Mark Minervini, a two-time champion of the U.S. Investing Championship, has founded his own investment advisory firm. He has unique insights into stock investments, particularly in growth stocks. Based on his years of investment experience and research, Minervini has refined a complete set of stock selection and investment strategies: the SEPA method (with its trend model being particularly well-known). He uses technical analysis to identify trends and fundamental analysis to verify his judgments, minimizing the interference of personal emotions in investment decisions. These methods can effectively assist us in pinpointing the right timing to buy individual stocks, maximizing the efficiency of capital use. By utilizing MarketSmith’s quantitative stock selection, we can put Minervini’s legendary strategies into practice, helping investors soar in the stock market and achieve higher investment returns in the future.
Mark Minervini is a renowned American stock trader and investment consultant. In his early thirties, he self-made into a millionaire and has been providing consulting services to hedge funds and institutional investors in the United States and around the world. He regularly gives speeches on well-known financial news media such as CNBC, CNN, and Bloomberg Live. As the founder of Minervini Private Access, Minervini’s stock trading performance is remarkable, with an average annual return rate as high as 220%. His best-selling book, ‘Trade Like a Stock Market Wizard’, has been enduringly popular. He successfully predicted the stock market trends in January 2012 and February 2020, earning him a reputation as one of the most successful stock traders in America.
SEPA Method (Specific Entry Point Analysis)
In 1988, Minervini developed his own investment strategy — Specific Entry Point Analysis (SEPA). SEPA is a highly disciplined stock trading method, referred to as a ‘surgical-precision trading strategy’. The method is based on the analysis of historically emerged ‘super-performance stocks’, encompassing both company fundamentals analysis and technical analysis of stocks. Its evaluation criteria include rigorous research, decades of application, and observable facts. SEPA focuses on identifying underpriced stocks to find the best low-risk/high-return entry points. With SEPA, stocks with great potential for significant gains can be accurately identified.
The basic characteristics of star stocks can be divided into five categories, which form the foundation of the SEPA method: 1. Trend Model, 2. Fundamentals, 3. Catalysts, 4. Buying Timing (Entry Point), and 5. Selling Timing (Exit Point).
The analysis process of SEPA is as follows:
- A stock must first satisfy the ‘Trend Model’ to become a SEPA candidate.
- Stocks that meet the Trend Model will be continually filtered based on their revenue, sales, profit growth, relative advantages, and price volatility.
- The remaining stocks will be carefully compared with the ‘Leadership Profile’, examining in detail whether they meet the fundamental and technical factors of historically super-performance stocks.
- The final step is manual analysis; filtered stocks will be examined one by one and then ranked according to related indicator characteristics.
The Minervini Trend Model
The Mark Minervini Trend Model is a significant reason for Minervini’s success in the stock market. It is a crucial step in the SEPA method. This is a very famous stock screening tool, and historically, all the star stocks selected for the Minervini stock pool have been generated from this tool.
Minervini has identified four stages of stock price behavior based on stock price actions. Through trend screening, he can efficiently and precisely identify stocks in the second stage of a comfirmed upward trend. This trend model is what he calls his ‘inviolable standard.’ Any stock that does not meet this standard will not appear on his list.
A stock must meet the eight criteria of the Minervini Trend Model to confirm that it is in the second stage of a comfirmed upward trend. Below are the ‘inviolable standards’ of this trend model:
- The current stock price is above the 150-day (30-week) and 200-day (40-week) moving averages.
- The 150-day moving average is above the 200-day moving average.
- The 200-day moving average has been on an upward trend for at least 120 days.
- The 50-day moving average is above both the 150-day and 200-day moving averages.
- The current stock price is above the 50-day moving average.
- The current stock price is at least 30% higher than the 52-week low (the higher, the better).
- The current stock price is within 25% of the 52-week high (the closer to the new high, the better).
- The relative strength rating is no less than 70, ideally 80 or above.
* Relative Strength Rating: This is a unique rating by O’Neil, serving as one of the rating indicators for measuring leading stocks in the market. The latest rating information for A-shares and Hong Kong stocks can be obtained through MarketSmith HK.
The Minervini Trend Model has proven that over 95% of historical ‘big bull’ stocks have had tremendous gains during the second stage of a comfirmed upward trend. This is not merely an opinion, but a conclusion based on facts. This conclusion can be traced back to the end of the 19th century and has stood the test of time. The trend is the investor’s friend; riding the wave and catching stocks in the second stage of a comfirmed upward trend will lead to more brilliant investment performance.
The application of the Trend Model on MarketSmith HK:
In order for users to more easily capture the rising trend of stocks and thereby achieve better investment returns, we have implemented the Minervini Trend Model in the quantitative stock selection module of the MarketSmith HK web version, through powerful technological means such as the O’Neil database and quantitative data analysis. Investors can use the ‘Filter’ to repeatedly optimize the screening of stocks in the trend model according to your special requirements (fundamental or technical requirements). Likewise, you can create a personalized stock list that belongs solely to you by using the ‘Create New Filter’ function. The screened stock list can further be sorted based on related indicator characteristics, allowing for the best selection among the best.
The understanding of trends in the Minervini Trend Model resonates remarkably with that in William J. O’Neil’s CAN SLIM rules. Moreover, the core indicator of his trend model, the Relative Strength Rating, is unique to O’Neil. For investors who prefer trend-based investing, we hope this feature can help you identify potential ‘big bull’ stocks.