Insights from the Investing with IBD Podcast

Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here and I am not joined again by Arusha Paris. He is off for most of this month actually, but that's okay because we've got a great lineup of special guests to still entice you with some great summer love and fun. So today we have Kathy Donnelly. She's a prop trader and author, co-author of The Life Cycle Trade. So welcome back to the show, Kathy. How are you doing? Thanks, Justin. Yeah, it's great to be here. Yeah, awesome to have you. I mean, Kathy and I go, gosh, we go a ways back. I've spoken at a few of her meetup groups that she was doing. Are you still at the Denver Library? Actually, we've been virtual ever since COVID. Virtual ever since. Okay, yeah. So it's been a while. It's been a while. And of course, Kathy and I met originally, I think, at probably a level four. Yeah. Yeah, where... She came to watch Bill speak and watch a number of our portfolio managers talk about how they do their investing. And she was just one of those people that sat down and took a lot of notes. And of course, you have to kind of make this your own. And she certainly has. There's a lot of things that she does that are a little bit differently, but she has success at it. So we want to have opportunity for our listeners to kind of hear about your success, Kathy. But what we're going to do later on in the show is we're going to. kind of take one of your 10 baggers because that's kind of the goal everyone has, right? One of those stocks that you can have an increase of tenfold because those can really make a big difference in your portfolio, especially if you have some size in them. So we'll get to that with your 10 bagger. But first, why don't we go ahead and talk a little bit about the market and kind of get your thoughts. But before we do that, I just kind of want to, you know, feel you out a How much attention do you spend on the market indexes and, you know, analyzing what's happening with the general market? Oh, I spend a lot of time. I mean, maybe not as much as others, but I definitely look at it every day. You know, I kind of want to see the trend, you know, what's the four to five day trend, you know, trending up, you know, is it trending sideways? Is it starting kind of a downtrend? I feel like every four to five days, right? You know, we we're going to see that change um so it kind of prepares me okay it's going sideways now so that means it's either going to go up or down or is it edging up and obviously right now we've had quite a few days up so as you guys have already been pointing out on your great stock market today is that you know we're extended and so i don't know what's going to happen next but we're definitely either going to be going sideways or down soon So that might be a little scary, but, you know, we're prepared because we know what to look for in our stocks. And ultimately that will guide us. But it's very important, I think, to know where the markets are, because then you can also see how your stocks are responding in comparison. And if you want to make adjustments accordingly. Yeah. Now, it kind of surprises me that you say that you kind of look at the four to five day trend, because I always admire you for your long term perspective. And four to five days just seems so short. Yeah, well, I mean. That's for the market. I'm not doing the four to five day in my stock. So yeah, I should probably clarify that. But in the market, I am because when, if I know the market's going to start correcting, then I know my stocks are going to start correcting too. And then I want to know what those levels are going to be as well and just be more prepared. And do you make any adjustments? Do you do any selling into strength when you see the market get extended? Or is it just Again, kind of more tightening your stomach because you know the punch is coming. So this is a funny story. So I am classically never sell offensively into strength except for CrowdStrike when it had the railroad tracks not too long ago. I mean, no one even talks about the railroad tracks anymore. Yeah, it's been a while. So, you know, I looked at some examples. I read some old IBD articles on railroad tracks. And. And I even had a net way back in the day and it had railroad tracks. I held it, went into earnings exactly like what CrowdStrike did, reversed. And then I ended up selling a net. And so this time I'm like, I'm going to be proactive and I'm going to sell it ahead of time. And I haven't gotten back into it because the examples that I looked at of railroad tracks, you know, on IBD, you can search for railroad tracks. You see a bunch of articles with ones that you've written, written on it. where the stock really didn't do anything after railroad tracks so i keep waiting for it to not be going up. And I was like, geez, the one time I sell offensively and this is what's happening. Yeah. So, so just to make sure I marked up the right railroad tracks that you were looking at. Yeah, it was right before earnings. Yeah. Right before earnings. So of course, you know, one of the things that happened, you know, just to kind of identify this time period for folks, this was in February, beginning of February. And what we The way we look at railroad tracks is you basically have typically a wider spread. This is something after a stock has been running. So we definitely had that with CrowdStrike because, I mean, if you look at from the bottom in November of 2022 or the end of 2022, it had been in this major uptrend. So you really want to be identifying railroad tracks kind of for a move that has matured a little bit. But specifically what you're looking for is two weeks. This is something that you look for on a weekly chart. And what happens is they kind of retrace. The first week will be strong. The second week basically retraces most of the first week. And Bill just called that it looks like railroad tracks. And a lot of times you'll find that, you know, the hash marks might, you know, close around the same, you know, area, but they don't have to. But it's mostly that retracement. that he kind of believed was, OK, this is this is a stock that is still having price discovery, but not making progress. And a lot of times he saw that in conjunction with maybe climax tops and the like. But as you mentioned, you know, this was in February. I'm going to go to the daily chart on this. And almost immediately afterwards is when this big drop happened. Of course, this was from Palo Alto earnings, PANW. Palo Alto dropped significantly. It was down, gosh, 28% by the end of the day, and CrowdStrike held up much better. And as opposed to plunging through the 50-day moving average line, it got support there, but was still down 10%. It had this earnings, as you mentioned, where it went up 10%, but well off its highs for the day, and then did this long base. So I just wonder, Kathy, I'll be honest with you. I think a lot of times we'll choose railroad tracks for our articles that might kind of show a little bit more devastation afterwards. So we might be cherry picking our examples. So you might have to do a little bit more research on your own and not just rely on the ones that you've seen from us. But it's funny. Let me just jump in real quick, because with the How to Make Money in Stocks book, Bill has several examples of railroad tracks. tracks and he says sell all so i look at those as well so anyway it's all good but it's just funny that you asked me because that's the one time i sell it offensively and that was the ending of the week of the railroad tracks yeah and and it is a good thing because usually you do see um see see weakness now in the case of crowd strike this one did come back um you know it it made a full base which hey i don't i don't mind when i can sit out of a base because base is uh sometimes can be a little bit harder to hold through, especially if you don't have much cushion. But I assume that you had a nice, nice cushion. And I did. I did. I, you know, I bought it that first stage base as it was coming off the bottom there. And so, yeah, I had a pretty nice cushion that I would have held through the base had I not seen the railroad tracks. But this is how we learn. So, yeah. Well, and again, I I don't think there's any problem with that cell right there. Yes, it is at a higher price now, but locking in that kind of gain and sitting out months worth of inactivity is not bad. But getting back to the market, you mentioned how you've been watching SMT videos and we've been talking about extended. But of course, one of the things about a market that's extended is you can certainly get extended-er, if that's a word. So I feel like that was kind of what happened today. We were up 1%. Yesterday- didn't quite fit the bill for stalling, but it did look kind of like it. It did qualify the S&P 500 as a stalling day, but both of them were up over a percent today. So do you typically just say, look, I'm going to ride the strength for as long as it lasts and then be prepared to look for sell signals on the downside? yeah i mean i think what's important is is like newer positions right so the newer positions that maybe you i only have a five percent you know ten percent cushion you know that's that's really what i'm looking at you know the ones that i have that i've had longer term which you know we're going to look at uh that of course you know is going to have a different perspective and i'm not looking at it from that from that shorter term perspective of what the market's doing but if i have like a new buy new cup with you know buy point from a cup with handle and I don't really have any gains, then I may not want to hold on to that, especially when we're extended like this. Yeah, very good point. Now, what about some of the positions that you do want to hold on to? Do you ever do any type of hedging? And I know we'll probably get to this a little bit in the next segment, but just as a preview. Yeah, no, it's a great question. And no, I don't hedge at all. I never learned to hedge. You know, I was when I was learning what systems was going to work for me. And I found IBD and CAN SLIM, you know, Bill didn't teach hedging, so I didn't learn it. Now my coauthor, Eric Cole, he's very good at hedging and I've listened to him and he showed me a few things, but I'm just, I just stick with what I know. So no hedging. And look, if it works, why, why mess with the system? Right. Exactly. Um, uh, what about the, what about the small cap market? Um, You know, this is something that a lot of folks have been, you know, looking at as, you know, it's had this level at 2000 that has been kind of sticky. It just seems like it gets above it for a little bit, then it goes below it, gets above it, gets below it. Does this get into your equation at all? Because the lifecycle trade was a lot about IPOs, and a lot of them are kind of the newer companies. in that small cap universe, does that ever, you know, do you ever spend a little bit more time on the Russell 2000 because of your IPO focus? I mean, that's a great question. And obviously, yeah, the mega caps, the bigger names have been doing well. And those are the ones that the market's giving. So those are the ones that I'm purchasing. But for me, it's really easy to keep tabs by just looking at. market liquidity. So, you know, taking that 50 day average volume, multiplying it by the price. And if I get that, you know, 20 million is my minimum, prefer 100 million or more. And I just watch them from that perspective. And there's several that are in these long institutional due diligence phases. And we'll look at some at the end. And they just keep building base after base because they just don't seem to be in favor. So hopefully at some point they will be and we'll have some runs from there. But until then. We just keep our eye on it. Sounds good. Well, we're going to go ahead and take a break. And when we come back, we're going to have a little bit of a longer segment on how you handled your 10 bagger and what you're looking for for the next one. Stay tuned. We'll be right back. Welcome back. It's Justin Nielsen here on the Investing with IBD podcast with my special guest this week, who is Kathy Donnelly, a proprietary trader. Kathy, what does it mean to be a proprietary trader? It means I trade my own money. Okay. Just that simple. Should also mention that you are a co-author of the Lifecycle Trade. This is something, this is the book that a lot of our readers have really enjoyed because you and your co-authors, many of whom have been on the show as well, including Eve Bobak, Eric Kroll. We haven't had Kurt on, but you know, say hi to Kurt for me next time you talk to him. But yeah, you guys really kind of just went through and looked at a lot of different things, especially with the IPOs and how they mature. what it takes to kind of get as much money out of them as possible. And so that's what you're really all about is trying to get as much money out of a stock as possible. And what got you kind of interested in that? Well, you mentioned the level four workshops back in the day. Once I got hooked on the system, I pretty much went to every level four I could. Luckily, you guys started, I guess, luckily, unluckily, you started doing them only once a year. So I wasn't going to two a year, but I did once go twice in one year. But anyway, you know, basically that was the premise. I would go to level four and you would show all these great stocks of the year and you would show like the first stage base and these huge runs and then showing the end where that's when you would sell it. And just and I was just like, that's what I want. You know, I mean. 20% is great. And I know that's what a lot of stocks will give us. But there are those really great ones that will create the first stage base, go all the way to the fourth, maybe reset and keep going. And that's what I wanted. That was my number one goal. So I was able to definitely implement long-term trading for me many hundred percents over my career. Thank goodness. And now my first 10 baggers. So I've definitely got some new tools in my toolkit. And. Maybe I can apply it to some other stocks, but definitely you've got to have that N in CanSlim for sure. It can't just be any stock, right? Right. And that's an important part of, you know, recognizing that you can't treat all stocks that you buy as. oh, this is automatically going to be a 10 bagger. I personally had a conversation with