The
Poised To Triple
Methodology
Your Guide To Hitting
It Big In The Stock Market
Prepared By/ PTT Research
Author/ Mark Gomes
Edition/ 2.0
CONTENTS
4 Introduction
I first took interest in stocks in the mid-80s, but I didn’t make
my first investment until 1993. The reason was simple. I had no
money to invest. I got through college on a track scholarship.
My budget was $300 per month. I could just afford to share the
basement of a three-level apartment with two teammates. My
section of the cellar was just big enough for a twin-size bed and a
narrow path to get in and out.
7 Important Things To Know
Before you act on any of my research, identify whether you are a
trader or an investor. A trader tries to predict where a stock’s price
is going next. An investor determines what a company is worth
and buys the stock when it is cheap relative to the company’s true
value.
21 Method 01/ Stick To The Lessons
The first thing to know is that I cannot and will not provide specific
“recommendations.” I have a legal right to publish my research
and opinions, but without a broker’s license I cannot advise you
on what to do.
22 Method 02/ Choose Your Analyst
Before you act on anyone’s analysis or advice, you should know as
much about that person as possible. The Internet has made it easy
to sway public opinion on nearly any topic, including the value of
stocks.
23 Method 03/ Stock Investment Cycles
OK, let’s get down to the fun stuff! Before investing in my
selections, you should understand how I categorize picks. Lessons
3 and 4 will prepare you for action.
24 Method 04/ Position Sizing
For the purposes of Position Sizing, we give most of our picks one
of four risk designations: “Core”, “Speculative”, “Momentum”, or
“Value”. These designations help to determine my position size.
30 Method 05/ Investing in my picks
Write down and memorize these two rules: 1. Don’t chase stocks
up 2. Don’t place “market orders”. Doing either of these is asking
for trouble.
31 Method 06/ When To Buy
It is best to buy my picks within 5-10% of the initiation price. This
isn’t always possible on the day of the announcement. Novice
subscribers often jump in with market orders that drive a new pick
up 25%, 50%, or even 100% in just a few minutes. Yes, minutes.
33 Method 07/ When to sell
This one is easy. The Methodology tells me to sell when one of
two things happens: 1. If my pick triples. The only exception is
when I reinitiate coverage on the stock, expecting it to triple
again.2. If I decide that I’ve made a mistake.
34 Method 08/ The Trend Is Your Friend
Technical analysts and traders believe that “the trend is your
friend.” In other words, if a stock has been moving up, it is more
likely to keep moving up. If it is moving down, it will probably
keep moving down. An uptrend will continue until buyers have
exhausted themselves. When traders recognize that there are no
more buyers left, they may short the stock, even if the company’s
fundamental prospects are great.
35 Method 09/ Weathering Corrections
As you can see from the CRM chart, panicking is one of the
best ways to miss out on a big winner. Corrections are just like
turbulence in an airplane. They can be unnerving, but they
rarely result in permanent loss. More often, corrections are an
opportunity to buy more of a good thing. That’s how investors like
Warren Buffett got rich.
37 Method 10/ Don’t Worry
Despite Wall Street’s obsession with quarterly earnings, I do not
make earnings predictions. In many cases, I don’t even care what
numbers my companies report. As long as they’re close, I’m more
interested in what management has to say about their progress.
39 About The Author
Mark Gomes has over twenty years of experience as an
information technology (IT) stock analysts. His utilization of
IT purchasing data has been a hallmark of his investment
methodology.
introduction
THE MULTI-MILLIONAIRE METHODOLOGY
I first took interest in stocks in the mid-80s, but I didn’t make my first investment until 1993.
The reason was simple. I had no money to invest. I got through college on a track scholarship. My
budget was $300 per month. I could just afford to share the basement of a three-level apartment with
two teammates. My section of the cellar was just big enough for a twin-size bed and a narrow path to
get in and out.
That may sound grim, but those
were some of the best days of my
life. I was learning what it meant to
support oneself and pave one’s own
future. Mom sent me whatever she
could each month. I hocked baseball
cards at weekend flea markets to
cover what remained of my expenses.
During my senior year (1993), I
applied for a credit card and took out
a $2,000 cash advance. I opened a
brokerage account at Waterhouse
Securities (which eventually became
Ameritrade). I was on my way...
… on my way, that is, to years of
losses.
I made every mistake in the book... I failed at technical analysis, I fell for pump-n-dumps, I bought high
and I sold low. Despite graduating with honors from Northeastern University with a degree in finance, I
was a terrible investor.
Luckily, my first real job put me in direct contact with some of Wall Street’s brightest minds. My work
was to look up esoteric information and fax it to their offices. It was menial, but it gave me the chance
to ask some of the friendlier customers an occasional question about how to invest well.
In 1995, two of my customers kindly took me under their wings. One of them was taught by the
famous billionaire Jim Rogers. The lessons they taught me changed my life forever. They explained the
misconceptions that keep most investors from getting exceptional returns. I had fallen prey to most
of them. They also introduced me to the teachings of Wall Street legends such as Benjamin Graham,
Warren Buffett, and Peter Lynch.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
4
INTRODUCTION
The details are a story for another day. Suffice it to say that I would be nothing without the generous
teachings of those mentors and legends. Indeed, I am just a student of the game. This article
summarizes what I took away from their teachings. It serves as a reminder for me, but also as a guide
for anyone who is interested in following in my fortunate path.
The next 13 years were a whirlwind. “Irrational exuberance,” the Internet bubble, and the real estate
crash all tested the limits of my mentors’ teachings. In each case, sticking to them kept me away from
trouble and delivered profitable returns. In fact, 2002 was the only year I lost money.
In 2004, I founded Pipeline Data, a Wall Street consulting firm. After a blessed string of successes, I
semi-retired in 2008.
In early 2009, eager to help others as my mentors had helped me, I started writing up my stock picks
on Seeking Alpha. For more than four years, I provided research at no cost in order to help investors
build a better future. It was my way of giving back to a world that had blessed me with so much.
The results were nothing short of extraordinary.
During that four-year span, most of my picks tripled in value. Many others doubled or were acquired
before getting the chance to triple. The average stock in my Core Portfolio (publicly available here, via
my Portfolio Tracker) rose by well over 100%.
My proudest moment came when I was publicly recognized for being the first analyst to deliver proof
that Himax (HIMX) would be selected to power Google Glass. The stock tripled in six months.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
5
INTRODUCTION
It went on to be named the #1 tech stock of 2013 by CNBC. A billion dollars of market value was
created. My readers made millions.
In late-2013, I sought to expand my efforts to help the investing public.
I launched PTT Research, offering subscription services to bring Wall Street’s top analysts to Main
Street investors. More than 90% of the revenue goes toward consulting with industry experts,
attracting top professionals, hiring promising young analysts, and supporting our growing number of
readers.
As of early-2014, our worldwide following exceeds 50,000 investors across various Internet channels.
I developed this Methodology over the course of many years because I cannot provide one-onone guidance to 50,000 followers. If you are one of them, my advice is to read and re-read this
Methodology until you know and understand it completely.
Remember, the Methodology is what turned me into a winning investor. When I stray from it, I often
revert back to my losing ways (I’m only human!). Accordingly, you should view the rules of the
Methodology as taking precedence over anything I do or say publicly.
In fact, I wouldn’t want anyone to follow or act on my picks until they have a full understanding of this
Methodology, from start to finish. After all, education is always the path to success.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
6
INTRODUCTION
IMPORTANT THINGS TO KNOW:
1. Before you act on any of my
research, identify whether you
are a trader or an investor. A
trader tries to predict where a
stock’s price is going next. An
investor determines what a
company is worth and buys the
stock when it is cheap relative
to the company’s true value.
A trader is proven right or
wrong very quickly. An investor
has to wait for the company’s
performance to convince the
world of its value (which can
take months or even years).
Benjamin Graham was an
investor. Peter Lynch is an
investor. Warren Buffett is an
investor.
Because I follow their lead, I am
also an investor. Accordingly,
my research is geared toward
investors, not traders. That
being said, traders can certainly
benefit from my selections. I
believe fundamental + technical
research can be a potent
combination.
