Insider Buy Superstocks: The Super Laws of How I Turned $46K into $6.8 Million (14,972%) in 28 Months

by Jesse C Stine

Insider Buy Superstocks <> Hardcover <> JesseC.Stine <> SuperstockLetter

Genres: Finance, Nonfiction, Personal Finance, Business

250 pages, Hardcover

First published May 21, 2013

Reviews

[Kiril · Rating 5 out of 5]

Definitely one of the very few investing books that deserve a 5-star rating.

What I liked about the book:
1. It is different from the rest. Its whole point is to be different. You have to be different from the rest in order to achieve results that are higher than the mean.
2. The author reveals a lot (if not all) of his technics, regarding the market. It is not like the other books where the author wastes more pages on bragging about big wins and just brushes on how he came to the idea of the buy and the sell. Here you have a full analysis of the thought process with graphs and comments - priceless.
3. I very much liked the idea of the stock's "magic line", around which the whole idea about buy and sell revolves.

What I missed:
1. Mainly the book lacks on money/risk management. Maybe the author himself is not a huge fan of those, but I believe that without them, you are almost sure to lose a lot of money and nerves in the market.

I definitely recommend this book. If you are just starting your investing/trading adventure, maybe you will not get the full potential of the ideas in the book, so you have to revisit it every 6 months to 1 year. You need to have personal experience with the market, so you can relate to some of the things the author is talking about. Remember what I said in the beginning - this book is different and the ideas are different. If you've read a bunch of mainstream investing books and have not been in the market for at least 1 full market cycle, then you might think that this or that is the author's fantasy, but believe me, this guy is spot-on on most of the stuff he is writing about.

[João Cortez · Rating 4 out of 5]

The book describes an interesting method that consists in screening stocks according to some criteria and then applying some fundamental and technical analysis to identify stocks that have big growth potential. I also liked the fact that the author not only focus on the buying, but also on the selling point. Overall, the book makes a good read, but when it comes to the stock market - and I've read many books already - take it with a pinch of salt.

[Brian Moyer · Rating 4 out of 5]

Some good theory here, but I don't know many average retail investors that have enough time to do enough research to find enough stocks for it to be meaningful. Also, in the days of automatic bot trading, I question how successful you'd be. I'd want to backtest this before putting it into effect.

[Pavel · Rating 4 out of 5]

So is there an easy way allowing you to beat market without much effort? According to Jesse Stine, the answer clearly is yes. My motivation to read this was to have more input on deciding whether it makes any sense at all to invest in individual stocks rather than into ETFs. I still don't know to be honest.

Notable takeaways: You should define better strategy than just setting a stop-loss and holding forever. Selling is equally important as buying. Buying more on the way up is usually not particularly smart. The reason is that you've made a decision whether to invest or not at some pricepoint. At that moment, you carefully assessed your potential gains as well as the risks. As your stock goes up, risk usually rises while the potential for further growth declines. Majority of people invest on the way up, often near the all time highs. Of course you want to do exactly the opposite. Buy rumors, sell the news and don't fall in love with your stock. If you want to invest, you absolutely need to wait for the right moment. This might make you sad when you don't own a stock of a company you like and wish you owned. Deal with it. For sure, there are other stocks allowing you to hop on the train early enough. You need to do your homework finding those and listening to news is definitely not the way to do so. Sometimes, the best thing to do is not to do anything at all. Cash is also a position. This goes contrary to what fund managers are doing - they are fully invested all the time. You're not a fund manager. What everybody knows is not worth knowing. What everybody does is not worth doing. Thank you Axel De Acetis for recommending this to me.

[Tadas Talaikis · Rating 3 out of 5]

Essentially about picking companies at some early point of their excessive growth. Everything else is a bit mixed, because most markets aren't momentum driven and any momentum entries (I mean entries on any type of averages) are basically entries on noise. In other words, if you've picked the great stock, probably it doesn't matter where exactly you buy if you buy left of the distribution (maybe even low volatility left). What this book shows on possible entries".