Bill one time and we were just going over some of the stocks that were in my portfolio. Of course, this was like 25 years ago. And he kept on asking me why I wasn't selling any of them, because I have good gains on them. And I kept on saying, well, because I think that this is going to be a great stock market winner. And he's like, why do you think that every stock that you own is going to be a great stock market winner? Like, you know, you're you're not that good. You just started, you know, kind of thing. And, um, and so, so I had to kind of, you know, recognize that, you know, and, and again, this was from Bill, Hey, some of these are going to be your, your smaller gains, your 20 percenters. And then when you find something special, that's, that's the one you treat differently. So how do you kind of approach it? Are you, are you treating everything like it could be that big stock market winner? Or do you go into some saying, yeah, this one probably isn't, but. I'm going to give it a try and just see what develops. Yeah, well, I mean, I'm always looking to purchase at that first stage base. And I think you and I did a podcast on first stage bases a while, I don't know, a couple years ago or whatever. And time all blends in together. Yeah, the time blends in. But I'm always looking for those first stage bases. And then the guy, the stock has to guide me, you know, if it's, you know, if we get that eight week hold rule. it goes up 50 50 or more you know before that next second stage base you know if the stock only goes up 20 and then starts to correct well okay that's not going to be the next one but you have that stock like crowd strike we just looked at i mean that first stage base was excellent and that could have been one i could have kept holding like i said except for i saw the railroad tracks and i was work trying to you know be offensive but As we'll look with NVIDIA, same thing. There was a lot of distance, a lot of percent change in, you know, more than 50, more than 100 in some cases between bases so that you could then apply long term trading strategies. And so that's what you know, that's how I'll be able to decide which ones I'm going to hold for that long haul. And, you know, if the market now that it's extended, it's really going to show which ones have that, you know, that matter, the ones that. are going to withstand and keep going or not. So in order to get a 10 bagger, and this is something that people have to realize is in most cases, that means that you're going to have to sit through some bases. You're going to have to sit through some pullbacks. It's not like your, your metal will not be tested. That's just not the way this game works. Right. So do you, you know, typically, you know, we're often selling quite a bit when there's a bear market. Are you are you holding through bear markets? At what level do you say, OK, nothing's working right now? I've got to raise more cash. And that might include something that you think has great potential, but just might be in a corrective phase now. Right. Well, the situation you have to have the right situation. So the situation was pandemic bear, you know, 2020. Everything was going down. Everything was below like their 40 week moving averages. And then we had a quick pandemic bull. So it was like, okay, which are the ones that are moving quickly on strength? And which are the ones that should I go into for really holding on for the long haul? And that was my mentality. So I was like, okay, NVIDIA has been a great stock for many years. It's still in the AI space. It's still having that new. And if there was a time to get into NVIDIA, like to me, that was already in my head, like, okay, this is the time because everything is just corrected. NVIDIA included. Let me get in there now and let me try and hold it for as long as I can. That was the setup. And so you have to have all the pieces coming together. Right. And so I'm, I'm pulling up a monthly chart right here and I I'm pointing to, again, you know, the, the, the pandemic. bear market was really just one month, right? It was March. We were, we were at highs in February. You know, March was, was ugly. And then we had the follow through day at the beginning of April. And by May, we were back to highs. Now, NVIDIA had this, you know, it had been basing for a while before, you know, I, I owned this, you know, back here and, and I, I do. need to disclose that I do own a small position in it still. I actually sold a lot of it, you know, cause I had like a 25% position. So I sold a lot of it after the downside reversal, not too long ago, but I did have some of it. I think I was selling in here. in 2018 and i might have bought it back a couple times in here but um yeah it was it was in 2020 that i kind of went back in with size so this let's go ahead and go we'll go to the weekly chart to kind of um uh and i'm going to change the scale on here i know that mike webster would you know be like oh how could you but sometimes we use this best fit scale just so you can see stuff um and you know And actually, I'm going to... Well, that's the base right there on the left, the one I bought anyway. Yes, right here. Here's March 2020. If you want, add the index line to the chart. That would be helpful. Let's add that. So here it is on the top. So you can see the S&P 500 coming down very sharply here, as did NVIDIA. But one of the things that you'll notice, the RS line was really strong as it... And look, it was... a quick snapback and you actually had kind of this cup with handle look to it with, with NVIDIA. So, so you were buying right in here, I assume. Right in there. Yeah. Okay. And so now kind of walk us through, you know, there was this period here where it didn't do anything for a long time. So what, what are you thinking to yourself during this time? Right. Well, again, my mindset for the first purchase was just buy it once. And then this is going to be long term. I wasn't really thinking of it as the stock that it is like today in the last year, how quickly it's moved. I was just thinking of it from a long term perspective. But what has really made a difference for me in my long term trading is what we called in the book, the life cycle trade with my co-authors is the mental capital preservation, which is really just three big words. That means. how many how much gain do i want to retain and so for me like in general if i have that 100 stock that i've told you that those are my goals to have 100 in a stock i want to retain at least 50 to 60 percent of my gains and anecdotally in our research we're like well how much gains would you need to retain for like a multi-year great stock And we said, well, maybe 35. So we never tested it. But in the back of my mind, 35 was what I was using for NVIDIA. So no matter how much it went up, I was going to retain at least 35% of my gains. So I want to give it the most possible room so that I could hold it. Because we did have examples of Tesla and Amazon and Facebook that went, you know. hundreds of a percent and you could have used mcp 35 and even at 35 with a hundred thousand dollar investment you could still have like an enormous change in your portfolio and in your life with just that so we we did know it was possible with those great big stocks and so that was my mindset going into it so when it was basing in those three bases that you talked about the deepest one of that's of those three it was like three bases in a row was 25 percent and i had enough cushion to sit through that. I mean, you can, you can clearly see that on the chart, there was a lot of space. So it didn't really faze me because I knew where my line was and I knew going in how much room I wanted to give it. Okay. So, um, you know what, and, and let's go ahead and just talk about the formula real quick. So, um, you know, no one promised you there was not going to be any math here. So, uh, we'll just kind of do this formula real quick. So you got the buy price plus your peak price. minus the buy price. So that's basically what kind of, what kind of appreciation you had at the top, right? It's just the gain, right? The difference in price from the peak to that. So it's just the gain that you got, and then you want to multiply it by whatever percent gain you want to retain. So if I want to make sure I always retain 50% of my profits, you multiply it by 0.5. I want to retain 35%. I multiply it by 0.35. And then that gives me the price. That's my stop loss for whatever retention I want to keep. So unlike Justin, I'm giving you the math. You don't have to do it unless you want to. And this is an inside. Hey, that was Webby. Don't blame that on me. Yeah, go ahead. Oh, well, I was just going to say, so just to put some numbers on it, like if you bought it at a hundred and let's say you got a double. Okay. So, oh, this is awesome. I got a double. You made a hundred points on it. That's what a double would be for $100 stock. You're up to 200. So of course, 200 minus your buy price of 100 is the 100 profit that you have. Multiply that by 35%. That's going to be 35. So basically 135 would be your thing. Okay, let's go ahead and we're going to go to the chart and see how, see how this math kind of worked out, um, you know, for you. So, uh, back to NVIDIA, we had, you know, I mean, just from here, you went from, you know, as you said, a 675, was that, um, where, where you said your split adjusted by was, um, to, you know, what, 14. Right. So that's right in line. That's right in line with once I have 100 percent gain, I want to give it at least 50 percent or 60. I want to retain for a normal stock, for a stock that I'm not going in with the long haul. That would still be enough for me to hold it from that perspective to where I'm retaining only 50 to 60 percent of my gains, too. So I just wanted to point that out, that even with. the, my pseudo not longer term strategy, but still long-term strategy, I would still be holding it through that base as well, because I already had a hundred percent between the first space and then these next spaces. Okay. So, you know, one of the things that during the time it was doing these bases, it spent quite a bit of weeks below the 10 week moving average line. But a lot of times you're, you're kind of looking at the 40 week and it looks like the 40 week actually ended up giving you. NVIDIA support at that time. Right, exactly. And then, you know, the other thing I want to say about is NVIDIA is now granted, you know, past performance is not indicative of future performance, but NVIDIA has done this before. I had never owned NVIDIA before, but I studied it a lot because I was like, why didn't I buy it? You know, when it had that first run from, yeah, back, I don't remember what year it was. Yeah. 2016 to 2018 was phenomenal. So I watched it for a long time and it did what it did in that those three bases we were looking at is done that before. We're just kind of consolidates tightly, you know, 20 percent. I don't know if you consider that type, but that's pretty tight. You know, not 30, not 40, not 50. And then it will do like a base on base and then a base reset. So I also had that in the back of my mind. Like, what is NVIDIA done in the past and how can I use that as information? to give me a clue of what it might do, you know, this time, is it going to be similar? And is it going to be in character out of character from its past history? Now, let's go ahead and fast forward a little bit back to the back to the present for not the present, but the recent present, I guess, you know, you came out of that area, back to highs, you know, it was looking good. And then we have basically a lot of stuff started topping in. February of 2021 in terms of the growth stocks. And then of course, 2022 ended up being, you know, a full on bear. So split adjusted prices, because remember, we have this 10 for one split here. But you know, we were at all the way up to what 30, almost 35, and came down to $10.81. I had a 427% gain at that peak. Okay. And then, yeah, it went down about 69%. Okay. And at that very low, I only had a gain of 64%. So 427% gain down to 60. Right. In range. Okay. Exactly. How do you deal with that psychologically, Kathy? I'm trying to understand because I'm just imagining that in myself and I would just be like, oh, kicking myself. I had it. And. So much of it is gone. So how do you do that? And I should point out at that point too, it was actually a 15% retention of gains. If I had sold it at that point, I would have only retained 15% of my gains, which is really interesting when you think about the math, because it's like, wow, you only retain 15% of your gains, but it was still 64%. Yeah, right. Math is just crazy. But, but again, my mindset was long-term and I was, I had a feeling. that it was going to potentially undercut that structure of those bases that we looked at. And then I also knew the market had the three waves down. NVIDIA had the three waves down. Maybe I had a chance here the market was going to turn. But again, my mindset, since I am a long-term trader, and being a long-term trader, you have to withstand big drawdowns. but then also the potential for big gains. So my mindset is I'm always retaining gains. So if I'm always retaining gains, I'm always making money. So it was worth it to me. to give this because it still wasn't i still wasn't negative and it wasn't my money anyway because i hadn't made this the sell you were playing you were playing with house money still exactly so the risk and the value of the potential of what could happen was worth it to me now um let's talk a little bit about position size because you know if if you were if you were very heavy in this and you had a 65 drawdown in a in a very large position, that would do quite a bit of damage to your portfolio. So what position size do you typically have in order to kind of withstand that kind of pressure? Right. So this was a 10% position size. And I guess when, you know, back in 2020, the way I was looking at it, you know, is like you, I have multiple accounts that I trade, and I have, I guess, two. two main ones. And basically I had an amount of money in this one account that was 10% of that count plus my other active growth account. And I was just like, I'm just going to put all this money in that stock, which was the 10%. And again, it was the long for the long haul. So from that perspective, again, I guess it just, it didn't faze me because it was. it was, it's kind of was an active account, but