In 1983, while visiting a local library, Mark Minervini read Richard Love's Superperformance Stocks. While a good portion of the book was written on how the political cycle relates to the stock market, Minervini was intrigued by Chapter 7, which focused on the commonalities of big stock price performers. Love's studies from 1962 to 1976 focused on the common characteristics of stocks that went up a minimum of 300% within a two-year period before a large price correction; he called them Superperformance Stocks.
Although Love's approach caught Minervini's attention, it wasn't until 1988 that the formulation of his own strategy took flight. Minervini read an interesting article in the March/April 1988 issue of Financial Analyst Journal titled "The Anatomy of a Stock Market Winner." The article discussed the findings from a study of superior securities—stocks that went up a minimum of 100% in a calendar year. The author, Mark R. Reinganum, had explored 222 stock market winners from 1970 to 1983 to determine what contributed to their superior performance.
Reinganum's study corroborated Love's findings. Furthermore, the purpose of both studies was almost identical: focusing on the characteristics of stocks that had made the biggest gains to identify the cause of stellar performance. The concept made intuitive sense to Minervini: study the best to find the best. This set Minervini on a course to learn what makes a stock move up dramatically in price to join the elite circle of Superperformers, and it ultimately became his life's work. And so, Mark Minervini turned on his computers and the rest is history.
Specific Entry Point Analysis® -SEPA® is a highly disciplined stock trading strategy developed by Mark Minervini. The methodology's foundation is built upon historical precedent analysis of past stock market "Superperformers." To demonstrate the superiority of his SEPA® methodology, in 1997, trading against stock, options and futures traders, Mark Minervini traded a stock only account to win the U.S. Investing Championship delivering a 155% annual return.
The SEPA® strategy focuses on identifying, company-by-company, the precursors of inefficient pricing in order to distinguish appropriate entry points. Utilizing SEPA®, stocks displaying the potential for significant price appreciation are identified and pinpointed. This proven technology consistently highlights many of the best investment ideas and stock market leaders before they're widely recognized by Wall Street.
1. Earnings and sales surprises and positive estimate revisions
2. Institutional volume support (significant buying demand)
3. Rapid price appreciation due to a supply/demand imbalance (lack of selling versus buying)
The Leadership Profile® is a success blueprint based on historical models of excellence. Based on accumulation of data from as far back as the late 1800s, Minervini and his team constructed a Leadership Profile® of the common characteristics shared by Superperformance Stocks. Current stock candidates are compared to how well they conform to the optimal profile and they are ranked accordingly.
The MPA database is continually updated to account for market dynamics and new available data. On-going efforts are focused on identifying in detail the characteristics of the most successful performers of the past to determine what makes a stock likely to outperform its peers in the future. Leadership profiling results is a dramatic increase in the probability of finding the next Superperformer.
Using a process of profiling, stocks are compared and ranked according to how well they fit the optimal success blueprint--a Leadership Profile®. The basic characteristics are broken down into five major categories, which make up the key foundational building blocks of the SEPA® methodology:
1. Trend: Virtually every superperformance phase in big, winning stocks occurred while the stock price was in a definite price uptrend. In almost every case, the trend was identifiable early in the superperformance advance. Our Trend Template ensures a stock candidate is in a proper uptrend.
2. Fundamentals: Most superperformance phases are driven by an improvement in earnings, revenue and margins. This typically materializes before the start of the superperformance phase. In most cases, earnings and sales are on the table and measurable early on. During a stock's superperformance phase, a material improvement almost always occurs in the fundamental picture with regard to sales, margins and, ultimately, earnings.
3. Catalyst: Every stock that makes a huge gain has some catalyst behind it. The catalyst may not always be apparent upon a casual glance, but a little detective work into the company's story could tip you off to a stock with superperformance potential. A new hot-selling product that accounts for a meaningful portion of a company's sales may provide the spark to ignite a superperformance phase in a stock's price. Approval by the Food and Drug Administration (FDA), a newly awarded contract, or even a new CEO can bring life to a previously dormant stock. Each situation may be somewhat different, whether the stock is a classic growth company, a turnaround situation, a cyclical stock or a biotech trading on the promise of a new drug. Whatever the reason, behind all superperformance is always a catalyst driving institutional interest.
4. Entry Points: Most superperformance stocks give you at least one opportunity, and sometimes multiple opportunities, to catch a meteoric rise at a low-risk entry point. Timing the entry point is critical. Time your entry incorrectly and you will be stopped out unnecessarily, or lose big if the stock turns around on you, and you fail to sell. Time the entry correctly, and you could be at a profit right away and on your way to a big gain.
5. Exit Points: Not all stocks that display superperformance characteristics will result in gains. Many will not work out, even if you place your buys at the correct point. This is why you must establish stop-loss points to force you out of losing positions to protect your account. Conversely, at some point your stock must be sold to realize a profit. The end of what once was a superperformance phase needs to be identified in order to keep what you've made.
1. Stocks are screened through a series of "filters" based on fundamental and technical data. Most stocks in the market are eliminated from this first layer of screening leaving roughly one-thousand initial contenders.
2. The remaining stocks are scrutinized and ranked for similarity to a proprietary Leadership Profile® in-line with specific criteria exhibited by historic models. This second stage of qualifiers removes most of the remaining companies, leaving a narrowed list of investment ideas for further review and evaluation.
3. The final stage is a comprehensive manual review. The narrowed list of candidates are examined individually and scored according to a "relative prioritizing" ranking process which considers the following factors:
- Study of the best performing stocks over each market cycle
- Characteristics defined and archived in our database
- Blueprint is constructed based on attributes of winners
- Data is compared to all stocks
- Leadership Profile® takes into account all available data
- Profile is continually updated to reflect new information
- Computers screen 8,000+ stocks daily
- Narrows down the top 1%
- Companies displaying specific characteristics are identified
- Candidates are monitored for specific criteria convergence
- Catalyst such as earnings surprise, company issued guidance
- Entry point defined based on risk/reward
