wait Time, and 3) Gold Mine. These are our official ratings. You want to be long during the Great Find and Gold Mine stage, but much more cautious during Wait Time. I highly recommend reading more about this here. It’s critical to maximizing your returns.
Keep in mind, “Gold Mine” doesn’t mean the stock will go straight up. It means that the company has figured out a winning formula for producing sustainable growth. That makes the company a “Gold Mine”, regardless of what the stock does today or next week. Stock go up and down. Quarterly reports surprise to the upside and downside. This happens to all companies, including the best ones. The key is in the growth the company delivers over time (often measured in years).
This is critical to understand about my Methodology — especially when the market is falling or when one of my picks inevitably reports a weak quarter. Remember, a quarter is just three months. If you haven’t had a bad three-months in your life, you’re more fortunate than anyone I’ve ever known.
For your convenience, we also classify some of our picks as “Speculative”. This means that the company has not yet fully-established itself. The success of the pick is generally dependent on the company fulfilling certain expectations. CNBC’s Jim Cramer (a former client of mine, from his days at Cramer & Co. and Cramer Berkowitz) is an advocate of allocating 10% of one’s portfolio to speculative picks.
This is absolutely crucial to understand.
In my personal portfolio, my goal is to find and hold several “Core” and/or “Value” (non-speculative) picks to represent a total of 90% of my portfolio. Generally, I want to put 5-10% of my money in each. Ideally, I would also like to find and hold several speculative stocks to total 10% of my portfolio (roughly 1-3% of my money in each).
Some of our Speculative picks will be called “Ten Baggers Or Bust”. Be sure to pay respect to the possibility that these picks can go “bust”. If they do, the loss can be 100%. By limiting one’s Speculative holdings to 10% of one’s total portfolio, such catastrophic losses should be more than covered by the winners. As a rule of thumb, one’s investment in a speculative stock should be a fraction of what one would put into a non-speculative one.
Less experienced investors might be well-served to limit their Speculative positions to 1% apiece. This can change over time, as the investor becomes accustomed to market gyrations, Risk/Reward charts, and the psychological impact of suffering losses (and gains, for that matter!). More experienced investors may choose a larger fraction or even waive this rule entirely, assuming they are fully-appreciative of the risks.
The goal is for Core and Speculative picks to triple in value over time. Value picks, are unlikely to triple, but they offer fantastic risk/reward ratios, thanks to their high ratio of underlying tangible and undervalued assets. As of April 15, 2014, we had made three Value picks, with two winners returning 200% and 68%. The one loser fell 20%, dragging our overall average return down to 87%. The average annualized return of these picks was 69%. Not bad for low-risk investments!
In the Spring, a total of 10-20% of one’s money can be invested my Spring Portfolio picks (with no more than 10% going into any one Spring pick). We do not place price targets on these picks, but they have produced excellent average returns over a very short period of time. As of April 15, 2014 we had selected a total of 19 Spring picks, which produced an average peak return of 26% and an average final return of 16%. That’s an annualized return well in excess of 100%.
Short ideas help to protect the portfolio from losses, while holding the promise of extra profits, assuming our Short picks work (they usually do). About 1-5% of one’s money can be invested into each Short pick. We will generally provide guidance on when we think the short position should be closed out. As of April 15, 2014 we had made one official Short pick. It produced a 62% profit in just over 3 months.
Taken holistically, our Methodology can provide good diversification, allowing an investor to benefit from the winners, while being protected from the occasional (but inevitable) losers. This is especially true if the investor learns and utilizes the hedging strategies we discuss.
Another thing to remember is even though the series is entitled “Poised to Triple” we do not expect every pick to triple. That would be foolish. More accurately, we pick stocks that we believe are poised (in other words, “have the potential”) to triple. As our historical performance shows, many do! Many more double or get acquired. Of course, some simply don’t work out (you can see my work on SeekingAlpha for examples).
Dating back to the 1990s, my winners have completely overwhelmed the losers, leading to nearly two decades of outstanding gains for my Pipeline Data (institutional / Wall Street) clients and PTT Research (retail / Main Street) subscribers. This is the key to our portfolio, which takes calculated risks on companies based on their odds of success and failure (a.k.a. risk and reward).
Specifically, I seek the rare combination of relatively low risk and very high potential reward. I do this by sticking to my knitting and employing a virtual army of industry experts who understand the ins and outs of the companies I consider. All told, I spend 6-figures on research annually…so my subscribers don’t have to.
Thus, we recommend a few of things:
2) Beware of the losers. I try to identify and shed my losers before they implode. When we pick a stock, it is generally at a price that we believe is near the floor of where it should go. A significant decline from those levels is usually a sign that we’ve made a bad pick. Because of this, if one of our picks drops 20% from its initial price, I revisit my thesis, take a hard look in the mirror, and decide if I’ve made a mistake. If nothing has changed with the story, I tend to get excited — after all, if I like the stock at $10, I’m going love it at $8.
If something has changed with the story, I will let you know as soon as possible. Generally, the loss will be limited to 20%, but could exceed that under certain circumstances. Luckily, my winners tend to double, triple, or get acquired, which more than makes up for the occasional 20% loss.
