Book Review: Superstocks by Jesse Stine

Every year, there are stocks that will have epic runs and return 500-1000% or more within a few short months. This book explores how to find these Superstocks and how trade them.   I've been trading for over 14 years. During that period, I have probably read over 100 books on investing/ trading and very few of them are worth a damn.  This book is not is the usual B.S. trading books that show some swing trading setup based on cherry picked charts. This one was different.  This is Jesse's story about his actual trades.  Jesse did it.  This is his book, his story, and our opportunity to share in it.    Superstocks is hands on as it takes you through his trades.  Showing the entries, exits.

If you want the entertaining story about how he did it its in there as is the psychology.  If you want the hands on detail thats there for the taking as well.  This style fits my philosophy in that it is part momentum, part fundamentals, and part trend following. These stocks are set in motion by a major event. Usually earnings.  (Stockbee a site, which I subscribe calls these type of events, episodic pivots or "EPs")  Jesse demonstrates how to get into these stocks, what to look for in the 8ks, the charts and how to get out before they collapse... they always do.

There is also  healthy dose of trading psychology and contrarian advice... turn off the noise, look at weekly charts because everyone looks at daily charts, don't use indicators because everyone uses them.  Think differently, get different results.

The only area where I felt Superstocks does not go far enough is in risk control.  There is not enough much discussion in the way of stops or position sizing. This would have been helpful. However, I get the feeling that Jesse's own trading during his 14,972% run would have violated many traditional notions of risk management due to the leverage he put on his trades.  Indeed, he does not hide the fact that he had some massive drawdowns. 

I love that this book was self-published because it contained many more examples than most publishers would have allowed. In an area where there are so many phonies, it is refreshing to see someone who is genuine as a trader.  After reading Superstocks, I immediately read it again. I'm now on my 3rd round.

Trend following by Michael Covel review

I Just finished Michael Covel's Trend following. The book reads like a Rah Rah piece making the argument for trend following.  It argues that it is the best method, taking on victor Neiderhoff and even Warren Buffett in the process.

I get that it works for those who can do it well as the book notes that  John Henry started with 16k. and now owns Boston Red Sox.

The Trend Following has heavy doses of Trader profiles, such as the Turtle traders, who imparting their wisdom in Twitter size quotes.  For example,

Ed Seykota: "Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money."
Ed Seykota: "To avoid  whipsaws and losses, stop trading."

Ed Seykota: "Risk no more than you can afford to lose, and also risk enough so that a win is meaningful."
Ed Seykcota: "Trend Following is an exercise in observing and responding to the ever-present moment of now."

Ed Seykcota:"Fundamentalists and anticipators may have difficulties with risk control since a trade keeps looking 'better' the more it goes against them."
Ed Seykota: "Until you master the basic literature and spend some time with successful traders, you might consider confining your trading to the supermarkett

Unfortunately,  There was very little "meat" regarding how to do it. Position size, risk control, profit taking.  In that regard the book was disappointing.  It took over 200 pages before systems were discussed.

1. How does the system determine what market to buy or sell at any time?

2. How does the system determine how much of a market to buy or sell at any time?

3. How does the system determine when you buy or sell a market?

4.How does the system determine when you get out of a losing position?

5. How does the system determine when you get out of a winning position? 

I would have like to see what the trading wizards responses would be to these questions.  

 The book does very little in attempting to answer these questions.  There is the basic don't take a loss of more than 2% of your portfolio on a trade.  I have that rule as well but that hasn't given me the 18,000% return that some of the traders profiled have earned.   I wanted to know when, how do we get into a trend?   How do you get out,   How do you trail your stop? Seykota mentions  he uses Donchian Channels but they are not explained by the book.  This will be a topic of more research.

In short this book is not particularly helpful.  Undoubtedly, it discusses a great strategy but it doesn't do it well.  Save your money.

Cramer's Get Rich Carefully: X ray vision

I recently read Jim Cramer's "Get Rich Carefully." One of the chapters that I found most interesting dealt with the concept of the key earnings reports  Because certain stocks and industries  show what's happening on a larger scale. The following are the companies conference calls that he follows to gauge the strength of various sectors:

• Caterpillar 

 Sells construction equipment world wide, which reveals the strength of markets especially in China where government numbers cannot be trusted.

• Alcoa 

The Aluminum giant.  A leading predictor of the economic cycle

• Home Depot

 Which regions are the doing the best. You can gauge the demand from a variety of home products

• Union Pacific

Rail road lists which market it is selling and where is demand.  Take Q2, 2014 earnings CC:

 "Frac sand shipments are up 25% and more growth is seen."

Sure enough, EMES, HCLP, and SLCA all beat and guided upwards.

Cramer also mentioned  Slb, Jpm, and Fdx as Conferences calls to pay attention to.

Book Notes: Contrarian Investment strategies: By David Dreman

The market operates partly on fundamentals and partly on investor psychology.  When these market drivers can diverge significantly and for extended periods of time.   I like contrarian plays.

The Affect principle.

Our expectations can be skewed by our like or dislike of a particular stock.  Also, recent events skew our expectations.  BP oil spill, gun stocks after school shootings caused stocks to over react.



Risk is not correlated to reward in the investment world.  Studies have demonstrated that "low risk" investments out perform the perceived high risk.  But we are programed to believe the converse to be true.

Dreman Guidelines

• Do not abandon the prices projected by careful security analysis, even if they are temporarily far removed from current market prices.  Over time the market prices will regress to the levels similar to those originally projected.

• Warning signs include analysts justifying prices with metrics outside traditional analysis.

SOS thought: Social media stocks are being valued from the stand point of  viewers rather than earnings. 

Treacherous short cuts

Availability heuristic.

• Don't be seduced by recent rates of return when they depart significantly from historical rates.
• The market may react to news, but it does not always react correctly.