Q&A talks investment strategies with Mark Minervini, a New Haven area trader and former U.S. Investing champion. He has a new book out — Trade Like a Stock Market Wizard.
Q: From your perspective, what do you see ahead for interest rates? And what impact is this going to have on the markets?
A: The popular opinion is the Fed’s actions are going to create inflation and interest rates are going to soar. We’re probably going to be in a low interest rate environment for a bit longer. All of the Fed’s quantitative easing could lead to inflation and high interest rates but the opinion is so widespread and popular that I’d expect it’s not going to happen in the near term. We’ll stay in this environment give or take small upticks. Interest rates are eventually going to go up. The economy, even with all the stimulus, has not been able to grow very fast. It’s my opinion there’s more risk of a slowdown or a potential double-dip recession than of us overheating.
Q: You have an interesting theory about “flight to quality”? What does that mean for the U.S. markets?
A: So far that has turned out to be the case. Everybody was getting nervous the Cypress case would impact other markets and ultimately the U.S. What actually happened, and it’s similar to what happened in ’98 with the Asian crisis, is money goes and starts trying to find a safe haven. Usually the relatively safe haven is the U.S. Money starts to come into our bond market in a flight to quality. This also benefits our stock market.
Q: What advice are you giving investors, both institutional and personal? What should those two different segments be doing right now?
A: Institutional investors know what to do. They’re professional investors. Personal investors have a giant advantage over institutional investors because they don’t have liquidity problems. They can invest in the smaller high growth companies. Just because you own IBM or GE, that doesn’t mean you’re safe. My advice is to go where the strong earnings and revenues are even if the companies are smaller. That’s where you’re going to find the growth. Big investors will perpetuate a decline if they try to get out of a smaller company, so they are forced to buy big sluggish companies whose best days have already past. As an individual investor, be willing to go in places you haven’t heard of and do some research. That’s a chapter in my book. Just don’t buy what you know. This country has lots of great small companies that are putting up great numbers. When Apple was really producing earnings and growing profit margins, its stock was growing. Now it’s starting to get squeezed.
Q: How can investors find those companies before everybody else does?
A. That’s what I specialize in. There are great tools for the individual. Years ago when I started, institutions had sophisticated tools and individuals had none. Now it’s a level playing field. There is so much information out there and there are free tools you can use. You have the same tools as the pros but once again you are much more nimble. I’m not going to endorse any specific products. They’re out there and there are many different services.
Q: What are some of the values in the current stock market rally?
A. I’m not a value buyer. “Value Comes at a Price” is one of the chapters in my book. Cheap is sometimes expensive and what appears expensive is actually cheap. Very often when a stock is trading at a high or low, there is a reason. I look for stocks that are high because something exciting is going on that will push them even higher. Take Taser for example, I was buying the stock when it was trading at 235 times earnings and then it tripled from there because earnings were soaring. If you buy a cheap stock, you could tie up your money waiting for it to get noticed. You have to have people buying a stock for it to move up. The best value is where the big earnings are. I’d be leery of buying stocks that are too cheap. I know this is counter-intuitive.
Q: You probably get asked this all the time, but what are your top stock picks right now and why?
A: Essentially I’m in cash because there’s been a correction taking place in the broader market for the last four or five weeks. Look at the Russell 2000, which is a better indicator of the overall market as opposed to the narrow Dow 30. The market is in a consolidation phase. Recently we were in LinkedIn in the social media space, which looks pretty strong. Another one is Blooming Brands, which people might know from the Outback steakhouse chain. There are a few names that we are looking at but we are waiting to see how the market is coming out of this correction. I think the market has been in sort of a stealth correction. With it trading near all-time highs after running up for about four years, I would bet we are in the later innings of this bull market. The Fed may hold it up, but if the economy weakens to the point where we go into recession, another bear market will ensue.