2. Companies don’t become
major successes overnight.
My picks usually focus on
companies that have just started
unlocking their potential, but
haven’t been discovered yet.
To inexperienced investors,
these companies often look like
losers. They may have mediocre
balance sheets, low or negative
earnings, no Wall Street
coverage, etc.
In actuality, these companies
have been forming the building
blocks of future success. They
are coming out of a period of
investment and primed to reap
the rewards. I like to buy these
companies when they are on
cusp of cashing in on those
investments. Often times, this is
exactly when the stock price is
at rock-bottom.
Peter Lynch talks about giving
your companies the time they
need to grow here:
PETER LYNCH LESSON 1
PETER LYNCH LESSON 2
3. Investors must be prepared
to see a good stock decline
in value. When this happens
(and it happens often), there’s
seldom anything wrong with
the company. If you don’t
hear from us, we have nothing
new to report. Thus, you can
assume that the decline is
due to panicky investors
getting flushed out of a good
investment. When a stock is
undervalued, it is because most
people don’t believe that it
should be worth more. That’s
usually a great time to buy!
If you are not prepared to
endure a stock’s ups and downs,
do not invest in the companies
I discuss. It is likely that you
will lose money (even when
I’m right) because you will be
prone to assuming (wrongly) a
correlation between the stock’s
movement and the company’s
value.
In fact, this is one of the biggest
and most costly misconceptions
among Main Street investors, as
these video clips demonstrate:
WARREN BUFFETT LESSON 1
PETER LYNCH LESSON 3
PETER LYNCH LESSON 4
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7
“Before you act on any of my
research, identify whether you
are a trader or an investor. A
trader tries to predict where
a stock’s price is going next.
An investor determines what a
company is worth and buys the
stock when it is cheap relative to
the company’s true value.
”
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
8
INTRODUCTION
IMPORTANT THINGS TO KNOW:
4. Investors who follow my approach must also
be prepared to sell a stock if/when it triples. My
method focuses not on the “best companies” but
rather on the most undervalued stocks.
When one of my picks triples, the odds of it still
being much undervalued are low. By that time,
everybody knows about it. Wall Street analysts
may even be smothering it with love (as they did
Himax after it tripled from $3.44 to $10.32). Once
the Wall Street consensus is bullish, the stock
may only have a 50/50 shot of outperforming the
market.
The legendary Benjamin Graham (Warren Buffett’s
teacher, mentor, and employer) had a brilliant
explanation for this:
5. Learn the principles of Position Sizing (see
Lesson 4). Buying the right amount of each stock
is critical. If you buy too much of a risky stock, it
could crush your portfolio. If you buy too little
of a company that is already proving itself, it will
limit your potential gains.
Lesson 4 provides a simple set of rules to help
you determine how much to allocate to each
stock. We start by identifying a stock’s risk profile,
which is more important even than its potential
for gain. The guidelines are very clear and easy to
understand.
Those aren’t stocks we want to own, as Peter
Lynch explains here:
One of the biggest mistakes investors make is
to stray from proven rules. A common error is to
invest too much into one stock. An investor who
does this may have “fallen in love” with the stock.
Make no mistake—emotion has no place in the
world of investing. Another common mistake is to
make “forced investments” when you think you
are sitting on too much cash.
PETER LYNCH LESSON 5
WARREN BUFFETT LESSON 3
I want to buy undervalued stocks... stocks that
are unknown, misunderstood, or even hated (like
Facebook in late-2012).
My methods are designed to help you allocate
your cash appropriately. When the market gets
too expensive, we won’t find as many good picks.
This will leave fewer of our selections in your
portfolio. That’s generally a sign to keep some
excess cash on the sidelines.
BENJAMIN GRAHAM LESSON 1
That’s good news, because when stocks get
cheap, we find more good buys—provided we
have cash on hand. Make no mistake, cash is a
position. Sometimes it should be your largest
position!
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9
“In my personal portfolio,
my aim is to hold 10 or 20
“core” (non-speculative)
stocks, representing
a total of 90% of my
portfolio. ”
I
“I also like to hold 10 or 20 speculative
stocks, totaling 10% of my portfolio. This
provides good diversification, allowing
me to benefit from the winners, while
being protected from the occasional, but
unavoidable losers.”
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
10
INTRODUCTION
IMPORTANT THINGS TO KNOW:
6. Using Risk/Reward Charts is not necessary for success, but it can enhance buy-and-hold gains.
Over the years, I developed a trading methodology that creates a visual of a stock’s risk/reward
ratio by combining fundamental value with expected growth rate and adding a dash of rudimentary
technical analysis. The resulting graph makes it easy to see when a stock has gotten a little ahead of
itself or pulled back too much.
This strategy is more complex than Position Sizing rules, but it can be worthwhile. Caveat: my Risk/
Reward Charts do not prompt me to make trading calls to subscribers or to the public. If you choose to
trade based on Risk/Reward Charts, you must make your decisions on your own... and accept the gains
or losses that follow. I provide insight into my trading technique hesitantly, but willingly, for those who
seek to expand their repertoire of money-making tools.
For more insight into trading decisions, you may wish to subscribe to my premium newsletter (PTT
Pipeline) or service (PTT Elite). PTT Pipeline discusses stocks in my research pipeline, some of which
may eventually be chosen as Poised To Triple. It also provides at least one Risk/Reward Chart each
week. Occasionally, I even provide Risk/Reward alerts. PTT Elite gives subscribers one-on-one phone
access to me for 30 minutes every month. During that time, members can ask me virtually anything.
When drawn properly, Risk/Reward Charts empower an investor to “buy low and sell high” like a
pro. Again, I offer my research primarily from the point of view of a long-term investor, so before
experimenting with this trading technique, be sure you are willing to take full responsibility for the
results.
For most investors, the best policy is to buy my picks near the price where I pick them (using my
Position Sizing rules as a guide) and hold them until they triple or until I decide that I have made a
mistake. When this happens, I will let you know immediately.
7. I never predict where a stock will go in the short-term. Nobody can consistently predict what
the total population of market participants will do next. My Methodology focuses on the value of
companies and by extension the appropriate prices for their stocks. Even when I’m right, it often takes
the world months, if not years, to catch on.
Time is integral to my Methodology, which has earned me close to 40% annually for the past 18 years.
My technique is boring. It requires a LOT of patience (and faith), but it’s effective. I fault no one who
decides that this Methodology is not for him or her. If you decide to follow it, however, you have to
follow it completely. If there were a way to make it more fun, trust me, I’d do it.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
11
INTRODUCTION
IMPORTANT THINGS TO KNOW:
8. Although I do not predict short-term prices, I do keep an eye on each stock’s potential risk and
reward. If you buy a stock at 10 that could go down to 5 or up to 30, you are taking on $5 of risk in
pursuit of $20 of reward. All else being equal, situations like this make for great investments. However,
too many investors lose sight of this equation as it changes. For example, if the same stock quickly
jumps to $25, your risk may now be $20, while your potential reward is only $5.
Quickly is the operative word. A good stock is supposed to go up. True risk and reward is determined
by how fast it moves up relative to its expected growth rate. This is why I believe that Risk/Reward is
best measured by using a Risk/Reward Chart. A Risk/Reward Channel (consisting of two parallel lines)
moves upward at a trajectory equal to the company’s sustainable growth rate. This gives us a constant
view of the relative risk and reward—i.e., whether the stock is high or low in the channel.
For shorter-term trades on longer-term investments, we employ risk/reward charts such as this one:
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
12
INTRODUCTION
IMPORTANT THINGS TO KNOW:
If you’re a day trader or a technical analyst, you probably have tools that are far more sophisticated
than this. For what it’s worth, I was a technical/quant analyst from the mid-80s until the mid-90s.
Our Risk/Reward Charts do not are not derived from the principles of traditional technical analysis,
however. I converted long ago to fundamental analysis. Rather than focus on short-term moves,
I simply attempt to find the longer-term path the stock is likely to take, depicted by the two long
parallel lines.
