Mr Market Methods

Discussion in 'Journals' started by inandlong, Jun 19, 2003.

Thread Status:
Not open for further replies.
  1. mrmarket
    Senior Member

    Registered: Oct 2002
    Posts: 186

    06-19-03 03:17 PM
    The $$$MR. MARKET$$$ Model for all to see
    First of all, I’m just another investor like you. I’m not a licensed securities professional or a financial advisor (nor do I want to be) so in no way should this be construed as me providing information to anyone. This is not investment advice, just a reflection of what I’m doing presently in the market. So take it for what it’s worth => PLEASE è everyone looking at this website should do their own homework. Anyway:


    I developed a stock-picking model when I was in graduate school to take advantage of the bullishness the market was exhibiting at the time. The premise was to invest in high beta stocks while trying to limit my downside exposure in the event of a stall or downturn. By using the quantitative steps in the model, stocks are selected that are experiencing sustainable price momentum. The model is a multistep screening and high-grade process that goes something like this:

    First, create a universe of about 200 stocks that have demonstrated strong price appreciation and earnings growth in the last 12 months. You can find some pretty good free and easy to use screening tools on the Internet such as Quicken, Stockpoint or MSN. I use the following screening criteria to build my universe of stocks:

    Screen #1: Stocks making new highs with IBD EPS rating of 90 or higher

    Screen #2: Stocks within 2% of their 52 week high with a 52 week price appreciation > 300%

    Screen #3: Stocks within 5% of their 52 week high with a 52 week price appreciation > 150% and EPS growth of 25%

    Screen #4: Stocks within 5% of their 52 week high with a 52 week price appreciation > 125% and P/E < 50

    Screen #5: Stocks within 5% of their 52 week high with a 52 week price appreciation > 50% and P/E < 15

    Screen #6: Stocks within 10% of their 52 week high with a 52 week price appreciation >100% and P/E < 100 and 3 year earnings growth of 50% and 5 year sales growth of 25%

    Screen #7: Stocks with Investors Business Daily Ratings greater than 95 EPS and 95 RS.

    Screen #8: Stocks with Investors Business Daily Ratings greater than 90 RS and PE less than 20.

    Each screen will yield about 20 – 25 stocks. Rank these stocks on the following criteria: Price Appreciation, Price Appreciation divided by trailing 12 month P/E, Price Appreciation divided by forward 12 month P/E. Weight each criterion equally and rerank the database. This process favors stocks with more reasonable valuations and weeds out those with no earnings.

    Take the top 20 stocks and rank by 12-month revenue growth.

    Take the top 10 stocks and run a time series regression analysis on the daily prices for the last 12 months and rank by the highest r-squared correlation coefficient.

    Take the top three stocks in order and perform due diligence to determine if there were any one time non – operating factors that affected the data just analyzed (asset sales, lawsuits, financing, etc.) or if there is any pending news of significance that could upset the applecart. Select the highest ranked stock that clears this hurdle.

    Buy this stock. In a typical bull market, the stock will, on average, achieve a 15% gain within 4 to 6 weeks. Sell the stock and repeat the process. Why sell so soon? Well there are ever changing phenomena going on in the market that could make your selection criteria quite different a month after the signals told you to buy this stock. The theory here is that you are selling a potentially "tired" stock and trading it for a "fresh" one.

    What this process is trying to do is to select a hot growth stock that has a little more juice left in it to get you that last 15% without being so hideously overvalued that it could drop like a rock. I don’t think I need to buy stocks with extended valuations to make a quick profit. There are stocks out there with good momentum that aren’t bad to hold if I make a wrong decision. I think my model finds them. My model has been successful in protecting me from real lemons. Preservation of capital is always important. Buying companies with real earnings protects me in the down markets. We all work hard for our money. It makes no sense to give it away. That’s why I believe it’s important to buy stock in companies with real earnings.

    Tell me what you think of my model. I’d be happy to answer any questions about this process if you send me an E-mail.
  2. Folks, this thread is being re-opened.

    Please keep your posts relevant. Disagreement with his methods or stock selections etc is fine. Bashing is not. Again, PLEASE.... if you are not interested in mrmarket's insight, do not participate in this thread. I am going to keep it lean and clean unless Baron tells me to do otherwise.

    Good luck and good trading!

  3. In summertime I drink much more beer than I do in the wintertime.
    That means I have to go to the bank more often. Another person that
    needs to go to the bank very often is Dan Snider, that owner of the
    Washington Redskins who paid a bazillion dollars for Steve Spurrier,
    and he still doesn't have a QB. So anyway, he needed to go to a bank
    in Washington. So I bought stock today in WASHINGTON SVGS BANK F S B
    (WSB) at an average price of 10.67. I will sell it in 4 to 6 weeks
    at 12.36. Here's why I like WSB:

    The Washington Savings Bank, F.S.B. ("WSB") is a federally-chartered,
    federally-insured stock savings bank which was organized in 1982 as a
    Maryland-chartered, privately-insured savings and loan association.
    It received federal insurance in 1985 and a federal savings bank
    charter in 1986. WSB is a member of the Federal Home Loan Bank system
    and its deposits are insured by the Federal Deposit Insurance
    Corporation ("FDIC") to the maximum amount provided by law. WSB is
    subject to supervision and regulation by the Office of Thrift
    Supervision ("OTS").