it wasn't as active as my other account. So I was okay with what it was doing. And, and I did, you know, again, I'm just looking at it from the retention of gains. Yeah. Now I like what you did here where you were looking left, you were looking at this area, noticing, okay, a lot of congestion here. So what were you thinking when it undercut this? Were you like, Oh, I was probably definitely. nervous when it undercut the structure for sure. And actually I calculated it, it undercut it by six and a half percent. And I mentioned to you that I look back to what it had done. And I believe you said 2016. And in that case, it actually didn't undercut its previous long basing structure that it did in that time. But I knew, you know, that there was going to be some congestion. So again, my line in the sand was going to be a 30% gain. So I still was going to give it more room. And then again, but I also had the three waves down helping and I just was like, okay, I hope it turns around. But I had my line in the sand at 30% gain, which I know seems crazy to most people. But again, it was the mindset and the thought that I had that just kept me on that path that if there's any stock I can do this with, this is going to be the one. Yeah. So we bought them out. And now you know, we, we turn around and NVIDIA has a phenomenal, you know, 2023. Now this was a stock that you, you know, you really didn't add to along the way up as you got that 400, you know, percent gain. When do you add, when, when do you say, okay, I I'm okay. You know, because it's, it's tough, especially if you're up 400% on the stock, you're going to be having that unless everything is up. That's going to become a larger weight in your portfolio just by the capital appreciation. So you have to be careful of adding too much because then again, you could get to that portfolio size where a drawdown like that is just so uncomfortable you sell out at the lows. So did you do any adding coming out of this bear market? Well, I want to say that I think. If I hadn't had the mindset in the beginning that there were going to be no ads and this was a long haul, I probably wouldn't have been able to do what I did. But now it's reset. And now I've got a brand new first stage base after a bear market. Right. So I had to buy. And I remember a story that Bill told me that, you know, he was telling me about Apple. And he was like, you know, we made all this money in Apple because it just kept making more bases, bases after bases. And we just kept buying more and more and more. So I actually had that in the back of my mind when NVIDIA reset and created this first stage base. And I was like, well, OK, it's given me an opportunity to buy more. So now I have a new position and I am treating them independently in another account, my more active account that I mentioned. And and yes, I so now I have two positions and two and. NVIDIA, but I treat them independently from that first stage base. And I'm treating it now as an active growth stock versus a long term for the long hold. So I've been adding on the way up on this one. So like the out there and then some in that basing there. Yep, exactly. So what I'm thinking moving forward, based on what I've learned from my 2020 NVIDIA trade, is that if I'm going to hold now this position, this new position for a long term hold, if it's possible, if NVIDIA continues with that and in can slim, most likely I'm already thinking ahead. I'll probably have to cut all those ads at some point. Take the gains and only hold the core again, like to make it similar to the original 2020 Nvidia trade. And so when you say the core, do you mean kind of like this, this initial position? Yes, exactly. And, and, and look again, that's something I can definitely get behind because, um, you know, as, as we said, that can become such a large percentage of your portfolio that it becomes, you know, uh, again, I, I, I know you're brave, but you know, Wow, being that brave would be tough to have a large position and take that kind of drawdown. So going forward, like at what point, now I'm going to go back to the monthly chart here, Kathy, because, you know, NVIDIA had this phenomenal move from 2016 to 2018. It already achieved model book status at that point. And then it had another great move from 2020 to that 2021, you know, top. And now it's, you know, kind of in model book territory again. So with these multiple already model book stage moves, at what point do you say, gosh, you know, NVIDIA, I've got I've gotten enough from you. You've done your job. How do you how do you prevent yourself from getting too greedy? Well, I mean, I think that's a great question. And, you know, greed is an interesting thing because I'm the only if I'm. Trying to get more money, it's only at the expense of the money I've already gained, right? So when I think about it in that way, again, it's about a retention of gains. So I'm just going to go back to my rules and what I've learned in my methodology. And what I want to do is just then just start back with the very basics. It's like, okay, well, if NVIDIA's story is still there. You know, I'm going to start with the 35 for retention of gains. I'm going to look left. I'm going to just do all the same things that I did before. And really, there might be a time, but it could also turn into, you know, the next Microsoft and just chug along slowly at some point, too, which would be fine also. So, you know, it's hard to answer a question in the future, but this is what I'm thinking about. Yeah. And, okay, you bring up Microsoft, so I'm going to, you know, challenge you again here a little bit, because Microsoft was certainly, if you go back to, you know, 2000, you know, it had this phenomenal move. And, of course, this was the operating system, you know, starting with DOS, then Windows 95, and, you know, everything, you know, else that, you know, was so critical for bringing PCs to everybody's, you know, office, home, and everything. But then… you know, you look at what it did for 15 years, you know, it was dead money. So, you know, do you, do you ever have like a time limit on things like, okay, if it hasn't, you know, it certainly came nowhere near like a 35% MCP here. Um, you know, it, it really did retain a lot of those gains from the nineties, but gosh, it just didn't do anything for so long. Do you ever like, put a time limit on things? I mean, I would definitely put a time limit. Where's that? Oh, go back to the, where you were. Yeah. So here's, here's the 2000 top. Yeah. Okay. And where is that? What year is that other little V there in the middle? Right here? Yeah. Yeah. So that was the financial crisis, the 2008. Okay. And then where's 2020? Here's 2020. Oh, okay. It's right there. Okay. So what I can tell you is with the financial crisis, I mean, I probably wouldn't, if I had held it, I don't, you know, I mean, I don't know for certain. We'd have to look at the numbers and everything, but it doesn't look like that'd be something that I hold. But I'm glad I wanted you to, I'm glad you highlighted the 2020 because let's just do the example that I mentioned. Microsoft was another stock that I bought in 2020, along with Nvidia, that I said, okay, I'm going to buy this one for the long hold. And I guess maybe it's just because, you know, my parents were value investors. So in the back of my mind, you know, it's a dividend paying stock, like, you know, it's nice to have these other ones in your portfolio doing things when the active big growth stocks aren't doing anything. And so this one I've also had since 2020. I clearly don't have the same amount of gains. as I do in the video, but it's a nice to have in the portfolio that has a dividend. And, you know, you've got the long term leader list that you have on IBD. And so I'm just trying to catch some of those along the way, too. And, you know, nice, nice to have with little volatility that you can kind of hold on to. So I guess, you know, you hear this a lot. And I can't believe I'm going to say it, too. But, you know, when you get a little bit older, you know, you want to have some other little slower moving stocks. Slower things, right? Yeah. You don't need to swing for the fences every time. Right, right. Exactly. And yes, it's interesting you bring that up because yes, Microsoft does have that earning stability. Low number is better or more stable, I should say. Not to put a value judgment on it, but lower number is more stable. So six with an EPS growth rate of 20%, that does put it in that long-term leader category, especially with something that's able to outperform the S&P 500. And you see that with the earnings line. Last question on NVIDIA. Let's go back there. The earnings line does not look the same as Microsoft. This was, you know, it was a little bit more lumpy. There was, in fact, when this turned around here, you had some red numbers, you know, you were still positive, you know, you were still, you know, profitable, but the growth was just not there. And some of these, you know, negative numbers are pretty big, you know. Well, I'm glad you brought that up because, you know, and I think many, many people that you've interviewed, you guys have said it yourselves. I mean, the stock and even Ropal, you know, he always talks about, you know, you got to sit through so many beat and raise quarters. Well, at a certain point, it's extended even from their earnings. And so they have to kind of get knocked back down a little bit so then they can beat them again. So, you know, that's part of it. Yeah. And certainly one of the things I think, you know, people were looking at with some of the. phenomenal earnings growth that came. It was like, wow, you know, it keeps on going up, but the PE is, is actually not, it's getting better because it's just, you know, the earnings were growing at such a rapid clip. So, well, Hey, Kathy, I, again, I, this is where, this is where I'm grateful because it's a learning experience for me on how you, how you do this, how you're able to do this, because personally my, my number of 10 baggers is, is still zero. Uh, and even, even my triple digit ones, you know, I don't get triple digit gains that frequently, uh, because I'll be in and out. A lot of times I'll, you know, buy something, I'll sell it and then buy it back. And, you know, even with Apple, uh, for as much money as Bill made on it, there were a number of times I heard him say, yeah, I think Apple's done. And he was completely out. But then he changed his mind a few months later and said, Oh, here, here we go. It's back to the best thing since sliced bread. So. Right, exactly. And actually, that's another one. That's another one I purchased, I hope, for the long haul. And then, you know, it wasn't working. I sold it, but now I'm back in it. So there are exceptions and it just, you just got to be paying attention and do what works for you and have that, you know, post analysis and experience. So you have those tools in your tool belt. One more thing that I think is very important that we just stress here. These were first stage bases that you were doing this out of. Yeah, first stage bases. Yeah, so. This is not something like you're buying it up here and saying, oh, let me, you know, let me get this, you know, 35%, you know, MCP, you know, here, you're, you're really kind of looking at these first stage basis. Right. I mean, basically anything under a 50% gain, you're following the core rules of taking your 20% when you can get it, maybe you can get 30%, you know, but. Once I get past that 50%, I'm in that 100% category, then I'm implementing the, I guess, the first stage, the first step of my long-term rules, which is the 50% to 60% retention of gains. Now that I have the experience with NVIDIA, if I feel like I have a stock that could do more for me, most likely then I'll be selling those add-ons in that 50% to 60% retention of gains area and then holding on to that core. That's what I'm thinking for. moving forward. And now with NVIDIA, with the original shares from 2020, I'm going back to, okay, what's the 35% level, which is going to be around $50, right around where that current, again, those weeks right in there. Yep, exactly. So it's going to be interesting to see what it does. Because again, we just saw that and it's still on your chart to the left. You know, it likes to consolidate and then like, You might come back to it. It might undercut it. It might not. So that's what will be interesting to see what happens next with this one. And those are the levels I'll be looking at for those original 2020 shares. Awesome. Well, thanks for sharing this. And when we come back, we're going to talk about some stocks that might be in those first stage bases that Kathy looks for. So stay tuned. We'll be right back. Welcome back to the Investing with IBD podcast. Justin Nielsen here and my special guest, Kathy Donnelly, author, co-author of The Life Cycle Trade. along with some of our other former guests and probably future guests, Eric Kroll, E. Bobak, Kurt Dale, of course, was in that group as well. But one of the things that you did with this book is really kind of focus on how a stock starts, you know, from its IPO to what you call the due diligence phase, that institutional accumulation. you know, all of these different phases. And so maybe we could kind of share with our listeners some of the stocks that you're looking at right now. I mean, there was a there was kind of a paucity, if you will, of IPOs to look at for a while. We had such a strong SPAC and IPO market leading up to 2021. And then it was like the the hose went to a trickle, you know, or or a kink in the hose. There was nothing coming out. But now it seems like it's picking up a little bit. What Yeah, I mean, there's a few more out there, not as many as I would like for sure. But I would hope with the market that we're having, if it continues to, you know, go up and do well, that we'll see more. I think Eric did look at some numbers a while ago. He might have shared it, I think, on IBD Live or on the podcast about how the number of IPOs kind of lags because they want to make sure the market's good before they kind of come out. So. I guess we'll see. But yeah, it would be nice. Well, and again, remember with IPOs, they're trying to get the most money that they can for their offering. And so it does make sense to not be the first, you know, to stick your neck out. You know, it's like more, oh, OK, you know, let me let me see that I'm going