It’s important that the slope of those lines is sustainable. In the case of AMZN, the lines are moving
up at a rate of 19% per year, which looks quite sustainable. If the lines are too steep, you are likely
drawing a short-term trend (depicted by the short parallel lines in bold). Unsustainable trends
generally end in a reversal, just as it did here.
By following these tips, you can find better entry and exit points. Take note of the fact that every
time that a stock hits the top or bottom of its Risk/Reward channel, there’s a very good chance that it
will gravitate at least halfway back in the opposite direction. When the stock first reverses course, it
creates new trend in the opposite direction of the previous one. Once a stock in an uptrend touches
or penetrates the upper bound of the Risk/Reward Chart, it will likely reverse into a downtrend,
gravitating toward the lower of the two parallel lines representing its sustainable growth rate. The
inverse is true of a stock in a downtrend.
Incidentally, the concept of risk and reward is also why our picks usually “graduate” from our portfolios
once they triple. It is a rare stock that triples again as easily as it did the first time. When we suspect a
stock is an exception to this rule, we’re sure to let subscribers know.
9. Often we find a poised-to-triple stock while bottom-fishing among small-cap value stocks. In
terms of performance, this equity asset class has dominated all others for six decades running. It is
also the class with the least amount of institutional competition. Small-cap value stocks don’t have
the market cap or liquidity to absorb tens or hundreds of millions of dollars that big institutions need
to allocate, so the hundreds of MBAs at an institution don’t bother with the companies we research.
Simply put, the well-funded research divisions of multi-billion-dollar institutions don’t bother
competing with our small-cap research arm.
You want to avoid competing with the big institutions if you can help it. For retail investors, it’s way too
costly—trust me. Every week, Pipeline Data spends thousands of dollars on research so we can help
buy-side institutions predict the quarterly performance of large companies like ORCL. Unless you’re an
industry expert, you don’t want to compete with that level of research and expertise.
Focusing on smaller companies gives smaller investors a rare advantage in today’s market.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
13
INTRODUCTION
IMPORTANT THINGS TO KNOW:
10. Even though my website is called “Poised to
Triple,” I do not expect every pick to triple. That
would be foolish. To put it more accurately, I pick
stocks that I believe are poised (in other words,
“have the potential”) to triple. As my historical
performance shows, many do triple. Many more
double or get acquired. Of course, some simply
don’t work out (you can see my work on Seeking
Alpha for examples).
Dating back to the 1990s, the winners have
routinely overwhelmed the losers, leading to
outstanding gains for my Pipeline Data clients
on Wall Street and my more recent PTT Research
subscribers on Main Street.
The balance of risk and reward is the #1
consideration that drives the success of our
portfolio. I seek the rare combination of relatively
low risk and very high potential reward. I do this
by sticking to my knitting and employing a virtual
army of industry experts who understand the ins
and outs of the companies I am interested in. All
told, I spend six figures each year on research...
so my subscribers don’t have to. Just because our
research tells us a stock is poised to triple doesn’t
mean the company will come through for us.
Sometimes we pick losers. That’s inevitable. We
take calculated risks based on companies’ odds
of success and failure in the real world, and the
real world doesn’t always cooperate. By picking
companies whose upside is far greater than their
downside, however, we create a portfolio that has
a high probability of appreciating in value.
11. Beware of the losers. I try to identify and
shed my losers before they implode. When
we pick a stock, it is generally at a price that we
believe is near a floor where it will find support
even if the company doesn’t fulfill all our
expectations. A significant decline from those
levels is usually a sign that we’ve made a bad
pick. If one of our picks drops 20% from its initial
price, I take a hard look in the mirror, revisit my
thesis, and ask whether I’ve made a mistake. If
nothing has changed with the story, I tend to get
excited—after all, if I liked the stock at $10, I love
it at $8.
If something has changed with the story, I will let
you know as soon as possible. Generally, the loss
will be limited to 20%. It could exceed that under
certain circumstances. Luckily, my winners tend
to double, triple, or get acquired. This more than
makes up for the occasional 20% loss.
To be clear, we do not advise placing stop-loss
orders. These orders are very easy prey for stock
manipulators. Most brokerage firms operate
“dark pools” and sell access to High Frequency
Traders. A dark pool consists of trade orders that
have been placed at a brokerage but have not
yet been sent to an exchange. Orders spend only
a tiny fraction of a second in the dark pool, but
HFTs use extremely fast computers to trade on
orders milliseconds before they are sent to the
exchanges.
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14
INTRODUCTION
IMPORTANT THINGS TO KNOW:
Let’s say you have placed a 20% stop loss or trailing stop on a stock you hold in an e*Trade™ account.
e*Trade™ may have sold a few dozen (or hundred) HFTs the right to see and trade on your trailing stop,
even though it has not yet triggered. If the stock has already fallen by 10-15% over the course of a
volatile week, it is an easy matter for a trader to push the stock down a few more points by shorting
it. Suddenly you have been stopped out of your position. The HFT, meanwhile, may have already
accepted a buy order at a higher price milliseconds in advance of triggering your stop. He has covered
his short for a quick profit at your expense without having taken on any risk himself. When this sort of
thing happens, PTT inevitably gets swamped with emails insisting that the sellers must know of some
problem at the company that we are not aware of ourselves. The problem isn’t with the company, it is
with the investment methodology. Place a stop loss on the stock of a solid company and nobody wins
except the bad guys.
In summary, our general practice is to reconsider our thesis when a pick falls by 20% or more. We
recommend against stop loss orders, though.
Our Speculative picks (defined in Lesson 4) tend to be the exceptions to the 20% rule. Speculative
picks can easily fall 20% or more before taking off. In fact, my biggest winner ever dropped 25% over
a nine-month period before going from $3 to $30!
Because of their volatility, I keep a close eye on the fundamental progress of my Speculative picks
rather than on their stock prices. As long as management keeps making progress, things should turn
out ok. If a company stumbles time after time and provides excuse after excuse, it’s probably a signal
to cut our losses and move on. The PTT Newsletter updates will help you make such decisions.
The rest of this section is meant to provide an overview of what I have learned from 25 years of
education and experience. It’s a bit lengthy, perhaps, but it all comes down to a short, simple set of
rules designed to enhance your financial future. Just remember, patience is a virtue. My methods can
help you become rich over time, but they don’t guarantee that you’ll make money every month.
I have pointed out that the true value of a company doesn’t really fluctuate much—certainly not from
day to day. Stock prices do, however. Since the kind of companies I invest in are difficult to value (hint:
it has little to do with P/E ratios), their stock prices tend to oscillate wildly. This is actually a good thing
for us. We may “lose” money for a couple months here and there, but it is not unusual for the price of
an under-followed, undervalued, misunderstood small-cap stock to decline even as the underlying
company is quietly proving our investment thesis. This gives us a chance to build our position
gradually as our confidence grows. My methods are designed A) to limit real losses caused by the
premature liquidation of a good stock that has temporarily turned south and B) to maximize the gains
that inevitably follow from staying true to a sound investment discipline.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
15
Introduction
Swim Like the Sharks
There are always both overvalued and
undervalued stocks in the market. Most investors
act as though they know one from the other.
Without years of education, mentorship, and
experience, however, an investor is as lost in
the market as I am under the hood of a tractor.
Most investors can’t compete against seasoned
professionals and have to settle for average
returns (7% per year), while the biggest sharks
swim away with 20%, 40%, or more.
Putting this into perspective, 40% a year turns
$50,000 into $7.8 million in just 15 years. At 7%
per year, it takes 60 years longer.
In order to swim like the sharks, I studied hard
and developed an investing Methodology based
on my mentors’ teachings. It is built on three
pillars:
1. Lose Little & Win Big
2. Stock Evaluation Methodology
3. Portfolio Management Methodology
Lose Little & Win Big
I’m not always right... not even close. This is by
design.
Arguably, the most important thing to know
about my philosophy is that it does not center
around being right every time. Rather, its focus is
investing in companies that have the potential for
extraordinary gains.
Over the past few years, only about half of my
selections have tripled or better. The other half
have been 20-30% losers in our portfolio.
