Chapter 2. My Story

My journey into what I consider successful trading was quite similar to what most traders experience, except for the fact that I was exposed to the financial world at quite an early age. One can debate whether this early exposure was, in fact, beneficial. Over the years, I have come to realize that it is easier to learn a successful trading style if you approach the subject with little to no understanding of other strategies. It is always my preference to guide someone through the world of successful trading who does not possess any financial background and therefore no preconceived notions or investment bias. Nonetheless, I am very proud to have been raised by a successful investment manager, which resulted in financial discussions being commonplace around the dinner table. Whereas my early education resulted from osmosis, it wasn’t until years later that a brief chat with my father set me on a path that now finds me sharing what I have learned with you.

I was in high school at the time, and I can still vividly recall the conversation. My father and I sat in the living room, having just finished watching a classic movie (an evening ritual). I turned to him and asked, “Dad, how can I make 10 million dollars?” Mind you, while both my father and mother imparted many pearls of wisdom along the way, it was his response that evening that I value more than he’ll ever know. Most parents, when asked something like this by their children, might chuckle and perhaps make an offhanded comment about winning the lottery or maybe a suggestion to “marry well.” Paradoxically, even though we have little difficulty telling our children that they can be anything that they want to be in life, I doubt that few would take a question like this seriously. However, one look at my face and my father could tell that I was not joking. At that age, my ideas were simple, and despite having an excellent jump shot and a mean crossover, I knew that my chances in the NBA were about one in a gazillion. I didn’t want to waste my time and energy doing something that wasn’t going to reap some serious fruit. My father didn’t bat an eye, and with a sense of pride he said to me, “You can make 10 million dollars in the stock market.” Well, that was that, and from that point forward I set my sights on achieving a goal to become financially successful through the trading of stocks.

Now, it certainly would be colorful if I could relate that I then attended an Ivy League college followed by a brief but extremely successful stint as an investment banker, which led to becoming a billion-dollar hedge fund manager. After all, isn’t that the path taken by all successful traders? Not quite. After high school, I said goodbye to upstate New York and embarked on a state education at the University of Kentucky, where I was inducted into the world of what I like to call academic finance. While I learned the basic vocabulary of the financial world, my real education in the financial markets would come years later. My final year in college was a rocky one because I had thrown myself completely into an Internet start-up that failed miserably when the technology boom went bust. While the experience of my first real business venture was a tough pill to swallow, it instilled in me a sense of humility that I carry to this day. It was through this failure I learned just how elusive success can be, and I began to grasp the value and importance of managing risk. In 2000, I left Kentucky and headed home to Rochester, New York, to nurture the seed that was planted during that earlier conversation with my father. It was then that I became a stockbroker.

My first experience in the brokerage business was typical. I was given a phone, a list of names, and a pitch. The difference was that I wasn’t selling a stock idea. Instead, I was pitching a seminar wherein the prospective investors would learn all about what our firm had to offer to meet their estate-planning needs. It didn’t take long before the wind came out of my sails and my energy level waned. Even though I was like a starry-eyed kid around the flicker of the ticker, I just couldn’t get excited about financial or estate planning. In less than a year, I decided that a move back to Kentucky was in the cards. With a little money in my pocket and a new bounce in my step, I figured that opening my own brokerage office in Kentucky was the next logical move. Again, my ideas were simple. I believed if I was the proprietor of my own business I could choose the direction as I saw fit, thus moving closer toward my goal of true money management.