    WSB is your typical bank that makes a ton of money in a low interest
    rate environment. WSB has five branches in Maryland located in
    Bowie, Waldorf, Crofton, Millersville and Odenton, all of which are
    adjacent to the Baltimore-Washington corridor. WSB also has three
    mortgage loan origination offices in Maryland - located adjacent to
    the Bowie, Waldorf and Odenton branch offices. Additionally, each
    Branch Manager is also a qualified loan officer. Corporate
    headquarters for the bank is located at 4201 Mitchellville Road,
    Bowie, MD 20716. This is really really good demographics and the next
    quarter should see earnings way ahead of what they have been doing.

    WSB is engaged principally in the business of attracting deposit
    accounts from the general public using such funds, together with
    other funds, to make first and second mortgages, land acquisition and
    development loans, construction loans, consumer loans, and non-
    residential mortgage loans, with emphasis on residential lending.
    WSB has grown their earnings at a rate of 36% compared to the
    industry average of 11%.

    WSB's stock is up 113% over the last 12 months yet it only has a P/E
    11.33. Previous day's closing price for WSB was significantly above
    its 50-day moving average. That's mighty fine momentum at a real
    good value. In fact, it's an incredible value.

    WSB's price / book is only 1.26 compared to the S&P 500 2.92. It's
    Price to Cash flow is 7.0 compared to the S&P 500 16.2.

    WSB pays a dividend and management has increased the dividend by 50%,
    indicating high confidence in the short term earnings environment.
    WSB also split their stock in April. Customer demand and/or pricing
    power are generating solid growth in WSB's operations.

    WSB's Return on Equity is 18% compared to the S&P 500 8.2%.

    Last year, WSB made $0.67/share. This year, they'll probably end up
    around $1.00/share. $$$MR. MARKET$$$ thinks that in this interest
    rate environment, WSB will start banging out $0.35/quarter so next
    year they'll do $1.42. If they hold their P/E at 11.33, that means
    the stock will go to $16.09 which is well past my target price.

    The record net earnings for the three and nine month periods ended
    April 30, 2003, represent an increase of $931,000, or 97%, and
    $2,284,000, or 70%, respectively, over the same periods last year.
    The operational increases are primarily attributable to a 49%
    increase in net interest income for this quarter and a increase of
    39%, or $2.7 million, for the first nine months of this fiscal year,
    compared to the same period last year. WSB's return on average
    assets increased 50% to a strong 2.27%, while return on average
    equity increased by 48% to 21.27% over the same nine month period
    last year. Total assets grew by 25% at April 30, 2003 over the same
    period end last year.

    WSB has a relative strength of 89 and an EPS rating of 97. It's been
    a stellar market performer.

    WSB has a net profit margin of 21.5%.

    Of the 4.60 million of shares outstanding, 1.43 million are owned by
    insiders so insider holdings account for 31.0% of the company stock.
    Thus, management and shareholder interests are one.

    WSB's most recent fiscal year end pre-tax profit margin of 26.80% is
    higher than the five-year mean of 15.02%. It's also higher than the
    five-year industry average of 16.66%. Increasing profit margins
    indicate that a company is continuing to control costs and that's a
    sign that a company is well-managed.

    WSB's most recent fiscal year end return on equity of 14.20% is
    higher than its five-year mean of 8.70%. It's also higher than the
    five-year industry average of 12.50%. Stable or increasing ROEs
    indicate a well-managed company.

    I think that WSB is a pretty safe bet. If the stock market doesn't
    react to its growing earnings, certainly a larger bank will gobble it
    up and digest these earnings into its own.'s gettin hot in here. Time to take off all my clothes.

    I am HUGE!!

    $$$MR. MARKET$$$
  4. inandlong = mr. market ?:eek: :confused:
  5. LOL! Geez, you make it so easy on me!
  6. Naaah, I'm not that smart. I trade using really esoteric stuff like... when this price crosses this line I am in... !

  7. gms


    Inandlong, a bit of clarification, please. If these two statements of mrmarket's are meant as written, they seem to be in contradiction with each other. If, on the other hand, mrmarket's stock selections are not really in any way to be taken as informative (as per the disclaimer), then that, as directly suggesting a non-informative value of his methods, seemingly conflicts with mrmaket representing to ET that he earnestly wishes to discuss his methods as if having value.

    Would you kindly clear this up, please, and explain which contradiction is it? 'Cause I just dropped in to find out which condition the contradiction was in.
  8. Ken_DTU


    Personally I would not trade any stock trading only 70K shares/day...

  9. You raise a very interesting question gms. I have read those statements from mrmarket's website and interpreted them in the following ways.

    The first paragraph is just as you said, a disclaimer. Similar disclaimers we all have seen on a number of websites, but two that come to mind immediately are Alan Farley's excellent website, HardRightEdge....specifically on his Seven Bells page, and Ken Calhoun's excellent site DayTradingUniversity, specifically on the About Us page, under Our Goals... Clearly these sites are meant to be informative and instructive, but the disclaimer is in place regardless. Both sites essentially are saying, "Here is some information that is without warranty against failure. Use it as you see fit but don't blame me if I you lose money."

    The second paragraph then is an invitation to check out his information, with the use thereof at your own risk as implied and perhaps even expressly stated in the preceding paragraph.

    I hope this helps clarify your question gms.
  10. If JWKirkland sees this quote he would disagree. He stated that if the stock is moving, he would and has traded them as low as 40K per day. And he, like you, is as intraday as one can get. Of course, mrmarket is not a daytrader so his perspective is different.

    I am not a fan of low volume stocks either because I like to take size ranging from 4k-10k shares in my positions. Heck, I have been stuck sometimes when I want to exit stocks trading 500K and more. As such, the lower volume candidates cause me to consider other opportunities.
    #10     Jul 1, 2003
Thread Status:
Not open for further replies.