to get the money that I want or maximize that. So let's go ahead and start with Reddit. Of course, you know, in the investing world, Reddit seem to take everyone by storm with the with the meme stocks, GameStop. And, you know. know, AMC and Bed Bath and Beyond and all those. So now that it's its own IPO, what do you think? Could this turn into a meme stock? You know, give us 100% in a day? Yeah, well, I mean, we'll see. I do need to disclose that I currently have a position in it. And right now, it looks like it's still, you know, in that early stage, right? I mean, at this point, it'll probably, if once it's if it if market surge shows it as a base it'll probably just show us the first stage rates right it's too late there's no there was no ipo base really to be had um i kind of like this pattern because it kind of looks like a cup with handle and yeah i would kind of like almost say this looked very cup and handle-ish of course it didn't work right you know came down and uh you know it probably would have been a more than a seven percent eight percent uh draw down there but then came right back and took that level. Right. And it's now, well, not today, I guess, but it did cross over that peak week that it had when it first started trading. But now, of course, it's getting rejected. And that's to be expected. We call that the turbulent zone. And it may create another turbulent zone if it keeps going sideways and doesn't really perform. But that would be to be expected. This one I was really lucky on. I'll just share, you know, Eve's, Eve's a really a pro at these, right when that first IPO has come out and she's talked about it, I think many times where she looks for that U-turn. And so I kind of took a cue from her on this and I do a downward trend line from that peak day and kind of drew it. Go down. No. There you go. Go down. How deep do you want it? Go to like 50 where your buy point would be 50 because that's pretty much where I bought it. And basically, and actually, I didn't draw that line. Now that I think about it, it was right there. I could see doing 50 more like this. That makes more sense. You know, we don't remember. There's no second point to draw it off. Yeah, there's no second point. So sorry about that. But you know how it is when you buy a stock. You're like, where did I buy that? Why did I do that? Yeah. So I saw this U-turn happening. I thought of Eve and I'm like, okay, well, maybe at 50. And, you know, 50 is like a psychological level, right? Five. So I thought, well, I'm going to set a stop by. And if it hits, then I'll get it. And of course it hits like the day before earnings. And I'm like, oh, no. But that was a good earnings report. And it's kind of, it's held that level since then. And, you know, like we were pointing out, it kind of has that little bit of handle. It keeps shaking out every time it makes new highs. As you can see there, we're now on that third shakeout from now a new high above that turbulence zone. So, you know, it looks promising. We'll have to wait and see. You know, what comes to mind is that maybe it'll turn into a stair stepper. So something with the lifecycle trade is that we kind of coined you know, what the different patterns look like and the different patterns just help us identify what rules are the best ones to use or what to look for. So when they come back up and they create like, you know, like this, a cup of handle, and if it doesn't undercut that whole structure, you know, and keep basing, I know Chris Kessel doesn't like stair-steppers, but maybe this one will stair-step for us. We'll have to see. Yeah. And to be fair, you know, Chris Kessel doesn't like stair-steppers because they're slow. But if you like slow, you want a stair stepper, right? It's, you know, you want it to just consistently kind of build a higher base, a higher base, a higher base. And, you know, you can make a lot of progress up if you're using stairs. Nothing wrong with that. Now, you had basically a 40% plus gain on this. So you're not, are you using, you're not using MCP rules at this point? I'm not using MCP rules. And so with an IPO. The other thing that I do, especially if I'm buying like within a few weeks of the new IPO, I'm only using like half a position size. So and then I buy once I sit still. I did try to buy it when it looked like it was breaking out of that handle, but I just sold that position. I was like, why am I doing that? Let's just stick with the core and we'll see how it plays out. Because, yeah, by nature, IPOs are so much more volatile. So if you're going to try them, I mean, that's what I would recommend and that's what I do. And so since you're starting with a half position, you are basically looking at, hey, is this something that down the road I can add to? Right, exactly. I mean, if it were to now build what we would call a first mature base and without an institution of due diligence, you know, it looks like it's got the accumulation and all the things. Then at that point, I would probably consider adding to it for sure. Yeah. OK, let's take a look at another one now. Hood. you know a lot of people were kind of pointing to the bitcoin and you know everything like that but you know bitcoin hasn't been doing that great lately uh and hood is still doing just fine yeah let's look at the weekly chart okay so uh clearly this one uh we would call this one a late bloomer because it did have a little bit of a run-up i think i can see from your charts there yeah yeah just a little bit and then it declined if they had gone straight down and and not even had any type of rhyme, we would have called it a pump and dump. And which Facebook was a classic pump and dump way back when it IPO'd. No, I'm going to go there real quick just to kind of show what that looked like. You know, right here. Yes. And then it was what, a year and a half before, you know, and it was, it was earnings, right. When it came out with the earnings, you know, that said, Hey, we can, we can monetize this thing, you know. that was when it changed everything, but okay. Back to hood. Yeah. So back to hood. So we call this what it's in now is an institution due diligence phase. So those consolidations that have been happening there sideways. Yeah, exactly. Um, you know, we're, we're looking for our first mature base and you can have multiple bases, which in this case, it has had multiple bases. And it's only this very last one that got a little bit tighter. which we like, right? We like it when the bases get tighter and maybe that shows a character change, which so far looks like it's been doing. And I need to disclose, I have a position in this as well. I forgot to say that. So just some numbers here. This consolidation, this big one was 41% tap. This one was 40%. This one was 23 and then this one was 21. And look at that. We have some three weeks tight in there too. Right. So even right now, it looks actionable for a potential secondary buy point. Or if you weren't in it already, you could maybe try some. I mean, but there is risk because you have this overhead resistance. And now granted, it is more than a year and a half away, but I still find that it still plays a part. I think there's some psychology in there that, you know. keeps it from just going to the moon kind of thing. So, uh, Especially with something like, I think hood was, you know, a lot of, especially the younger generation, you know, it was something that was really on their radar. So you got to imagine that there's people that, you know, maybe, maybe stuck with it this whole time and are going to be selling, even though, again, we usually think of it as, you know, if you, if you didn't get worn out or scared out with, this, then you're probably a long-term holder. Um, you know, yeah, this will be an interesting one to see how that plays out. And so you highlighted that, that first stage base and, um, you know, it looked really good. And so I think, you know, with the knowledge that, okay, it's not going to be all time highs, but it is progressing out of that, um, initial area where it was that, you know, there's, there's room for some upside. And would you be looking at, uh, this this tighter base here the 23 down here or do you kind of say oh well this was all so muddy over here you're looking at this um 21 base cut base up here no my when i when i screen for stocks over the weekend um i'm looking for that first stage base that tighter base so the deeper ones like i won't usually buy those i mean i have tried them i mean truly it was an example where i tried it multiple times before it finally worked um But for hood, I did not do that. And once I saw that tighter base, I was like, okay, maybe this one could go and I really had to like, make sure I didn't have a bias because I had a little bit of a bias on it just based on some past news of it from, you know, years ago about the way that they disclose their information. Right. So it'll be interesting to see what happens. And let's go ahead and wrap it up with a semiconductor besides NVIDIA. This is Arm Holdings. And this is kind of an interesting one because, yes, you know, we have an IPO. So it has it has that element. But I remember trading Arm Holdings in the 90s. You know, it went under the ticker symbol AR. What was it? ARMHY back then. It's, you know, from the United Kingdom. So, yeah, this was one that we were familiar with. It's just we haven't seen it for a long time on our our stock charts. Right. And, you know, even I talked about this one in January of this year when we were IBD Live, the IPO sisters, when we were both on at this at the same time. And this is one has done very well since then. And we were both buying it in that first stage. Oh, and I need to disclose I have a position in this one, too. But I sold it when it declined from. Yeah, right there. you know, and I thought for sure it was going to go into a long institution of due diligence phase because based on the research, like that was a clear signal that the IPO advanced phase, which is what we would call that initial run, was done. So the fact that it's come back is just kind of blown me away. And so maybe this is going to be a stair stepper because if it doesn't have that big, long due diligence phase, and that's what, that's what stair stepper, stair steppers are. stair-steppers don't have institution of due diligence phases they just keep going so so where were you getting back in uh well let's go to the daily chart that'll be the best way to show it um and then just let's draw a trend line from that high yep yeah so basically that bar that bar right there i didn't buy it on that day i would i think leaderboard might have been buying it on that day putting it on leaderboard that day you So I didn't buy it on that day, but then the next day or the next day after that, where I had those two nice little tight bars, that's where I would find it. So luckily it didn't keep advancing and it gave me an opportunity to get in because it really took me off guard. I was like, wait, what? It's back? It really is going to make it? So we'll see. And now you've got about a 50 percent gain in this, you know, in a very short period of time. So how do you how do you handle this going forward? What what category do you put it in? Well, you know, from the whole just the story of it, I want to consider it a long term hold. And if I still had those shares from the first base, I mean, for sure it would be in that category. But we're just gonna have to see how it responds. You know, I'm not at 100% yet. Yeah. And so we'll just have to wait and see. Yeah. Now, one more thing on this one, though, this was not a tight consolidation. This was a 48 percent. So what what are you doing, Kathy? Are you breaking your rules? What's going on? Oh, well, I didn't I didn't say that a certain percentage. I mean, I sold it and then I bought it again. Right. I didn't understand your question. But no, no. So you were saying that you were looking for tight consolidation. So what what kind of allowed you to take the. you know, take the leap of faith on this one, despite the fact that you, you were looking at a 48% correction in this base. Oh, well it broke the trend line. And that's, it's just as simple as that. It's just as simple as that. And at the same time that it broke that trend line, it also was up above that consolidate, uh, consolidation. Um, and then one back here. No, no, just, just that little bitty one, right? Yeah, just right in there. And it went back over the 50 day line at the same time. So you have all three of those things like three for one kind of situation. And I always like it when, you know, if something goes above a moving average line, and then it also breaks the psychological level, or it's also over this. So the more things you can get in the one, I think are just more signs that it might work. And yeah, that was one of the things I was kind of looking at, too. It's, you know, yes, this was a 48% depth. but you did have your tight area here. Maybe it wasn't long enough, but you did have something that kind of suggested that it was kind of turning a corner and multiple things at the same time. Well, Kathy, it was great having you on. Always a pleasure. And next time I'm in Denver, I'll have to come visit you. I know I say that every time, but one of these times it'll be for real. All right. We'll go on a hike. We'll get you moving. Yeah. Well, if I can handle the altitude, we'll-Oh, yeah. I'll keep you in the lower areas. It'll be good. Yeah, it's been a while since I've done Pike's Peak. That was, what, 30 years ago or something. Oh, right, yeah. Yeah, but yeah, very good. Well, hey, it was a pleasure having you on, Kathy. Thank you so much for sharing your knowledge with folks. And again, folks can also get that Lifecycle Trade book on Amazon. That's a good one to read. That's going to wrap it up for us today. Don't forget to- Make time for us next week. I know I said last week that David Ryan was going to be on today, but Kathy Donnelly came in because he had a little thing he had to get taken care of. But David Ryan will be with us next week. Three-time U.S. investing champion, protege of William O'Neill, portfolio manager for Bill for a number of years. And also he was running the New America Fund for Bill and his own hedge fund for a while. You can also see him on IBD Live, but it's going to be great to talk to him next week. So hope you join us for that. Thanks a lot for watching this week. We'll see you next time.