The year was 2001, and my plug for new clients was, “Sell everything.” Most investors were still disillusioned by what was happening in the markets, although they believed that the then bear market was nothing more than a mere correction. This was an opportunity to scoop up depressed tech stocks, they thought, shares of companies they knew little about. It was at this point that my passion for equities and investing started to shine. Like many who have entered this field, I sought to utilize the same educational tools of others. From early on, I was taught that Warren Buffett was the pillar of investment success and that his strategy was by far the best method available for securing wealth in the market. Believing this, I devoured everything on the subject that I could, even going so far as to read and reread The Intelligent Investor, the fundamental investment bible written by Benjamin Graham and David Dodd. Learning how to calculate intrinsic value and the importance of remaining extremely patient while waiting for opportunities to present themselves wasn’t all that hard. Furthermore, it wasn’t that difficult to understand that valuations during the tech frenzy were out of control and that, in fact, a reversion to the mean would be coming soon. I made a calculated decision that the best opportunity I had for building a business at this time was by bucking the trend of other advisors who were attempting to calm their clients by suggesting that they ride out the storm. Being very young and having a relatively small list of clients for references didn’t make it easy for me to obtain new business. This was especially so when you consider that my strategy was a bit brash, since we would begin the client relationship by going completely to cash and then remain that way for the next several months. Luckily, a few took a shot with me, which laid the foundation for a successful business as the markets continued to plummet and we stayed sidelined. It was then that I learned just how valuable capital preservation can be.

As time passed and the tech bubble burst, stocks retreated from beyond the stratosphere, and eventually incredible values became apparent. I would like to say that it was at this point I went all in on deeply discounted value stocks and thus secured the first fortune of my career, but that would be untrue. Although I did allocate funds back into the market, I did so at a very tepid rate. And even though I had a few good years as the market recovered, I realized quickly that I still had no real clue what I was doing. Sure, I had proven I knew how to buy low and sell high, but managing funds through the ups and downs of an increasingly volatile marketplace was still foreign to me. I decided that it was time to pursue a serious education in trading.

If nothing else, the sheer volume of Jim Cramer’s voice was tough to ignore. His popularity was growing, and it wasn’t long before anywhere you looked, there he was talking about the markets in a way few outside of Wall Street had ever witnessed. At the time, his radio broadcast was syndicated in Kentucky, and once I got a taste of this style that seemed so fresh, I didn’t miss a show. It makes no difference how I view his material now; the simple fact is that Jim Cramer was instrumental in bringing trading to the masses, and he was a major force in influencing my career as a trader. The minute that I became exposed to what Jim was teaching, I was sold. I remember heading to the bookstore as soon as I could, buying a copy of his book and devouring it the next day. It was as if the world I had always been craving was revealed to me and Jim Cramer had opened the door. Naturally, I gravitated to his daily writings on his website, TheStreet.com, and it wasn’t long before I paid for a subscription to his journal on Real Money and eventually became an Action Alerts Plus subscriber. I soaked up everything I could, reading his daily posts three and four times, studying the companies he was tracking, and investing personal funds in the stocks listed in his subscription portfolio. At the time, one thing I enjoyed about Jim was that he always seemed to be where I was, emotionally. This, of course, was solely dependent on how the market performed that day. If the market was up, I was happy, and so was Jim. I could expect a virtual high five after the close and an extremely positive radio show. However, if the market was down, it was a safe bet that I was depressed, and I could tell that he was also frustrated. Despite the ups and downs, he did a fantastic job of motivating his followers to stay in the game and encouraged us all to pull ourselves back up again for the next day. I accepted this emotional roller coaster as part of the game, taking it at face value that the moods of all successful market participants correlated with the ups and downs of the market itself. Over time, I quickly learned that this roller coaster was exhausting and, for me at least, unsustainable.

Although Jim stoked the passion that had been inside me for many years, the emotion itself was not translating into market success, and soon I was searching for a new teacher. During my foray into Jim’s world of online blogging, I was exposed to another trader and author whose material was exceptional, refreshing, and above all, unemotional. Rev Shark, as he was known on the Web, seemed to take a humble approach to the market, and I was quickly drawn to his style of allowing the market to tell him what to do (instead of imposing his beliefs on the market). Rather than riding the emotional roller coaster and anticipating its next move, Rev seemed to always be taking a much more reactionary approach, one that was appealing to me. He never seemed to have trouble sitting on the sidelines if he didn’t have a good feel. When favorable conditions emerged, however, he would attack quickly. After reading his columns for several months and applying much of his method with great success, I felt compelled to reach out to Rev and let him know just how much I appreciated his work.