If half of your picks gain exactly 200% and the
other half decline by exactly 30%, your average
profit will be 85% (200% - 30% = 170%/2 =
85%). If you average 85% every two years, you
will make 100 times your money in 15 years (and
10,000 times your money in 30 years).
This is how thousands become millions and
millions become billions.
Stock Evaluation Methodology
Executing a Stock Evaluation Methodology is
the hardest part by far. Most investors should
outsource this process to a professional.
My Stock Evaluation Methodology relies on
important lessons taught by the world’s most
notable investing legends (namely Benjamin
Graham, Warren Buffett, and Peter Lynch) and two
of my personal mentors.
To their teachings I have added the concept
of leveraging domain expertise. The wisdom
of specialized experts is indispensable.
Without access to domain experts and a formal
background in stock analysis, one simply cannot
compete with those who have it.
I learned this the hard way. Separating strong
companies from weaker ones often requires the
council of experienced industry professionals
and consultants. In fact, PTT Research now spends
six figures annually on these services in order to
discover new picks for our customers.
In other words, we do the hard part for you.
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Introduction
Portfolio Management Methodology
Managing a portfolio can be very easy, especially
if one is willing to hold a position until the
fundamental thesis plays out. For those who
enjoy a bit of extra challenge, I provide advanced
instruction. It’s easy because all you have to
do is follow the rules. It won’t necessarily feel
easy, however. Executing my methodology in a
disciplined manner can certainly challenge your
psychological fortitude.
Understand the Guppies
Over 90% of investors aren’t properly trained
to understand the value of a company. I
affectionately call these investors guppies. Of the
10% of investors who are thoroughly trained and
educated, I would say about 10% are really good
at it. In other words, 99% of the investing public
regularly sells stocks when they are cheap and
buys stocks when they are expensive. Because
guppies outnumber sharks by a wide margin,
they are capable of driving stocks in the wrong
direction for weeks or even months.
In other words, anything can happen in the short
term. In fact, my portfolio has never gone up for
12 months in a row. However, I’ve only lost money
once in the past 15 years (2002). I even made
money in 2000, 2001, 2007, and 2008, while the
markets melted down.
PTT Research Works for You
I find winners through a time-consuming threestep process. First, my team spends over 100
hours investigating 100 prospective investments.
Second, we spend another 10 hours on each of
the 10 candidates that show the most promise.
Third, we determine which are the 3 best
candidates and commit an additional 50 hours of
research to each one. After this 350 hour process,
we end up with one, two, or three picks (usually
just one).
Think about that for a second. 350 hours of
research to pick one or two winning stocks. 61
hours dedicated to each pick. How much time
does the average investor spend on research
before buying a stock? Just imagine how much
due diligence most investors don’t do. Then
consider the advantage we possess at the end of
our investigative process. By the time we’re done,
we know the company better than almost anyone.
As a result, we know exactly what to do to profit
when the rest of the market is driving the prices
of our stocks up and down.
It’s an intense process, but it pays off in a big way.
In fact, it creates a game-changing advantage
over the rest of the investing community.
A stock always gravitates to its fair value
over time. Thus, all we have to do is buy the
undervalued ones, sell the overvalued ones,
and wait for everyone else to figure out what we
already know. We are consistently among the first
ones in and the first ones out, so we make the
most money. Everyone else fights for a piece of
what’s in the middle.
And because we get out while the getting is
good, we end up sitting on a lot of cash while the
market is falling. That sets us up to be the bargain
buyers when the market bottoms out. Using this
Methodology, I have averaged nearly 40% per
year for the past 18 years.
That’s over four hundred times my money going
back to 1996.
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INTRODUCTION
While that might sound outlandish, it’s just simple math applied to a long timeframe. Indeed, Warren
Buffett did much better in his first 18 years. Peter Lynch grew the Magellan fund by 26x in 13 years.
That’s not as good as my personal account did from 1996-2009, but it’s much more impressive
because he did it with a multi-billion dollar fund. If he had started with just a few thousand dollars, I’m
sure he would have trounced my performance.
In other words, as awesome as my results may sound, they are actually very achievable for anyone.
Impromptu Math Lesson: To do the math for yourself, just type 1.4^18 into Google. The 0.4 is the
decimal representation of 40%. The ^ is a compounding symbol (just as + is an adding symbol) and 18
is the number of years.
With that formula you can figure out how any amount of money can grow over time. Just understand
that the “1” represents the 1 initial investment you have made. So, the answer to 1.4^18 will tell you
how many times your initial investment will have multiplied.
If your initial investment is $3,000 simply multiply the result of the first equation by $3,000 to see
how much money you will have. In this case, $ = $1.28 million.
OK, let’s get down to business. Before we do, I’d like to offer my deepest thanks to my mentors and to
investing legends everywhere. Thanks to them, we have a chance. Without them I would be nothing.
This work is dedicated to them.
DOING IT RIGHT
Everything I’ve discussed thus far explains why there are no traders or technical analysts among the
world’s twenty richest investors. The most successful invest for the long term in companies that have
yet to blossom fully. This is how Warren Buffett made his early billions.
Long ago I decided, “If that’s how Warren Buffett did it, that’s how I’m going to do it too!”
It’s important to note that I don’t take credit for having made money in 14 of the past 15 years. I’ve
simply been following the Methodology, a consolidation of the lessons my brilliant mentors taught me.
I’m just a robot following the rules.
Thus, I believe that anyone who follows a good Methodology and has access to an expert’s best picks
and updates can do it too.
In the meantime, I can’t stop the world from poorly analyzing companies or panicking out of
undervalued stocks. The Founder of MicroCapClub wrote a great piece explaining that emotional
investing will make you go broke. If you can’t control yourself, don’t invest in stocks.
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INTRODUCTION
The truth is, I hope for investors to panic and crush my stocks! When they do, I have the option to buy
more shares cheaply (assuming the size of the resulting position adheres to my Methodology) and
thereby make a bigger profit over time. Perfect. While waiting for a stock to rebound, I try to ignore
what the masses are doing. After all, I’m emotional like everyone else. There’s no need to get wound
up. Instead, I turn off the TV and do my homework (50+ hours per week). Continuous research ensures
that our calculations and analyses are all in order.
That’s what our team does.
The next step is your job. If you buy my picks, you have to decide when and how much. You also have
to decide when to sell. This skill took me years to master. With our Methodology, however, selling at
the right time is easy to learn.
As my team contemplated the launch of PTT Research, we realized that our readers would need to
learn my secrets in minutes, not years. If you’re not making money on our picks, we’ve probably done a
poor job of explaining how. With this in mind, I have prepared this revised and expanded edition of my
Methodology. I believe that anyone who reads, understands, and practices it will be a success.
So take the next few minutes to carefully read the Methodology to the end. Read it often, until your
faith in its principles are stronger than your instinct to buy when a stock goes up and sell when it goes
down. The Methodology encapsulates everything I have learned from 6 years of schooling, 20 years
of experience, and endless hours contemplating and practicing the teachings of my mentors. It clearly
lays out the ground rules I use in my investing. It will arm you with the secrets I have used to make
millions in the stock market.
Let’s get started!
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The
Poised To Triple
Methodology
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The Poised To Triple Methodology
stick to the lessons
The first thing to know is that I cannot and will
not provide specific “recommendations.” I have a
legal right to publish my research and opinions,
but without a broker’s license I cannot advise you
on what to do. As a semi-retired person, I have no
plans to obtain a license. As someone interested
in helping others, however, I am providing you
with my complete set of personal rules. You can
do with them as you wish :)
This Methodology is not meant to be “tweaked.” It
incorporates the most fundamental teachings of
the most influential investors in the world. They
know much more than I do! I am most successful
when I follow every rule of the Methodology, just
as it is written—no exceptions! I encourage you
to do the same.
There is nothing in the Methodology that tells us
what to do if we violate one of its rules. When
I do (it happens—I’m only human), the only
solution is to rectify the error immediately by
doing what I should have done in the first place.