She's a prop trader and author, co-author of The Life Cycle Trade. So welcome back to the show, Kathy. How are you doing? Thanks, Justin. Yeah, it's great to be here.

Yeah, awesome to have you. I mean, Kathy and I go, gosh, we go a ways back. I've spoken at a few of her meetup groups that she was doing.

Are you still at the Denver Library? Actually, we've been virtual ever since COVID. Virtual ever since.

Okay, yeah. So it's been a while. It's been a while. And of course, Kathy and I met originally, I think, at probably a level four. Yeah.

Yeah, where... She came to watch Bill speak and watch a number of our portfolio managers talk about how they do their investing. And she was just one of those people that sat down and took a lot of notes.

And of course, you have to kind of make this your own. And she certainly has. There's a lot of things that she does that are a little bit differently, but she has success at it.

So we want to have opportunity for our listeners to kind of hear about your success, Kathy. But what we're going to do later on in the show is we're going to. kind of take one of your 10 baggers because that's kind of the goal everyone has, right?

One of those stocks that you can have an increase of tenfold because those can really make a big difference in your portfolio, especially if you have some size in them. So we'll get to that with your 10 bagger. But first, why don't we go ahead and talk a little bit about the market and kind of get your thoughts. But before we do that, I just kind of want to, you know, feel you out a How much attention do you spend on the market indexes and, you know, analyzing what's happening with the general market? Oh, I spend a lot of time.

I mean, maybe not as much as others, but I definitely look at it every day. You know, I kind of want to see the trend, you know, what's the four to five day trend, you know, trending up, you know, is it trending sideways? Is it starting kind of a downtrend? I feel like every four to five days, right?