Rev Shark and I began exchanging email in which we discussed the markets, individual stocks, and trading strategies. He introduced me to the likes of Bill O’Neil and Investor’s Business Daily and to the works of Nicholas Darvas and Richard Smitten. He expressed a desire to help me learn, and when I realized he was open to dialogue, I wasted no time absorbing as much as I could. Over the next several months, our relationship evolved to the point where I started to contemplate whether a business opportunity were possible. After much prayer and contemplation, I ultimately submitted to him a business proposal for a joint venture. Lo and behold, in the summer of 2005, I was off on a new adventure as my wife and I relocated to Florida. I would start working directly with Rev, gaining an education over the next two years that would lay the foundation for everything I did professionally thereafter. From 2005 through 2007, I received what I would call the equivalent of an MBA in trading. If I wasn’t buying or selling stocks, I was writing about them. And if I wasn’t writing about them, odds are I was thinking about them. My days and nights were literally consumed with all things related to stocks and trading. We had early success, but spent much of 2006 and 2007 fighting an uptrend, during which I learned the importance of grinding it out and about how true market success is a marathon and not a sprint.

As 2007 came to a close, it became apparent that once again it was time for me to move on, taking all that I had learned and applying it firsthand. Although our professional collaboration has since come to an end, Rev Shark will always be one of the greatest professional influences in my life, for the time he spent educating me in all areas of stock speculation. With a solid foundation in place, I left Florida in 2007 and relocated back to Kentucky and reestablished my own firm.

Rev Shark had given me many of the tools that I needed to succeed in the stock market, but I felt that I still had many holes in my game. My approach was artistic in nature, and I wasn’t able to articulate well just what my trading style was. I discovered that although I was more successful than many traders, my profits were sporadic at best. I often experienced long winning streaks followed by heavy draws. I had certainly built a firm foundation of knowledge, but I soon realized that I needed to improve both my technique and my execution, and so I set on a course to develop what would eventually become the successful style that I now utilize.

Most traders have the same goal: make money consistently. Many struggle in their pursuit because they bounce from strategy to strategy, failing to first construct a core foundation and then develop a style to adapt to various market conditions. No singular strategy works in every market, yet many traders are searching for that one-size-fits-all method. Given the ever-changing investing landscape and the number of players involved, I believe that is a fruitless, if not a losing, proposition.

Currently, the common belief is that “buy and hold” is no longer viable. I discuss publicly how much I reject this strategy, but who is to say that we won’t enter another raging bull market where it works very well? If you abandon the buy-and-hold method, is the alternative plan as simple as trading for the shorter term? If you develop a core foundation based on a buy-and-hold strategy, shouldn’t you also be aware in which environment this strategy is inclined to work, instead of believing that it applies to all market conditions? Still, it is not even that simple.

The difference between those who constantly seek a successful strategy and those who experience consistent success is rooted within a system that is timeless and applicable to all markets regardless of market direction. Successful traders, in addition to possessing a strong foundational strategy, are also keenly aware of those with whom they are trading against and among, and they will always be conscious of what the masses are doing, so as to capitalize on the movement of the herd. In short, to be consistently successful in trading, you must be armed with an adaptable style and ever cognizant of the trader landscape.

It has taken me more than ten years to develop the basis of my strategy, and still I continue to hone and adjust, learning every day from the market itself. If you are looking to become successful you will immediately improve your chances if you settle on one system and strive to perfect it instead of changing it depending on your mood, the markets, or your last few trades. It is only after perfecting your system that you will be able to adjust your style to fit a variety of markets and gain an advantage over others.

Although many different stock-speculation strategies exist, I lay out in the following chapters what I believe to be the best one. If you learn and implement this strategy, you will have a much greater chance of attaining whatever stock market goals you have for yourself, be it $1 million or even $10 million. There is no shortcut, and there is no way around the hard work success demands. Those who promise effortless stock market riches do a disservice to the noble and challenging craft of the stock trader. With an open mind, an aptitude to learn, and a heart to practice, you can achieve greatness. However, it will come only with devotion and commitment.