Case Study: Himax (HIMX)
The Methodology helped us to discover Himax
when it was just $3.44 per share. I told investors
that HIMX would be Google’s choice to power
Google Glass, which would cause the stock to
triple in value. Four months later, Google and
Himax announced a relationship around Google
Glass. The stock soon tripled to $10.32!
At that point, our Methodology said “sell”.
It was hard to do. There was a ton of hype and
everyone loved the stock! However, rules are
rules, so HIMX graduated from our Portfolio. The
stock continued higher for a few months, driven
by Wall Street hype, but soon collapsed to less
than $7. That’s 33% below our $10.32 exit price.
In the meantime, Glu Mobile (GLUU) was selected
to take HIMX’s place. When HIMX hit $7, GLUU
was up 25%.
Up 25% versus down 33%. That’s the power
of ignoring emotions and adhering to a proven
Methodology.
The lesson here is clear. “Hype” and “Love” are
strong emotional influences. Both can make
people do crazy things. This can be deadly on
Wall Street. I’ve seen it send many of my personal
friends to the poor house. The Methodology takes
emotion out of the equation. It tells us what to do,
regardless of how we feel. As easy as it sounds,
you’ll still find it challenging. Emotions are very
good at overriding logic. Keep this in mind!
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The Poised To Triple Methodology
Choose Your Analysts
Before you act on anyone’s analysis or advice,
you should know as much about that person as
possible. The Internet has made it easy to sway
public opinion on nearly any topic, including
the value of stocks. There are plenty of online
charlatans who want to do only one thing—rip
you off.
I’m not ashamed to admit that in my early 20’s I
fell victim to a few scam newsletters. The profit
they promised sounded too good to resist. As
it turned out, the editors weren’t Wall Street
professionals—they were crooks. I was just one of
the million suckers born every minute; a patsy in
a pump-n-dump pyramid.
So beware of “analysts” who tout penny stocks.
Most of them don’t have the credentials to pick
stocks. As a result, their picks are pure gambles.
before I started to really understand what I was
doing.
Looking at the stuff I see on the Internet and in
newsletters, I can tell you one thing for sure: most
of it is just as likely to hurt you as to help. It’s very
clear that most “analysts” have no idea what they
are doing. They cite P/E ratios and regurgitate
press clippings but provide no real analysis.
This is because most “analysts” don’t have the
necessary training.
This is why you should always do a background
check. Many aspects of my background are
posted here. But don’t stop there. Google me.
Learn more about who I am before listening to a
word I say. Your fortune is on the line.
I started learning how to evaluate stocks in the
mid-80s, a few years before the crash of ‘87. In
1988, I earned a Track & Field scholarship to
attend Northeastern University. It was the only
way I’d be able to afford such a school, so I took
full advantage of it. I studied Finance and spent
as much time in the library as I did in class. I
wanted to become the best stock-picker possible.
By the time I graduated from college, I thought
I knew a lot. I was mistaken. It took another 10
years of training and real-world experience
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The Poised To Triple Methodology
Stock Investment Cycles
OK, let’s get down to the fun
stuff!
Before investing in my
selections, you should
understand how I categorize
picks. Lessons 3 and 4 will
prepare you for action.
By design, our picks often focus
on unknown, unloved, or even
hated stocks. After a careful
screening process, we choose
only stocks that we believe will
reward investors for navigating
three major investment cycles,
which we call 1) Great Find, 2)
Wait Time, and 3) Gold Mine.
These designations are not
ratings. They are descriptions
of an undervalued stock’s
typical cycle. The Great Find
occurs when we discover
that a company is working
on something that has great
potential. Wait Time kicks in
when the market gets excited
about the potential before it is
unlocked (thus, we must “Wait”
for it). A company becomes a
Gold Mine when it finally figures
out how to unlock its potential.
You can find more details in my
Seeking Alpha article entitled
The Three Stages Of A Winning
Stock Pick. As you can surmise,
there’s good money to be
made by investing early in a
company’s Great Find phase.
You can also guess that plenty
of investors get frustrated
waiting (during Wait Time) for
the Gold Mine phase to begin.
Companies generally don’t
change overnight, however.
Just because we know what
is probable doesn’t mean it’s
going to be actualized quickly.
Buy-and-hold investors should
simply be aware of these cycles
and be prepared to ride them
out. Traders and opportunistic
investors can try to take
advantage of the volatility that
often marks Wait Time.
winning formula for producing
sustainable growth. That makes
the company a Gold Mine,
regardless of what the stock
does today, this week, or next
month.
Stocks go up and down.
Quarterly reports surprise to the
upside and to the downside for
both good and bad companies.
The key is in the growth a
company delivers over time,
often as measured by years.
You must embrace this principle
if you want to apply my
Methodology successfully when
the market is falling or when
one of our companies reports
a bad quarter. Remember, a
quarter is just three months. If
you have never had a bad three
months, you’re more fortunate
than anyone I’ve ever known.
Keep in mind, when we say the
Gold Mine cycle has begun,
it doesn’t mean the stock will
go straight up. It means that
the company has figured out a
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The Poised To Triple Methodology
Position Sizing
For the purposes of Position Sizing, we give most of our picks one of four risk designations: “Core”,
“Speculative”, “Momentum”, or “Value”. These designations help to determine my position size.
Keep in mind that our Portfolio Tracker is the ultimate arbiter of whether a stock represents an
“official” pick. I discuss many stocks in public (often to maintain a high profile with the public).
However, only the stocks appearing in my Portfolio Tracker are official picks. Readers should also
understand that paying members are privy to picks that I have not yet released to the public. We
maintain a special Portfolio Tracker for paying members (at PTTResearch.com) and a separate one for
non-paying followers (on PoisedToTriple.com).
It is also important to understand that Risk/Reward Charts determine how quickly I build my position.
If I decide that a stock is a “Gold Mine” (see Lesson 3) and should be a “Core”, I will want to hold a
10% position. However, if the Risk/Reward Chart is near its upper trend line, I will exhibit patience and
wait for a better price to build my position.
As you can see below, Pixelworks (PXLW) was a great winner for our readers. However, anyone who
bought PXLW near the top line was always forced to endure months of pain to before seeing a gain.
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position sizing
What’s worse, human psychology is built to run from pain and flock toward euphoria. Thus, most
investors are actually compelled to buy PXLW near the tops (usually on the release of exciting news).
Sadly, they also sell near the lows (because they can no-longer take the pain). This is why our ongoing
updates (available first and usually exclusively to PTT subscribers) make the difference between
earning mammoth gains and taking big losses. See Become A Millionaire For Free! for more on this.
FYI, here’s the long-term Risk/Reward Chart PXLW:
This is the actual chart investors should care about. As you can see, the long-term channel has been
rising at a 22% clip annually. This is in-line with the company’s expected growth rate. As previously
discussed, it’s important that the channel isn’t growing faster than the company can. If it does, it
must eventually break down — over the long-haul, a stock’s appreciation should always match the
company’s underlying earnings growth.
By understanding PXLW’s expected growth rate, we can ascertain that the 2013-2014 trading channel
is unsustainable. It is rising at a 58% annual rate, which the company’s fundamental growth cannot
sustain. This enables us to classify the channel as being “short-term”. In generally, short-term channels
break when 1) the company’s fundamentals start to deteriorate or 2) when they bump up against a
longer-term channel boundary.
From the look of my chart, the short-term channel will collide with the long-term channel at the end
of this year, around $12 per share. If the company continues to execute, the stock could certainly get
there (but there are no guarantees).
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position sizing
FYI, the “Channel Width” is defined as the distance between the bottom line and the top line. If the
bottom line is $4 and the top line is $8, the Channel Width is 100% (since a $4 stock has to rise
100% to reach $8). The “Recovery Factor” defines how many years it will take for the bottom line to
reach the current top-line price. It gives you a sense of how long an investor might have to wait to
make a profit if they “buy high”.
Sorry for the tangent, but it’s very important to understand that stock appreciation is ultimately driven
and bounded by company growth.
5%-10%
CORE
Core stocks have generally established themselves and possess great upside
potential. Accordingly, 5-10% of a portfolio can be allocated to each Core stock.