You know, we we're going to see that change um so it kind of prepares me okay it's going sideways now so that means it's either going to go up or down or is it edging up and obviously right now we've had quite a few days up so as you guys have already been pointing out on your great stock market today is that you know we're extended and so i don't know what's going to happen next but we're definitely either going to be going sideways or down soon So that might be a little scary, but, you know, we're prepared because we know what to look for in our stocks. And ultimately that will guide us. But it's very important, I think, to know where the markets are, because then you can also see how your stocks are responding in comparison. And if you want to make adjustments accordingly.

Yeah. Now, it kind of surprises me that you say that you kind of look at the four to five day trend, because I always admire you for your long term perspective. And four to five days just seems so short.

Yeah, well, I mean. That's for the market. I'm not doing the four to five day in my stock.

So yeah, I should probably clarify that. But in the market, I am because when, if I know the market's going to start correcting, then I know my stocks are going to start correcting too. And then I want to know what those levels are going to be as well and just be more prepared.

And do you make any adjustments? Do you do any selling into strength when you see the market get extended? Or is it just Again, kind of more tightening your stomach because you know the punch is coming.

So this is a funny story. So I am classically never sell offensively into strength except for CrowdStrike when it had the railroad tracks not too long ago. I mean, no one even talks about the railroad tracks anymore. Yeah, it's been a while.

So, you know, I looked at some examples. I read some old IBD articles on railroad tracks. And. And I even had a net way back in the day and it had railroad tracks.

I held it, went into earnings exactly like what CrowdStrike did, reversed. And then I ended up selling a net. And so this time I'm like, I'm going to be proactive and I'm going to sell it ahead of time. And I haven't gotten back into it because the examples that I looked at of railroad tracks, you know, on IBD, you can search for railroad tracks. You see a bunch of articles with ones that you've written, written on it.

where the stock really didn't do anything after railroad tracks so i keep waiting for it to not be going up. And I was like, geez, the one time I sell offensively and this is what's happening. Yeah.

So, so just to make sure I marked up the right railroad tracks that you were looking at. Yeah, it was right before earnings. Yeah. Right before earnings. So of course, you know, one of the things that happened, you know, just to kind of identify this time period for folks, this was in February, beginning of February.

And what we The way we look at railroad tracks is you basically have typically a wider spread. This is something after a stock has been running. So we definitely had that with CrowdStrike because, I mean, if you look at from the bottom in November of 2022 or the end of 2022, it had been in this major uptrend.

So you really want to be identifying railroad tracks kind of for a move that has matured a little bit. But specifically what you're looking for is two weeks. This is something that you look for on a weekly chart. And what happens is they kind of retrace. The first week will be strong.

The second week basically retraces most of the first week. And Bill just called that it looks like railroad tracks. And a lot of times you'll find that, you know, the hash marks might, you know, close around the same, you know, area, but they don't have to.

But it's mostly that retracement. that he kind of believed was, OK, this is this is a stock that is still having price discovery, but not making progress. And a lot of times he saw that in conjunction with maybe climax tops and the like. But as you mentioned, you know, this was in February. I'm going to go to the daily chart on this.

And almost immediately afterwards is when this big drop happened. Of course, this was from Palo Alto earnings, PANW. Palo Alto dropped significantly.

It was down, gosh, 28% by the end of the day, and CrowdStrike held up much better. And as opposed to plunging through the 50-day moving average line, it got support there, but was still down 10%. It had this earnings, as you mentioned, where it went up 10%, but well off its highs for the day, and then did this long base. So I just wonder, Kathy, I'll be honest with you. I think a lot of times we'll choose railroad tracks for our articles that might kind of show a little bit more devastation afterwards.

So we might be cherry picking our examples. So you might have to do a little bit more research on your own and not just rely on the ones that you've seen from us. But it's funny.

Let me just jump in real quick, because with the How to Make Money in Stocks book, Bill has several examples of railroad tracks. tracks and he says sell all so i look at those as well so anyway it's all good but it's just funny that you asked me because that's the one time i sell it offensively and that was the ending of the week of the railroad tracks yeah and and it is a good thing because usually you do see um see see weakness now in the case of crowd strike this one did come back um you know it it made a full base which hey i don't i don't mind when i can sit out of a base because base is uh sometimes can be a little bit harder to hold through, especially if you don't have much cushion. But I assume that you had a nice, nice cushion.

And I did. I did. I, you know, I bought it that first stage base as it was coming off the bottom there.

And so, yeah, I had a pretty nice cushion that I would have held through the base had I not seen the railroad tracks. But this is how we learn. So, yeah. Well, and again, I I don't think there's any problem with that cell right there.

Yes, it is at a higher price now, but locking in that kind of gain and sitting out months worth of inactivity is not bad. But getting back to the market, you mentioned how you've been watching SMT videos and we've been talking about extended. But of course, one of the things about a market that's extended is you can certainly get extended-er, if that's a word.

So I feel like that was kind of what happened today. We were up 1%. Yesterday- didn't quite fit the bill for stalling, but it did look kind of like it.

It did qualify the S&P 500 as a stalling day, but both of them were up over a percent today. So do you typically just say, look, I'm going to ride the strength for as long as it lasts and then be prepared to look for sell signals on the downside? yeah i mean i think what's important is is like newer positions right so the newer positions that maybe you i only have a five percent you know ten percent cushion you know that's that's really what i'm looking at you know the ones that i have that i've had longer term which you know we're going to look at uh that of course you know is going to have a different perspective and i'm not looking at it from that from that shorter term perspective of what the market's doing but if i have like a new buy new cup with you know buy point from a cup with handle and I don't really have any gains, then I may not want to hold on to that, especially when we're extended like this.

Yeah, very good point. Now, what about some of the positions that you do want to hold on to? Do you ever do any type of hedging? And I know we'll probably get to this a little bit in the next segment, but just as a preview. Yeah, no, it's a great question.

And no, I don't hedge at all. I never learned to hedge. You know, I was when I was learning what systems was going to work for me.

And I found IBD and CAN SLIM, you know, Bill didn't teach hedging, so I didn't learn it. Now my coauthor, Eric Cole, he's very good at hedging and I've listened to him and he showed me a few things, but I'm just, I just stick with what I know. So no hedging.

And look, if it works, why, why mess with the system? Right. Exactly. Um, uh, what about the, what about the small cap market?

Um, You know, this is something that a lot of folks have been, you know, looking at as, you know, it's had this level at 2000 that has been kind of sticky. It just seems like it gets above it for a little bit, then it goes below it, gets above it, gets below it. Does this get into your equation at all?

Because the lifecycle trade was a lot about IPOs, and a lot of them are kind of the newer companies. in that small cap universe, does that ever, you know, do you ever spend a little bit more time on the Russell 2000 because of your IPO focus? I mean, that's a great question. And obviously, yeah, the mega caps, the bigger names have been doing well. And those are the ones that the market's giving.

So those are the ones that I'm purchasing. But for me, it's really easy to keep tabs by just looking at. market liquidity.

So, you know, taking that 50 day average volume, multiplying it by the price. And if I get that, you know, 20 million is my minimum, prefer 100 million or more. And I just watch them from that perspective.

And there's several that are in these long institutional due diligence phases. And we'll look at some at the end. And they just keep building base after base because they just don't seem to be in favor. So hopefully at some point they will be and we'll have some runs from there.

But until then. We just keep our eye on it. Sounds good.

Well, we're going to go ahead and take a break. And when we come back, we're going to have a little bit of a longer segment on how you handled your 10 bagger and what you're looking for for the next one. Stay tuned. We'll be right back.

Welcome back. It's Justin Nielsen here on the Investing with IBD podcast with my special guest this week, who is Kathy Donnelly, a proprietary trader. Kathy, what does it mean to be a proprietary trader? It means I trade my own money. Okay.

Just that simple. Should also mention that you are a co-author of the Lifecycle Trade. This is something, this is the book that a lot of our readers have really enjoyed because you and your co-authors, many of whom have been on the show as well, including Eve Bobak, Eric Kroll. We haven't had Kurt on, but you know, say hi to Kurt for me next time you talk to him.

But yeah, you guys really kind of just went through and looked at a lot of different things, especially with the IPOs and how they mature. what it takes to kind of get as much money out of them as possible. And so that's what you're really all about is trying to get as much money out of a stock as possible.

And what got you kind of interested in that? Well, you mentioned the level four workshops back in the day. Once I got hooked on the system, I pretty much went to every level four I could.

Luckily, you guys started, I guess, luckily, unluckily, you started doing them only once a year. So I wasn't going to two a year, but I did once go twice in one year. But anyway, you know, basically that was the premise.

I would go to level four and you would show all these great stocks of the year and you would show like the first stage base and these huge runs and then showing the end where that's when you would sell it. And just and I was just like, that's what I want. You know, I mean. 20% is great.

And I know that's what a lot of stocks will give us. But there are those really great ones that will create the first stage base, go all the way to the fourth, maybe reset and keep going. And that's what I wanted. That was my number one goal. So I was able to definitely implement long-term trading for me many hundred percents over my career.

Thank goodness. And now my first 10 baggers. So I've definitely got some new tools in my toolkit.