To be clear, we do not advise investors to place 20% stop losses. That would be very easy prey for stock manipulators. If a stock was already down 15%, one could quickly and easily push it down 5% on a quiet day (by shorting the stock). That would trigger a cascade of stop-losses (we have tens of thousands of followers across various channels). They could then step in and cover at a considerably lower price…and everyone else would deluge us with emails insisting that “someone must know something is wrong at the company”.
Our Speculative picks tend to be the exceptions. Speculative picks can easily fall 20% or more before taking off. In fact, my biggest winner ever dropped 25% over a nine month period before going from $3 to $30. Because of this, it’s best to keep a special eye on the fundamental progress of your speculative picks, rather than their stock price. As long as management keeps making progress, things should turn out ok. If they encounter stumble after stumble and provide excuse after excuse, it’s likely a signal to cut your losses and move on. Our updates will assist.
3) I never (ever) predict where a stock will go over a short period of time. This is because nobody can consistently predict what the total population of market participants will do next. My Methodology focuses on calculating the value of companies (and therefore their stocks). Even when I’m right, it sometimes takes the world months (and often years) to catch on.
This is integral to my Methodology (which has earned me close to 40% annually for the past 18 years)! It’s boring and requires a LOT of patience (and faith), but it’s effective. I fault no one who decides that this Methodology is not for him or her…but if you decide to follow it, you have to follow it completely. If there was a way to make it more “fun”, trust me, I’d do it.
4) Despite not predicting short-term prices, I do keep an eye on each stock’s potential risk and reward. If you buy a stock at 10 that could go down to 5 or up to 30, you are taking on $5 of risk in pursuit of $20 of reward. All else being equal, situations like this make great investments. However, too many investors lose sight of this equation as it changes. For example, if the same stock quickly jumps to $25, your risk may now be $20, while your potential reward is only $5.
Quickly is the operative word here. Good stocks are supposed to go up. True risk and reward is determined by how fast it moves up relative to its prospects. This is why Risk/Reward is best measured by using a Risk/Reward Chart. A Risk/Reward channel moves upward at a pace that the company can presumably keep up with, giving us a constant relative view of Risk/Reward (i.e. is the stock high in the channel or low?).
By the way, Risk/Reward is also why our picks usually “graduate” from our portfolios once they triple. After tripling, only the rare stock triples again as easily. When we see an exception to that rule, we’re sure to let our subscribers know.
For shorter-term trades on longer-term investments, we utilize risk/reward charts like the one you see below:
If you’re a day trader or a technical analyst, you probably have tools that are far more sophisticated than this (FYI, I was a technical / quant analyst from the mid-80s until the mid-90s). As a long-converted fundamental analyst, we simply attempt to find the longer-term path the stock is likely taking (depicted by the two long parallel lines).
It’s important that the slope of those lines is sustainable (in the case of AMZN, the lines are moving up at a rate of 19% per year, which feels quite sustainable). If the lines are too steep, you are likely drawing a short-term trend (depicted by the short parallel lines in bold). Unsustainable trends generally end in a reversal, as it did in this case.
By following these tips, you can find better entry and exit points. Take note of the fact that every time that a stock hits the top (or bottom) of its Risk/Reward channel, there’s a very good chance that it will gravitate at least halfway back toward the opposite end (if not all the way). When the stock first reverses course, it creates new trend, opposite of the one that previously existed (i.e. if it rises to the top, the up-trend is liable to reverse into a down-trend, and vice versa)…
..and as you may have heard before, the trend is your friend.
FYI, many of our picks will entail bottom-fishing small-cap value stocks. Performance-wise, this equity asset class has dominated all others for 6 decades running. It is also the class with the least amount of institutional competition. Thus, you’re not dealing with companies that are being extensively researched by 500 MBAs.
You want to avoid this sort of competition if you can help it. Trust me. Every week, Pipeline Data invests thousands of dollars into research so we can help buy-side institutions predict the quarterly performance of larger companies like ORCL. Unless you’re an industry expert, you don’t want to compete with that level of research, experience.
Focusing on smaller companies gives smaller investors a distinct advantage. Such an advantage is rare in today’s market environment.
This is where the likes of Warren Buffet cut their teeth. In fact, Warren Buffet once said that he would never have abandoned this asset class if he hadn’t become so rich. Once you have billions like him, investing in such small companies becomes virtually impossible (his typical position often represents several-times the entire market cap of my picks!). I hope this helps to illustrate the point.
Kindest Regards & Best Wishes,
Mark Gomes, CEO
Pipeline Data & PTT Research
p.s. One last thing — I donate a fair amount of time to this endeavor. As such, I have carefully chosen how to allocate this time. I don’t typically provide timing calls on when to buy or sell. However, my good friend Zev Spiro offers this service via PTT Research. Also, for the sake of having some privacy in my life, I don’t disclose my specific trades or other personal information. This Methodology is meant to provide enough insight into how I think. Suffice it to say that I’m a big proponent of the risk and reward methods described herein.
Finally, I tend not to reply to the deluge of direct emails I receive. Please take no offense. I have thousands of readers and simply can’t allocate time to everyone and find great stocks! That being said, I do provide a great deal of Q&A to subscribers of the PTT Newsletter each week. If you’re not a subscriber, posting your question in the comments section of Seeking Alpha is your best chance for getting a response.
* Footnote: CNBC’s top picks of 2013 required the stock to have a market cap in excess of $1 billion to ensure its credibility. Indeed, we focus on real companies with real opportunity, not pink sheet penny stocks which are often pushed by stock promoters.