Also we don't know beta for any of stocks mentioned. As flood rises all tides it may be that those excess returns are due to very high beta, meaning you have easily replicated them if just bought SPX with a lot of leverage. In that case you would have saved a lot of time for research. But, of course, that's just hypothesis that needs to be tested, I don't know really.

Update. OK, I ran simple test on TRMM. 2003-2006 beta is 0.2-0.3 and alpha 0.6-0.9. Not bad, can be replicated in some way, but most of return comes from the pick.

[Cwanxin · Rating 4 out of 5]

A lot of useful information on scanning for a superstock based on technical chart patterns and fundamentals. The writer basically list it all down for you, you just need to do the work to scan for them. There are plenty examples supported by real trades and clear charts. Be careful if you are a new trader, there isn't much info about risk management, and it seems like the writer goes ALL IN when he spots a superstock, resulting in colossal losses that made it to the book.

As a day trader, I didn't like how he dismissed day trading wholly cos it didn't work out for him. With discipline and the proper management of emotions, I believe you can be successful as a day/swing/superstock trader. To each his own i guess.

[Sjors · Rating 3 out of 5]

Here is another of these "you too can achieve superior results by using technical analysis"-books. And sure enough, Jesse Stine does not disappoint: (quote) "To keep it simple: at breakout, a killer Superstock will 1) be under $15, 2) break out of a strong base, 3) break out above its 30 week moving average, 4) show massive weekly volume, and 5) show a steep angle of attack." [Chapter 7].

Let the handwaving begin!

What about the second point, strong base? (quote) "The stocks that have the biggest gains are typically those that have the longest 'bases.' In other words, we’re looking for a stock that has traded sideways in a narrow vertical range for an extended period of time. This boring trading activity tends to weed out the emotionally-charged short- term traders." M'kay "extended period", "narrow range" sure.

And number 3? (quote) "90% of history’s biggest gainers broke out above (or stayed above) their 30 week moving averages during the first week of their high volume breakout."

OK that's a clear criterion. As is the explanation of number 4: (quote) "When great news hits [...] volume will typically expand 500% to 5,000% and will remain at elevated levels for months on end." That's quite a range, but M'kay it is a signal that can be seen.

But what about the "angle of attack" in number 5? (quote) "If your focus stock has already broken out of its long-term base, you can estimate a possible future price target by drawing a line from the base (support) through the new trading zone. I have found that most of the biggest winners advance at roughly a 45 degree angle from their base over time. They generally keep this “angle of attack” for a few months. At some point, the angle may steepen and turn higher if the momentum crowd takes over." Hahaha this is funny. To be sure, increasing prices mean that the price curve of a stock will have a positive slope, but the "angle of attack" of a curve on a chart entirely depends on the relative scales of time and price axes. For example, if one day is a centimeter on the chart and 1 dollar is also a centimeter, then a price rise of 1 dollar per day has an "angle of attack" of 45 degrees. If 10 dollar is 1 centimeter, the angle will be almost 6 degrees. So I guess we all need to buy Jesse's graph paper.

It gets better. If you want to buy at the best time, you need to check the "Magic Line", which is the stock's n-week moving average. If the stock brushes the magic line, buy. Optimal selling is also connected with the magic line. The value of "n" in the "n-week moving average" line differs per stock, naturally, because all stocks have their own character. Seriously, I am not making this up: (quote) "[...] most Superstocks hit their magic line or 10 week moving average at least once every 10 to 12 weeks. They either fall down to meet this line or they rest in a base and wait until the line catches up. Once they meet their magic line, a majority of Superstocks will start flying again. The best stocks will hit their magic line and make new highs 4-6 times before their run ends. Occasionally, a winning stock’s magic line of support can be quite a bit different from its 10 wma. It may end up being its 5 wma, 20 wma, 30 wma etc. But generally, the very best performers have magic lines of support near their 10 wma. The only way to discover a stock’s magic line is to pull up the stock’s weekly moving average and utilize the trial and error approach. Keep plugging in different daily or weekly moving averages until you find one that “fits”; until you find a line where the stock repeatedly bounces aggressively higher. Although a stock may trade below its magic line during any particular week, we want to see it close above the line by week’s end. As stocks have different personalities, it makes perfect sense that some would have different magic lines. The secret is to fit the moving average to the stock. This is a unique approach that is seldom used by traders."