And. Maybe I can apply it to some other stocks, but definitely you've got to have that N in CanSlim for sure. It can't just be any stock, right? Right. And that's an important part of, you know, recognizing that you can't treat all stocks that you buy as.

oh, this is automatically going to be a 10 bagger. I personally had a conversation with Bill one time and we were just going over some of the stocks that were in my portfolio. Of course, this was like 25 years ago. And he kept on asking me why I wasn't selling any of them, because I have good gains on them. And I kept on saying, well, because I think that this is going to be a great stock market winner.

And he's like, why do you think that every stock that you own is going to be a great stock market winner? Like, you know, you're you're not that good. You just started, you know, kind of thing.

And, um, and so, so I had to kind of, you know, recognize that, you know, and, and again, this was from Bill, Hey, some of these are going to be your, your smaller gains, your 20 percenters. And then when you find something special, that's, that's the one you treat differently. So how do you kind of approach it? Are you, are you treating everything like it could be that big stock market winner? Or do you go into some saying, yeah, this one probably isn't, but.

I'm going to give it a try and just see what develops. Yeah, well, I mean, I'm always looking to purchase at that first stage base. And I think you and I did a podcast on first stage bases a while, I don't know, a couple years ago or whatever.

And time all blends in together. Yeah, the time blends in. But I'm always looking for those first stage bases. And then the guy, the stock has to guide me, you know, if it's, you know, if we get that eight week hold rule.

it goes up 50 50 or more you know before that next second stage base you know if the stock only goes up 20 and then starts to correct well okay that's not going to be the next one but you have that stock like crowd strike we just looked at i mean that first stage base was excellent and that could have been one i could have kept holding like i said except for i saw the railroad tracks and i was work trying to you know be offensive but As we'll look with NVIDIA, same thing. There was a lot of distance, a lot of percent change in, you know, more than 50, more than 100 in some cases between bases so that you could then apply long term trading strategies. And so that's what you know, that's how I'll be able to decide which ones I'm going to hold for that long haul.

And, you know, if the market now that it's extended, it's really going to show which ones have that, you know, that matter, the ones that. are going to withstand and keep going or not. So in order to get a 10 bagger, and this is something that people have to realize is in most cases, that means that you're going to have to sit through some bases. You're going to have to sit through some pullbacks.

It's not like your, your metal will not be tested. That's just not the way this game works. Right. So do you, you know, typically, you know, we're often selling quite a bit when there's a bear market. Are you are you holding through bear markets?

At what level do you say, OK, nothing's working right now? I've got to raise more cash. And that might include something that you think has great potential, but just might be in a corrective phase now.

Right. Well, the situation you have to have the right situation. So the situation was pandemic bear, you know, 2020. Everything was going down. Everything was below like their 40 week moving averages. And then we had a quick pandemic bull.

So it was like, okay, which are the ones that are moving quickly on strength? And which are the ones that should I go into for really holding on for the long haul? And that was my mentality.

So I was like, okay, NVIDIA has been a great stock for many years. It's still in the AI space. It's still having that new. And if there was a time to get into NVIDIA, like to me, that was already in my head, like, okay, this is the time because everything is just corrected. NVIDIA included.

Let me get in there now and let me try and hold it for as long as I can. That was the setup. And so you have to have all the pieces coming together. Right. And so I'm, I'm pulling up a monthly chart right here and I I'm pointing to, again, you know, the, the, the pandemic.

bear market was really just one month, right? It was March. We were, we were at highs in February. You know, March was, was ugly. And then we had the follow through day at the beginning of April.

And by May, we were back to highs. Now, NVIDIA had this, you know, it had been basing for a while before, you know, I, I owned this, you know, back here and, and I, I do. need to disclose that I do own a small position in it still.

I actually sold a lot of it, you know, cause I had like a 25% position. So I sold a lot of it after the downside reversal, not too long ago, but I did have some of it. I think I was selling in here.

in 2018 and i might have bought it back a couple times in here but um yeah it was it was in 2020 that i kind of went back in with size so this let's go ahead and go we'll go to the weekly chart to kind of um uh and i'm going to change the scale on here i know that mike webster would you know be like oh how could you but sometimes we use this best fit scale just so you can see stuff um and you know And actually, I'm going to... Well, that's the base right there on the left, the one I bought anyway. Yes, right here. Here's March 2020. If you want, add the index line to the chart. That would be helpful.

Let's add that. So here it is on the top. So you can see the S&P 500 coming down very sharply here, as did NVIDIA. But one of the things that you'll notice, the RS line was really strong as it...

And look, it was... a quick snapback and you actually had kind of this cup with handle look to it with, with NVIDIA. So, so you were buying right in here, I assume. Right in there. Yeah.

Okay. And so now kind of walk us through, you know, there was this period here where it didn't do anything for a long time. So what, what are you thinking to yourself during this time?

Right. Well, again, my mindset for the first purchase was just buy it once. And then this is going to be long term.

I wasn't really thinking of it as the stock that it is like today in the last year, how quickly it's moved. I was just thinking of it from a long term perspective. But what has really made a difference for me in my long term trading is what we called in the book, the life cycle trade with my co-authors is the mental capital preservation, which is really just three big words.

That means. how many how much gain do i want to retain and so for me like in general if i have that 100 stock that i've told you that those are my goals to have 100 in a stock i want to retain at least 50 to 60 percent of my gains and anecdotally in our research we're like well how much gains would you need to retain for like a multi-year great stock And we said, well, maybe 35. So we never tested it. But in the back of my mind, 35 was what I was using for NVIDIA. So no matter how much it went up, I was going to retain at least 35% of my gains.

So I want to give it the most possible room so that I could hold it. Because we did have examples of Tesla and Amazon and Facebook that went, you know. hundreds of a percent and you could have used mcp 35 and even at 35 with a hundred thousand dollar investment you could still have like an enormous change in your portfolio and in your life with just that so we we did know it was possible with those great big stocks and so that was my mindset going into it so when it was basing in those three bases that you talked about the deepest one of that's of those three it was like three bases in a row was 25 percent and i had enough cushion to sit through that.

I mean, you can, you can clearly see that on the chart, there was a lot of space. So it didn't really faze me because I knew where my line was and I knew going in how much room I wanted to give it. Okay. So, um, you know what, and, and let's go ahead and just talk about the formula real quick. So, um, you know, no one promised you there was not going to be any math here.

So, uh, we'll just kind of do this formula real quick. So you got the buy price plus your peak price. minus the buy price. So that's basically what kind of, what kind of appreciation you had at the top, right?

It's just the gain, right? The difference in price from the peak to that. So it's just the gain that you got, and then you want to multiply it by whatever percent gain you want to retain.

So if I want to make sure I always retain 50% of my profits, you multiply it by 0.5. I want to retain 35%. I multiply it by 0.35.

And then that gives me the price. That's my stop loss for whatever retention I want to keep. So unlike Justin, I'm giving you the math.

You don't have to do it unless you want to. And this is an inside. Hey, that was Webby.

Don't blame that on me. Yeah, go ahead. Oh, well, I was just going to say, so just to put some numbers on it, like if you bought it at a hundred and let's say you got a double.

Okay. So, oh, this is awesome. I got a double.

You made a hundred points on it. That's what a double would be for $100 stock. You're up to 200. So of course, 200 minus your buy price of 100 is the 100 profit that you have.

Multiply that by 35%. That's going to be 35. So basically 135 would be your thing. Okay, let's go ahead and we're going to go to the chart and see how, see how this math kind of worked out, um, you know, for you.

So, uh, back to NVIDIA, we had, you know, I mean, just from here, you went from, you know, as you said, a 675, was that, um, where, where you said your split adjusted by was, um, to, you know, what, 14. Right. So that's right in line. That's right in line with once I have 100 percent gain, I want to give it at least 50 percent or 60. I want to retain for a normal stock, for a stock that I'm not going in with the long haul.

That would still be enough for me to hold it from that perspective to where I'm retaining only 50 to 60 percent of my gains, too. So I just wanted to point that out, that even with. the, my pseudo not longer term strategy, but still long-term strategy, I would still be holding it through that base as well, because I already had a hundred percent between the first space and then these next spaces.

Okay. So, you know, one of the things that during the time it was doing these bases, it spent quite a bit of weeks below the 10 week moving average line. But a lot of times you're, you're kind of looking at the 40 week and it looks like the 40 week actually ended up giving you. NVIDIA support at that time. Right, exactly.

And then, you know, the other thing I want to say about is NVIDIA is now granted, you know, past performance is not indicative of future performance, but NVIDIA has done this before. I had never owned NVIDIA before, but I studied it a lot because I was like, why didn't I buy it? You know, when it had that first run from, yeah, back, I don't remember what year it was. Yeah. 2016 to 2018 was phenomenal.

So I watched it for a long time and it did what it did in that those three bases we were looking at is done that before. We're just kind of consolidates tightly, you know, 20 percent. I don't know if you consider that type, but that's pretty tight. You know, not 30, not 40, not 50. And then it will do like a base on base and then a base reset.

So I also had that in the back of my mind. Like, what is NVIDIA done in the past and how can I use that as information? to give me a clue of what it might do, you know, this time, is it going to be similar? And is it going to be in character out of character from its past history? Now, let's go ahead and fast forward a little bit back to the back to the present for not the present, but the recent present, I guess, you know, you came out of that area, back to highs, you know, it was looking good.

And then we have basically a lot of stuff started topping in. February of 2021 in terms of the growth stocks. And then of course, 2022 ended up being, you know, a full on bear.

So split adjusted prices, because remember, we have this 10 for one split here. But you know, we were at all the way up to what 30, almost 35, and came down to $10.81. I had a 427% gain at that peak.

