Mark Minervini's Official Blog

Stock Market Wizard, U.S. Investing Champion Mark Minervini Shares Ideas and Wisdom Here FREE!


June 12, 2013

“It seemed to me that most of what I was learning at Wharton could only help you fail in the investment business.” -Peter Lynch

They say if you torture numbers long enough, they will tell you anything you want to hear. I submit, if you studied the patterns of ants scurrying around long enough, you could surely find some correlation to timing the market! Of course, only a fool would risk his money on such a conclusion.

Mathematics and theories is seldom a match for experience and expertise. Nothing against professors and mathematicians, but in the stock market, the real world works quite differently than in the textbooks.

Keep in mind that it was highly intelligent people who, for a long time, argued whether or not a baseball could really curve or if it is just an optical illusion. The argument was finally settled with the advent of fast photography. Using cameras, it was determined that, indeed, a curveball does curve. This of course came as no surprise to the pro ball players who stood in the batter’s box over home plate and had to face a major league pitcher day after day.

Don’t be too impressed with what looks good on paper until you can verify it with your own trading in the real world. Those who think they have it all figured out on paper can blow themselves up in the stock market. Strategies that are back-tested utilize curve fitting to find the best formula that beats the market, but only in hindsight.

The futility of trying to forecast markets with static statistical models has not prevented armies of the greatest minds from trying to invent the next mathematical money-making machine.

But why do so many fail?

The reason is the human element. People learn and people change, and it is people who make buy and sell decisions. Do you think a computer could be programmed to drive a race car and beat NASCAR’s Jimmy Johnson, given all the nuances of a race that require split-second decision making? Sure, his racing team utilizes technology to figure out the best aerodynamic design and how to optimize engine and tire performance, but Jimmy is still at the wheel.

Or what about a 747 with all its advanced computer power in the cockpit? Even so, autopilot is only used mid-air, never on takeoffs and landings, which are the most challenging parts of flying. When it comes to the market, science and technology can be deployed to analyze data and point you in the right direction. Trading, however, is not purely science; it’s also an art.

In the late 1990s, Long Term Capital Management found out the hard way that educational pedigree and mathematical genius (even with a Nobel Prize) is no match for the market—demonstrating that theories and the real world can decouple in a very ugly way. Throw in some mammoth-sized egos, and you have the makings of a financial tsunami.

Long Term Capital’s brainpower claimed that the fund was perfectly hedged. In other words, they thought they had figured out a way to beat the market and truly believed nothing could go wrong. Unfortunately; they did not expect or prepare for the unexpected, which at some point always happens in the market. When dealing with probabilities, the devil is in the details—or should I say in the tails, meaning the outliers.

In the case of Long Term Capital, the unexpected was Russia’s default on its domestic debt. This had never happened before and, therefore, was thought to be impossible. What was touted as perfectly hedged began to unravel to the tune of $1 trillion in exposure, and leverage that was rumored to be as much as 100-to-1. The Federal Reserve had to step in to save the day.

Long Term Capital Management (LTCM) was managed by a team of some of the brightest financial minds in the industry. In the end, you would have gotten better results investing in T-Bills or even throwing darts.

No one likes to be wrong, but in trading and in life, everyone is wrong at least some of the time. Some people are unwilling to face that fundamental fact of life. In the stock market, those who can't admit mistakes end up going broke.

Marilyn vos Savant, a national columnist and author, earned a listing in the Guinness Book of Records for five years for having the highest IQ for both childhood and adult scores. Marilyn is perhaps best remembered for a brain teaser she published in her column in Parade magazine. The puzzle was based on the game show “Let’s Make a Deal,” hosted by Monty Hall, and therefore became known as Monty Hall Theory.

In short, the scenario presented three closed doors. Behind two are goats, and behind one is a new car. Monty Hall knows what’s behind each of the doors but you—the contestant—do not. Let’s say, you pick Door Number 3. Monty Hall opens Door Number 2, revealing a goat. Now there are two doors left: 1 and 3. One has a goat and one has a new car. When Monty Hall asks if you want to change your door selection, do the odds favor you making a new selection?

Most people would say, no. They think, at the outset, the odds were 1-in-3. Now, the odds are 1-in-2, or 50%. Wrong! As Marilyn wrote, the odds are actually 2-in-3, or 66% if you change doors. Her explanation was based on six games that exhaust all the possibilities. Switching resulted in winning two-thirds of the time, and losing one-third of the time.

What was most interesting about Marilyn’s exercise was the outrage that it provoked. She received more than 10,000 responses from people telling her she was completely wrong (she wasn’t, and proved it)¬—including 1,000 responses from PhDs. How could so many smart people be wrong about a math equation? I mean, math is math.

This plays out countless times in the market. Many people (even highly intelligent individuals) overlook the obvious. As Sam L. Savage points out in The Flaw of Averages “A degree in physics might help you understand how a wing generates lift, but it won’t necessarily make you a good pilot.”

Many of the books out there on stock trading and investing are written by intelligent authors; however, many of them either don’t trade for a living or have never experienced really big success in their own trading account.

The stock market does not care how educated you are or whether you have a PhD. In the stock market, we all go back to kindergarten and have to learn and earn our way to the top.

Mark Minervini


Data and information is provided for informational purposes only. The information provided has been obtained from sources deemed reliable but is not guaranteed as to accuracy or completeness. Neither Mark Minervini, or Minervini Private Access , LLC nor any of its data or content providers shall be liable for any errors or omissions or for any actions taken in reliance thereon. By accessing this website, and its pages, links and trading services which users may access through this site, a user agrees not to redistribute the information found therein. All material in this website and its related websites and pages are protected under copyright laws of the United States. Unauthorized forwarding, copying or reproduction will be treated as a breach of copyright. Mark Minervini is not an investment advisor, financial planner, nor a securities broker. Minervini Private Access, LLC is not a registered broker-dealer. The Information provided in this website is not to be relied upon for your investment decision. Your decision to buy any securities is as a result your own free will and your own research. Individual performance depends upon each user or student's unique skills, time commitment, and effort. User's and students sharing their stories have not been compensated. Student stories have not been independently verified by Minervini Private Access, LLC. These results may not be typical and individual results will vary. Past results are not indicative of future returns. There is a very high degree of risk involved in any type of trading. Stocks, Options, ETF's & Futures are not suitable for all investors. Minervini Private Access, LLC., its subsidiaries and all "affiliated" individuals assume no responsibilities for your trading and investment results. No representation is being made that any account will or is likely to achieve profits. All investors should consult a qualified professional before trading any stock. Under no circumstances should anything contained in this website be construed or considered as an offer to sell, or a solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained herein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such. From time to time Minervini Private Access, LLC and any of its officers or employees may have a position or otherwise be interested in any transactions, in any investments (including derivatives) directly or indirectly the subject of this report. Entities including but not limited to Minervini Private Access, LLC, its members, officers, directors, employees, customers, agents, and affiliates may have a position, long or short, in the securities referred to herein, and/or other related securities, and may increase or decrease such position or take a contra position. Opinions expressed herein are statements of our judgment as of the publication date and are subject to change without notice. Specific Entry Point Analysis®, SEPA®, Leadership Profile® and Minervini Select® are Registered Trademarks of Minervini Private Access, LLC. All other trademarks are property of their respective owners. All rights reserved.