Getting back to the Position Sizing designations, Core stocks have generally established themselves
and possess great upside potential. A Core stock might have the potential to drop from $10 to $5, but
that might come with the potential to reach $30. Accordingly, 5-10% of a portfolio can be allocated to
each Core stock.
VALUE
5.
5
5.
.
0
5.
5
0
10%
Value stocks are the safest. They have underlying value that creates a floor under
their valuation. Accordingly, 10% of a portfolio can be allocated to each Value stock.
Value stocks are the safest. They have underlying value that creates a floor under their valuation. A
Value stock might only have the potential to go from $10 to $18, but if the lowest it should go is $8,
that’s a great risk/reward ratio. Accordingly, 10% of a portfolio can be allocated to each Value stock.
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position sizing
3%-7%
MOMENTUM
Momentum picks are represented by companies that seem to be seeing
accelerating business trends. Based on their risk/reward profiles, 3-7% of a
portfolio can generally be allocated to each Momentum stock.
Momentum picks are represented by companies that seem to be seeing accelerating business trends.
If we’re right, these picks have the greatest potential for short-term gains, though other picks may have
a better shot at actually tripling. Based on their risk/reward profiles, 3-7% of a portfolio can generally
be allocated to each Momentum stock.
Speculative
5.
5
5.
.
0
5.
5
0
.5%-3%
Speculative picks are those that have yet to fully establish themselves. Based on
their risk/reward profiles, .5%-3% of a portfolio can generally be allocated to each
Speculative stock, with most being under 1%.
Speculative picks are those that have yet to fully establish themselves. The success of a Speculative
pick is usually dependent on the company fulfilling certain expectations. These stocks can triple, but
they can also fall 50% or more.
Some of our Speculative picks will be called “Ten Baggers Or Bust”. These stocks have the potential of
being “poised to triple” twice in a row (tripling twice is actually a nine-bagger, but ten has a better ring
to it).
Despite their admittedly-promotional moniker, they still fall under the sell-when-it-triples rule. If one
of these stocks is poised to triple again, I will be sure to let you know before it completes the first
triple. Most importantly, be sure to pay the utmost respect to the possibility that these picks can go
“bust”. If they do, the loss can be 100%.
Ideally, I would also like to find and hold several speculative stocks totaling 10% of my portfolio. I
place roughly 0.5%-3% of my money in each, with most being under 1% (especially the Ten Bagger
Or Bust selections).
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position sizing
Investing just 1% of one’s money in a Speculative pick may seem silly, but it’s prudent when the risklevel is elevated. Even CNBC’s Jim Cramer (a former client of mine, from his days at Cramer & Co. and
Cramer Berkowitz) advocates only allocating a total of 10% of one’s portfolio to Speculative picks.
This is absolutely crucial to understand.
By limiting one’s Speculative holdings to 10% of one’s total portfolio, catastrophic losses should be
more than covered by the winners. Newer investors are probably best-served to limit their Speculative
positions to 1% apiece. This can change over time, as the investor becomes accustomed to market
gyrations and the psychological impact of suffering losses (and gains, for that matter!)
More experienced investors may choose a larger fraction or even waive this rule entirely, assuming
they are fully-appreciative of the risks.
Our goal is for each pick is for them to triple in value over time. When they do, they automatically
“graduate” from our Portfolio. Many of our readers don’t like this rule. When a stock triples, investors
typically become attached (or even enamored) with them. This is exactly why we auto-graduate them.
We don’t want to own over-appreciated stocks. Under-appreciated stocks are the ones that offer the
greatest potential.
Value picks are unlikely to triple, but they offer fantastic risk/reward ratios. They often have a high
ratio of tangible and under-appreciated assets. As of April 15, 2014, we had made three Value picks,
with two winners returning 200% and 68%. The one loser fell 20%, dragging our overall average
return down to 87%. The average annualized return of these picks was 69%. Not bad for low-risk
investments!
Overall, the total value of stocks in my portfolio will fluctuate based on how many stocks look
attractive at any point in time. When we don’t have many picks outstanding, it’s likely because the
stock market is offering weak potential rewards for the risk involved.
During those times, it’s critical to be patient. Cash is sometimes the best investment. Soon enough, the
picks will start rolling in again. They always do. Barring global Armageddon, they always will.
Just understand that the rules of my Methodology will rarely have you 100% invested — it’s designed
for the safety of newer investor.
If you don’t like sitting in cash, it’s your prerogative to increase your position sizes, invest it into ETFs
like SPY, or the stock selections of another analyst you trust. You just won’t ever hear me recommend it
because I focus on safety first. Let your level of experience and expertise serve as your personal guide.
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position sizing
ADDITIONAL PICK TYPES
1
2
Every Spring we offer special short-term picks. A maximum total of 10-20% of one’s
money can be invested in these Spring Portfolio picks (with no more than 10%
going into any one pick). The more picks we make, the closer to 20% we can go. If
we make fewer picks, less money should be invested. This is because our knowledge
of the underlying companies is generally peripheral in nature.
For that reason, we don’t place price targets on our Spring Picks. However, they have
traditionally produced excellent average returns over a very short period of time.
As of April 15, 2014 we had selected a total of 19 Spring picks, which produced
an average peak return of 26% and an average final return of 16%. That’s an
annualized return well in excess of 100%.
These picks automatically “graduate” on Russell Investment’s annual reconstitution
day, which is usually the last Friday of June each year. Investors may choose to hold
them longer, but our official coverage ends on July 1.
Short ideas hold the promise of extra profits, while simultaneously helping to
protect your portfolio from market-related losses. About 1-5% of one’s money can
be invested into each Short pick. We will generally provide guidance on when we
think the short position should be closed out. As of April 15, 2014 we had made one
official Short pick. It produced a 62% profit in just over 3 months.
As you can see, our Position Sizing rules can provide good diversification. This allows
an investor to benefit from the winners, while being protected from the occasional
(but inevitable) losers.
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The Poised To Triple Methodology
Investing in My Picks
Write down and memorize these
two rules:
be broken before making an
investment.
1. Don’t chase stocks up
When we decide to publish
research on a stock, we don’t
look for technical “buy signals”
or try to guess short-term price
action. We make a decision
based on the fundamental value
of the company and call it like
we see it. You have to decide
for yourself whether the time
is right to pull the trigger. If you
buy on the day we publish a
pick, decide on a limit to the
price you are willing to pay—
perhaps 5-10% above my
initiation price. Then place your
“limit order” (ask your broker if
you don’t know how... it’s very
easy to learn) and stick with it.
2. Don’t place “market orders”
Doing either of these is asking
for trouble.
When you place a market order,
it is placed in a queue behind
all market orders that were
placed before it. By the time
yours get to the front of the
queue, the price of the stock
may be much higher than what
you intended to pay.
In my opinion, the proper
process is to read our reports
in their entirety before buying
or selling the pick. Then, if you
choose to use some of my more
advanced strategies, create a
Risk/Reward Chart and consider
whether you can live with any
temporary downside potential it
implies. Remember also that the
trend is your friend. If the trend
is counter to our thesis, you may
decide to wait for the trend to
If the stock runs away from
you, don’t worry. Though
undisciplined buying
sometimes causes a spike in our
picks, they often ease right back
to where they started within
days or even hours. (The titles
of articles we have published
during the last several months
are much less revealing of our
disposition toward the stocks
in question, and this seems to
have kept spikes to a minimum.)
If a pick never settles back
into a price range you are
comfortable with, don’t worry—
we will make many more picks
in the future. I’ve been doing
this for over 20 years, and I
can say with certainty that the
market has never run out of
good picks.
Just like chasing a pick on
the day we publish it can be
disastrous, investing in a stock
after its risk/reward ratio has
changed (months after I make
the selection, for instance, or
once it has already graduated)
can lead to confusion,
uncertainty, and losses. This
often sends readers into a
desperate search for help or
guidance. Sometimes, investors
will blame me for their losses.
This is not healthy investing
behavior.
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investing in my picks
“12 Easy Moves To Double Your Money In 12
Months” showed how you could have easily
doubled your money in 2013. All it required was
buying our picks and following this Methodology.