Pheeeewwww where to start? Finding a curve based on trial and error fitting predicts what exactly? This is peak technical analysis at its purest. Other authors may dress up this kind of sleight-of-hand with fancy statistical formulae or enough lines to make a pre-Mercator sailing map look 'user-friendly', but I am grateful our author is not like that.

So obviously I don't buy into the technical analysis part of this book, however, Jesse Stine spends a few good chapters describing his biggest trading mistakes (which is refreshing to to find in a book like this) and lessons learnt, which I found very helpful and interesting. Even the rather self-indulgent first half of the book was interesting to me, as it gives me a bit of insight in the mentality of a speculator who repeatedly wagers the larger part of his net worth (plus margin!) on a near thing.

I have much to argue with in that part, but I respect Jesse for putting it all out there. It's very instructive, whether you want to follow in his footsteps or take a more conservative path. Three stars for that.

I close this review with a final quote from Jesse:

"There have been times when I have taken massive multi-million dollar positions in single stocks when I perceived that there was a massive disconnect between a stock’s price and its value. In such times, I would have 90% or more of my net worth in one or two stocks that offered massive potential reward with very limited risk. The other 10% or so of my portfolio would be in a handful of stocks that didn’t offer the same risk/reward characteristics. I do not recommend such a concentrated portfolio for most investors."

Suggestion for your next google search: "massive survivorship bias".

[Marco · Rating 5 out of 5]

Best book I've ever readen about stocks: no garbage, all useful stuff.

Some problems: he calls "magic line" the dynamic support (i.e. weekly 10sma or daily 50sma) and it's kind of lame. ditto for the "superstocks". but that's ok.

He suggest also about diet, he tells about the "china study", I am contrarian on this topic, even though I follow paleo/slow carb for the same reasons he point out -> sugar is bad.

[Tony · Rating 3 out of 5]

I highly doubt the author could maintain his success with the method illustrated, given that he depleted his account more than a few times during his brief initial trading career. This approach is highly risky, especially considering his disregard for the importance of having a stop loss. Think of all the money he could have saved when the stocks rose, but instead, he lost it due to the absence of a stop loss.

Indeed, O’Neil recommends searching for companies with high earnings in the most recent quarters, as well as the last four. However, after hundreds or even thousands of hours of stock research, one would realize that price action and volume have a very low correlation with the underlying EPS performance. Even if that is true, the earnings performance is already discounted years in advance by skilled traders who work diligently in searching for great stocks. Therefore, any research done by these seasoned traders is already reflected in the price action and volume when they act on their knowledge.

If you’re planning to use his method for searching for stocks, I have a warning for you: stocks priced below $15 generally have a high ADR%, which could be a significant red flag. A single day’s move could exceed 8% and sometimes derail your preset stop loss. Therefore, you must be highly selective when deciding which stock to buy.

In case you’re wondering, you don’t necessarily need 50-100% gains on every winning stock. If you understand the effect of compounding, you’ll know that each additional trade’s win builds upon the last. For instance, a 5% return rate on $10,000 over 50 trades amounts to $114,674. However, you must also consider the effect of a 5% compounded loss rate on that same $10,000, depending on your win ratio. A loss of just 5% over a series of 10 trades would reduce that amount to $5,987.37. Hence, each trade essentially builds upon the last, making time a friend to the wise and an enemy to the ignorant. If you’re highly selective with your trades and increase your win percentage, you won’t need a large amount of winning gains, as long as you can manage a long series of trading opportunities.

[Khoa Tran · Rating 3 out of 5]

A little crowded with information that is not important. Additionally this fits better for long-term investors than swing traders as he used weekly timeframe for entry/exits. Expect to sit tight on a hand for months if not years in order for a stock to play out its thesis if you choose to adopt the methodology.

[Zandelicious · Rating 5 out of 5]

Love this book quite abit, for authors concise focus on what is fundamentally important in his whole process of intergrating fundamental + technical analysis in his stock pick. 💪 is a book worth reviewing for sure

[TanGo · Rating 5 out of 5]

This is the most inspiring book about stock market I've read so far. And productive too.
It helped me to made my mind about my stock market strategy and to build a foundation for my future trades.

[Leafy · Rating 4 out of 5]

Consider different situations and how you would react before entering the position.

[Nils Arndt · Rating 5 out of 5]

Well written book, which offers some new ideas in terms of technical analysis and fundamental analysis.

[Sean McGaffigan · Rating 5 out of 5]

Must read for anyone inspired by the success of other investors to create their own successes in the markets

[erjan avid reader]

to all who want to read this book, my brief summary:

the author describes how he raised ~6 millions in 2003-2006. His method advocates momentum trading and spotting "superstocks" that insiders are buying. In a year , this way a trader may find only 8-10 good stocks.

4 absolute must have qualities in a potential superstock:

1)45^ of price rising - the "angle of attack"
2)volume spike
3)long base and steady rises - the superstock must form a nice ladder.
4)above 30wma

He also gives around 20 secondary traits of a potential golden stock.
Once you buy - you must be confident, shut it off and stay away from all financial news hype.

This is it. A good book on momo trading!

update:

this is why i think this book is one of the rare super honest ones on trading, read this part, it simply shocked me, i wanted to do exactly what he said:

"Like most serious investors, I have read many of the popular trading and investing books
over the years. I have certainly read every one of the classics like Reminiscences of a Stock
Operator by Edwin Lefevre, How I Made $2,000,000 in the Stock Market by Nicolas Darvas,
or The Intelligent Investor by Benjamin Graham. Many of the books that I have read were
outstanding and highly entertaining. To aid your pursuit of financial freedom, can I recommend
them to you?
NO.
My job here is to help you make money…PERIOD. I want you to focus on the very few
things that will make you serious money. I want you to leave the rest behind. By focusing
EXCLUSIVELY on the things that truly make a difference, you will open yourself up to the
distinct possibility of becoming a true expert. If all of your time is consumed by reading dozens
of books, you may become good at several different methods, but you will never become GREAT
at one. Sure, if you are heading to the Hamptons for the weekend and want an entertaining book
to be read during the brief moments between Cosmopolitans, by all means, pick up a copy of
Reminiscences of a Stock Operator"

update 2:

clearly this book is about momentum trades and how to spot superstocks before the community finds it. It is for patient and long term minds!

I don't like the negative outlook on day trading, but we will see. I found one chatroom and surprisingly it mentions very similar traits of good stocks they scan for.

This is my first book on momentum trading, very good book, lots of info to digest..

[Tom Peterson · Rating 5 out of 5]

Loved how this guy thinks

[Jen · Rating 4 out of 5]

An interesting read: it's clear, practical and concise. Jess is a growth stock investor. I particularly liked how he details several of his trading rules and used specific examples to make the book more practical.

[Vinayak · Rating 5 out of 5]

Changed my perspective on life, when I read it 4 years ago. Truly life changing book, quite unusual for a stock market guide, have read this book a total of 20 times despite it being quiet an intense read

[Michael · Rating 5 out of 5]

Great book with simple ideas.

[Asheya · Rating 4 out of 5]

Pretty awesome book and mentions traders i have known for a while now. This book really hit home for me. Very motivational!

[Kayla Slager]

Amazing read on the stock market!