Often, investors hold onto a stock that has
tripled and have less conviction about a new
pick because it is in our nature to fear or avoid
new things. We feel more comfortable with what
we already know because it gives us a sense of
comfort and feels less risky. In fact, the reverse
is usually true. The biggest opportunities lie with
the stocks that nobody likes or knows about. A
stock that has already tripled has probably begun
to attract the attention of the talking heads, and
its price movements may soon be driven more by
hype than by fundamentals.
Hopefully you get the message, because I can’t
control your actions.
When searching for our next triple, I spend
countless hours making sure the potential reward
far outweighs the risk. Your job is to read my
analysis carefully before deciding whether to
buy. From a psychological point of view, building
confidence in my work and the company’s story is
very important. On the way to doubling or tripling,
any stock can drop 20%, 30%, or even 50%...
or more. You need conviction to weather those
storms. In my experience, they are temporary over
80% of the time. With those odds, you have to
take the bad with the good!
In fact, Benjamin Graham’s legendary book and
one of Warren Buffett’s speeches teach us that
we should actually hope for our stocks to drop!
This makes sense if you think about it. If I pick
a stock to triple from $5 to $15 and it drops
25% to $3.75, it essentially becomes a pick to
quadruple (from $3.75 to $15). The exception is
when the stock is dropping because we’re wrong
about the company.
Of course, that does happen. If we’re right 75%
of the time and the winners double, however, a
20% loss on 25% of our picks won’t put much of
a dent in our overall gains. Further, if we size our
positions properly, we have the option of selling
at a small loss or buying more to enhance our
eventual gain.
If my opinion of a company changes, I will let you
know immediately. In other words, if you don’t
hear from me, you can (and should) assume that
everything is ok.
Discipline and psychological fortitude are
critical to making this Methodology work. Our
in-depth research and updates should bolster
your confidence and help you stay the course.
While much of our research eventually becomes
free, many readers choose to upgrade to our PTT
Research, PTT Pipeline, or PTT Elite offerings in
order to obtain more frequent updates, valuable
industry reports or a higher level of service.
If you choose, you can monitor your companies’
news and SEC filings on your own. You can also
monitor my comments and Instablog on Seeking
Alpha and read my articles on PoisedToTriple &
PTTResearch. I also post comments on Facebook
& Twitter and participate in conversations in our
Member Forum.
It can be a lot of work to keep track of all those
resources. But frankly, I don’t believe that is
necessary for you to succeed.
In fact, I would argue that you can make more
money by keeping it simple. By following PTT
Research, you are effectively hiring trained
veterans. For 20 years, Wall Street came to me for
my winning picks. I did the heavy lifting. Now, I’m
delivering the same level of work and expertise
to Main Street investors. In many cases, all you
have to do to make money is buy the stock and
patiently wait.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
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The Poised To Triple Methodology
when to buy
It is best to buy my picks within 5-10% of the
initiation price. This isn’t always possible on the
day of the announcement. Novice subscribers
often jump in with market orders that drive a new
pick up 25%, 50%, or even 100% in just a few
minutes. Yes, minutes.
For the record, I do not like when this happens.
Moves like that are inexcusable for real investors.
They do a great disservice to me because they
give people the idea that I’m pumping the stock.
This impression only deepens if the stock pulls
back to my initiation price, which results in
accusations that I am dumping it. I worked too
hard to build a reputation among institutional
investors only to have it sullied by a few novices
who don’t follow (or perhaps even read) my
advice to use limit orders. Understand that a
weekly move of only 1.1% will more than triple
your money in just two years. I have tripled my
money only every three years or so for the last 18
years. In other words, the odds of getting returns
of 1.1% per week are very low.
back to $5 or even lower. Thus, the best thing to
do is wait. In many cases the stock will come back
to Earth.
Opportunistic shareholders and short sellers
know this. You can expect them to sell or short
a stock that has seen a short-term meteoric rise.
Selling pressure from shorts and profit-takers will
drive the stock back down toward to my initiation
price. When it doesn’t, don’t worry. Another
opportunity will present itself. There are plenty of
fish in the sea.
I plan my investments for a timeframe of 2-3
years. Remember this if you use my more
advanced techniques such as Risk/Reward Charts.
I want to buy stocks near the bottom of my
Channels and sell them near the top. I don’t try to
buy and sell at the exact top or bottom, because
nobody can predict that with consistency.
So if a stock I picked to triple goes from $5 to
$10 in a few minutes, that’s over a year’s worth of
low-odds gains. Obviously, it is no longer poised
to triple—it is only poised to rise 50% (from $10
to $15). More importantly, the odds of it staying
as high as $10 are very low... just as low as the
odds of it getting there so quickly. It may well pull
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
32
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methodology
when to sell
This one is easy. The Methodology tells me to sell
when one of two things happens:
1. If my pick triples. The only exception is when I
reinitiate coverage on the stock, expecting it to triple
again.
2. If I decide that I’ve made a mistake.
The first one is easy and automatic. If there’s any
confusion, check the status in my Portfolio Tracker. If
there isn’t a new entry with a new initiation price, the
pick has graduated. End of story.
If I give up on a pick, the Portfolio Tracker will show
this as well. In addition, I will issue a mea culpa telling
everyone that it was a bad pick and it is time to move
on.
If none of this occurs, you can assume that the pick
is still live. My stance hasn’t changed since the last
update. Remember, companies don’t change quickly.
Therefore, my opinion doesn’t either.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
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The Poised To Triple Methodology
the trend is your friend
Technical analysts and traders believe that “the
trend is your friend.” In other words, if a stock
has been moving up, it is more likely to keep
moving up. If it is moving down, it will probably
keep moving down. An uptrend will continue until
buyers have exhausted themselves. When traders
recognize that there are no more buyers left,
they may short the stock, even if the company’s
fundamental prospects are great. This helps push
the stock lower and may be the first step in what
will become a downtrend. Many traders won’t
stop shorting until sellers are exhausted. When
there are no more sellers, the downtrend stalls
and the uptrend may resume.
To me, it’s all a game. In real life, companies don’t
get stronger and weaker every few weeks. Keep
this in mind the next time you are wondering
why your stock is on the decline. It’s usually just
traders playing their game. The stock of a good
company will ultimately gravitate toward its true
value.
jump in and buy at bargain basement prices.
Usually, this is the moment when the downtrend
reverses.
In most cases, sellers don’t know any more than
you do. My career was built around providing
Wall Street with the best legal information money
could buy. The number of times I knew something
other investors didn’t (which was often) paled in
comparison with the number of times a stock was
beaten down for no fundamental reason.
Just take a look at how many times Salesforce.
com (CRM) dropped 25%. This was on the way to
tripling multiple times:
When a stock falls, even optimistic investors can
lose patience or panic, thinking that something is
wrong with the company. 90%+ of the time, there
is nothing wrong with the company. Shareholders
are selling only because other shareholders are
selling... which scares even more shareholders
into selling. Professional investors sit back and
let the herd sell, waiting until all the panicky
investors have sold all their shares. Then they
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
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The Poised To Triple Methodology
Weathering Corrections
As you can see from the CRM
chart, panicking is one of the
best ways to miss out on a big
winner. Corrections are just
like turbulence in an airplane.
They can be unnerving, but they
rarely result in permanent loss.
More often, corrections are an
opportunity to buy more of a
good thing. That’s how investors
like Warren Buffett got rich. It
stands to reason that doing the
opposite will make you poor.
Nobody can predict corrections
with consistency. Every one
of the investing masters I
follow has said this. My default
position is that if Warren
Buffett and Peter Lynch say
it’s true, it’s true. It follows
that for most investors, trying
to avoid a correction makes
little sense. It is better to learn
how to weather a correction.
Corrections are temporary, after
all.
There are ways to make risk
and reward work in your favor,
however. Peter Lynch once said
that if a stock appreciates at a
rate higher than the company’s
3-5 year growth rate, it is likely
to become overvalued. This
lesson led me to invent “Risk/
Reward Channels.” These define
the boundaries of the path
a stock should follow to get
from its price today to what I
consider to be its true value.
The trajectory of the path aligns
with the company’s rate of
growth. The upper boundary
touches some of the stock’s
highs over the last several
years, and the lower boundary
touches some of its lows. I
expect the stock to move up
and down within the boundaries
of that path, which is defined
by its historical prices and the
company’s growth rate, as it
moves toward my price target.
If the channel is wide, the stock
may be prone to large drops,
but the value of the stock
should continue to follow the
channel upward as long as the
company’s growth is intact.
If it has, then the near-term
risk is much higher than the
potential reward. If most stocks
in the market are sitting at the
upper end of their Risk/Reward
channels, market risk in general
is quite high. A correction is
more probable than continued
rewards.
Risk/Reward Charts can thus
help you prepare for market
corrections. Our article on How
To Draw a Risk/Reward Chart
will help you use corrections to
your advantage.
When market risk is high, you
can hedge your positions by
shorting the market, shorting
stocks with poor fundamentals,
selling calls, buying puts, or
trimming your positions in
order to raise cash. We cover
all of these advanced topics
under “PTT University,” a regular
feature of the PTT Newsletter.
Risk/Reward Charts help us
discern whether a stock has
risen too quickly, breaching
the top end of the channel.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
35
Weathering Corrections
With the knowledge gleaned from Risk/Reward Charts, we can take advantage of normal market
volatility, instead of being shaken by it.
I occasionally warn readers when the market feels frothy, as I did in late-2013’s “Stock Market Yellow
Alert.” These alerts aren’t warnings to run for the hills. Don’t automatically sell your favorite stocks,
especially if they aren’t high in their Risk/Reward Channels. Rather, position yourself to comfortably
ride out any potential storms ahead. I say potential because, again, nobody can call corrections with
consistent accuracy.
When I’m concerned about the market, I short the market or sell my ETFs. I don’t sell my favorite
stocks.
If a correction does hit, many investors will panic. Emotions (especially fear and euphoria) are an
investor’s worst enemy. They impel you to buy or hold when you should be hedging or selling. They
also impel you to sell when you should be buying, or at least holding on. This is called “capitulation,” a
word that denotes panic selling at what may well be the stock’s low.
When stocks are falling, they trigger instincts of self-preservation that have been with us since the
days of cave men. Fear demands an explanation of a bad turn of events, whether it be a flood or a
fallen stock. Speaking of floods, when my picks are falling for no apparent reason, readers deluge my
inbox with comments like, “Insiders are selling, something must be wrong!” Nothing is wrong. Things
happen. We can theorize about river gods and insider sales all we want to, but in the end they don’t
explain much.
One of the first lessons I learned is that insider selling is not a data point. It should always be ignored.
Insiders often have most of their wealth tied up in company stock. It is wise for them to diversify their
wealth, even if they have complete faith in the company’s future. The only way for them to diversify is
to sell some shares. It is right. It is just. It is normal.
For an in-depth explanation of this subject, check out my December 2013 article, “Glu Insider
Transactions – Why You Should Buy.”
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
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The Poised To Triple Methodology
Don’t Worry!
Despite Wall Street’s obsession
with quarterly earnings, I do not
make earnings predictions. In
many cases, I don’t even care
what numbers my companies
report. As long as they’re close,
I’m more interested in what
management has to say about
their progress.
Investors hurt themselves by
over-analyzing every shred of
quarterly data. This behavior
make sense if you’re invested
in a well-covered, fairly-valued
stock, but why investors waste
their time with such stocks is
beyond me.
By comparison, an undervalued
stock often has at most one or
two analysts covering it. There
may be no estimates with which
to compare the company’s
earnings. If there are, they
are the opinion of one or two
people who may or may not
know the story as well as we do.
So what’s the point in worrying
about what they think?
If earnings estimates are often
a poor and incomplete way of
judging a quarter, how a stock
behaves during and after an
earnings call often indicates
little about the company’s
progress during the quarter.
Most people don’t listen to the
earnings calls, so their trading
is uninformed and therefore
invalid. Many shareholders
are spooked into selling by a
drop in price during the call.
This drives the stock down
further and spooks even more
shareholders to sell. Ask them
why they sold, and none
of them will be able to say.
Meanwhile, informed investors
are picking up shares on the
cheap. I make a lot of money
by taking advantage of others’
irrational reactions. This is how
professionals beat the average
investor.
Make no mistake, when
something major happens, I will
provide my analysis to PTT’s
paying subscribers ASAP. If you
don’t hear from me, you can
assume that nothing major has
occurred and that my opinion
remains unchanged.
Let me repeat, I do not
recommend stop losses. They
are very easy prey for stock
manipulators. If one of our picks
is down 15%, it may be easy
for a large trader to short it and
quickly push it down another
5% on a quiet day. Any 20%
stop losses would be triggered,
creating selling pressure that
would drive the stock down
further. This could trigger even
more conservative stop losses.
The trader could use these
sales to cover his short position
at a profit. Meanwhile, we
would get hundreds of emails
insisting that “someone knew
something.”
Believe me, I invest in every one
of my picks, so I’m on top of
them. More importantly, I fear
nothing more than having my
readers lose money. That’s an
easy way to get fired.
As you read more and more of
my reports, you will gain the
confidence to hold through
erratic price action. You’ll be
better armed against your
emotions and instincts, and
you’ll do the right thing even
before I provide my analysis.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
37
Premium Services & Information
Free subscribers should understand that PTT Research Newsletter subscribers and members of our
premium services (Pipeline Data and PTT Elite) almost always get first if not exclusive access to our
picks. Subscribers to our free PTT Insider get second priority. We generally share all of our best picks
with PTT Insider subscribers, but it may be months after paying subscribers have received the research.
The general public often gets our research after subscribers to PTT Insider.
PTT Insider members thus get a lot of value, but paying subscribers get much more. Our free services
are meant to help new investors gain confidence and make enough money to justify paying for our
premium services. Our premium services often take customers’ investing profits to a new level. In
other words, as long as I continue working hard and making great stock picks, everyone wins!
We highly recommend that PTT Research Newsletter subscribers also subscribe to PTT Insider and
Follow me on Seeking Alpha. This way they know what we are telling free subscribers and the general
public. Be sure to sign up!
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
38
About the author
mark gomes, Chief Analyst PTT Research
EXPERIENCE
Mark Gomes has over twenty
years of experience as an
information technology (IT)
stock analysts. His utilization
of IT purchasing data has been
a hallmark of his investment
methodology.
As a program director at
International Data Corporation,
he advised hundreds of Wall
Street clients on the evolution
of the consumer PC market
in the mid-90s. His program
serviced top analysts from
the industry’s biggest firms,
including Goldman Sachs and
Morgan Stanley.
In 1998, Mr. Gomes established
the Investment Research
Program (IRP) at AMR Research
(later acquired by Gartner
Group). His coverage of the
Internet Boom turned IRP into a
multi-million dollar profit center.
In late 1999, he predicted that
the Internet Bubble would crash
in Q1 of 2000 by identifying
weaknesses in the IT purchasing
pipeline. He later called the
bottom of the bust in late 2002.
In July 2004, Gomes founded
Pipeline Data, LLC. One month
later, he initiated coverage
on Apple Computer (AAPL) at
$15.87 in an emphatic alert
to Pipeline Data’s institutional
customers. His analysis
presaged Apple’s reemergence
and propelled Pipeline Data’s
success, attracting a who’s who
of mutual fund and hedge fund
giants.
In 2009, Gomes became a
contributor to Seeking Alpha
where he has amassed an
enviable record for identifying
buyout candidates and stocks
that are “Poised To Triple”.
Mark co-founded PTT Capital
in 2013 and was most recently
credited with assembling
evidence that identified Himax
(HIMX) as the technologies
behind Google Glass, one of the
world’s most eagerly awaited
new products. After the release
of his findings on SeekingAlpha,
shares of HIMX doubled in a
6-week period.
web: pttresearch.com / blog: poisedtotriple.com / twitter: @poisedtotriple
39
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