Okay. And then, yeah, it went down about 69%. Okay. And at that very low, I only had a gain of 64%.

So 427% gain down to 60. Right. In range. Okay.

Exactly. How do you deal with that psychologically, Kathy? I'm trying to understand because I'm just imagining that in myself and I would just be like, oh, kicking myself.

I had it. And. So much of it is gone.

So how do you do that? And I should point out at that point too, it was actually a 15% retention of gains. If I had sold it at that point, I would have only retained 15% of my gains, which is really interesting when you think about the math, because it's like, wow, you only retain 15% of your gains, but it was still 64%. Yeah, right. Math is just crazy.

But, but again, my mindset was long-term and I was, I had a feeling. that it was going to potentially undercut that structure of those bases that we looked at. And then I also knew the market had the three waves down. NVIDIA had the three waves down.

Maybe I had a chance here the market was going to turn. But again, my mindset, since I am a long-term trader, and being a long-term trader, you have to withstand big drawdowns. but then also the potential for big gains. So my mindset is I'm always retaining gains.

So if I'm always retaining gains, I'm always making money. So it was worth it to me. to give this because it still wasn't i still wasn't negative and it wasn't my money anyway because i hadn't made this the sell you were playing you were playing with house money still exactly so the risk and the value of the potential of what could happen was worth it to me now um let's talk a little bit about position size because you know if if you were if you were very heavy in this and you had a 65 drawdown in a in a very large position, that would do quite a bit of damage to your portfolio. So what position size do you typically have in order to kind of withstand that kind of pressure?

Right. So this was a 10% position size. And I guess when, you know, back in 2020, the way I was looking at it, you know, is like you, I have multiple accounts that I trade, and I have, I guess, two.

two main ones. And basically I had an amount of money in this one account that was 10% of that count plus my other active growth account. And I was just like, I'm just going to put all this money in that stock, which was the 10%. And again, it was the long for the long haul.

So from that perspective, again, I guess it just, it didn't faze me because it was. it was, it's kind of was an active account, but it wasn't as active as my other account. So I was okay with what it was doing.

And, and I did, you know, again, I'm just looking at it from the retention of gains. Yeah. Now I like what you did here where you were looking left, you were looking at this area, noticing, okay, a lot of congestion here.

So what were you thinking when it undercut this? Were you like, Oh, I was probably definitely. nervous when it undercut the structure for sure. And actually I calculated it, it undercut it by six and a half percent.

And I mentioned to you that I look back to what it had done. And I believe you said 2016. And in that case, it actually didn't undercut its previous long basing structure that it did in that time. But I knew, you know, that there was going to be some congestion. So again, my line in the sand was going to be a 30% gain.

So I still was going to give it more room. And then again, but I also had the three waves down helping and I just was like, okay, I hope it turns around. But I had my line in the sand at 30% gain, which I know seems crazy to most people. But again, it was the mindset and the thought that I had that just kept me on that path that if there's any stock I can do this with, this is going to be the one.

Yeah. So we bought them out. And now you know, we, we turn around and NVIDIA has a phenomenal, you know, 2023. Now this was a stock that you, you know, you really didn't add to along the way up as you got that 400, you know, percent gain.

When do you add, when, when do you say, okay, I I'm okay. You know, because it's, it's tough, especially if you're up 400% on the stock, you're going to be having that unless everything is up. That's going to become a larger weight in your portfolio just by the capital appreciation. So you have to be careful of adding too much because then again, you could get to that portfolio size where a drawdown like that is just so uncomfortable you sell out at the lows.

So did you do any adding coming out of this bear market? Well, I want to say that I think. If I hadn't had the mindset in the beginning that there were going to be no ads and this was a long haul, I probably wouldn't have been able to do what I did.

But now it's reset. And now I've got a brand new first stage base after a bear market. Right. So I had to buy. And I remember a story that Bill told me that, you know, he was telling me about Apple.

And he was like, you know, we made all this money in Apple because it just kept making more bases, bases after bases. And we just kept buying more and more and more. So I actually had that in the back of my mind when NVIDIA reset and created this first stage base. And I was like, well, OK, it's given me an opportunity to buy more. So now I have a new position and I am treating them independently in another account, my more active account that I mentioned.

And and yes, I so now I have two positions and two and. NVIDIA, but I treat them independently from that first stage base. And I'm treating it now as an active growth stock versus a long term for the long hold.

So I've been adding on the way up on this one. So like the out there and then some in that basing there. Yep, exactly.

So what I'm thinking moving forward, based on what I've learned from my 2020 NVIDIA trade, is that if I'm going to hold now this position, this new position for a long term hold, if it's possible, if NVIDIA continues with that and in can slim, most likely I'm already thinking ahead. I'll probably have to cut all those ads at some point. Take the gains and only hold the core again, like to make it similar to the original 2020 Nvidia trade. And so when you say the core, do you mean kind of like this, this initial position? Yes, exactly.

And, and, and look again, that's something I can definitely get behind because, um, you know, as, as we said, that can become such a large percentage of your portfolio that it becomes, you know, uh, again, I, I, I know you're brave, but you know, Wow, being that brave would be tough to have a large position and take that kind of drawdown. So going forward, like at what point, now I'm going to go back to the monthly chart here, Kathy, because, you know, NVIDIA had this phenomenal move from 2016 to 2018. It already achieved model book status at that point. And then it had another great move from 2020 to that 2021, you know, top. And now it's, you know, kind of in model book territory again.

So with these multiple already model book stage moves, at what point do you say, gosh, you know, NVIDIA, I've got I've gotten enough from you. You've done your job. How do you how do you prevent yourself from getting too greedy?

Well, I mean, I think that's a great question. And, you know, greed is an interesting thing because I'm the only if I'm. Trying to get more money, it's only at the expense of the money I've already gained, right?

So when I think about it in that way, again, it's about a retention of gains. So I'm just going to go back to my rules and what I've learned in my methodology. And what I want to do is just then just start back with the very basics. It's like, okay, well, if NVIDIA's story is still there. You know, I'm going to start with the 35 for retention of gains.

I'm going to look left. I'm going to just do all the same things that I did before. And really, there might be a time, but it could also turn into, you know, the next Microsoft and just chug along slowly at some point, too, which would be fine also. So, you know, it's hard to answer a question in the future, but this is what I'm thinking about.

Yeah. And, okay, you bring up Microsoft, so I'm going to, you know, challenge you again here a little bit, because Microsoft was certainly, if you go back to, you know, 2000, you know, it had this phenomenal move. And, of course, this was the operating system, you know, starting with DOS, then Windows 95, and, you know, everything, you know, else that, you know, was so critical for bringing PCs to everybody's, you know, office, home, and everything.

But then… you know, you look at what it did for 15 years, you know, it was dead money. So, you know, do you, do you ever have like a time limit on things like, okay, if it hasn't, you know, it certainly came nowhere near like a 35% MCP here. Um, you know, it, it really did retain a lot of those gains from the nineties, but gosh, it just didn't do anything for so long.

Do you ever like, put a time limit on things? I mean, I would definitely put a time limit. Where's that?

Oh, go back to the, where you were. Yeah. So here's, here's the 2000 top.

Yeah. Okay. And where is that? What year is that other little V there in the middle? Right here?

Yeah. Yeah. So that was the financial crisis, the 2008. Okay. And then where's 2020?

Here's 2020. Oh, okay. It's right there. Okay. So what I can tell you is with the financial crisis, I mean, I probably wouldn't, if I had held it, I don't, you know, I mean, I don't know for certain. We'd have to look at the numbers and everything, but it doesn't look like that'd be something that I hold.

But I'm glad I wanted you to, I'm glad you highlighted the 2020 because let's just do the example that I mentioned. Microsoft was another stock that I bought in 2020, along with Nvidia, that I said, okay, I'm going to buy this one for the long hold. And I guess maybe it's just because, you know, my parents were value investors.

So in the back of my mind, you know, it's a dividend paying stock, like, you know, it's nice to have these other ones in your portfolio doing things when the active big growth stocks aren't doing anything. And so this one I've also had since 2020. I clearly don't have the same amount of gains. as I do in the video, but it's a nice to have in the portfolio that has a dividend.

And, you know, you've got the long term leader list that you have on IBD. And so I'm just trying to catch some of those along the way, too. And, you know, nice, nice to have with little volatility that you can kind of hold on to.

So I guess, you know, you hear this a lot. And I can't believe I'm going to say it, too. But, you know, when you get a little bit older, you know, you want to have some other little slower moving stocks.

Slower things, right? Yeah. You don't need to swing for the fences every time.

Right, right. Exactly. And yes, it's interesting you bring that up because yes, Microsoft does have that earning stability.

Low number is better or more stable, I should say. Not to put a value judgment on it, but lower number is more stable. So six with an EPS growth rate of 20%, that does put it in that long-term leader category, especially with something that's able to outperform the S&P 500. And you see that with the earnings line. Last question on NVIDIA. Let's go back there.

The earnings line does not look the same as Microsoft. This was, you know, it was a little bit more lumpy. There was, in fact, when this turned around here, you had some red numbers, you know, you were still positive, you know, you were still, you know, profitable, but the growth was just not there.

And some of these, you know, negative numbers are pretty big, you know. Well, I'm glad you brought that up because, you know, and I think many, many people that you've interviewed, you guys have said it yourselves. I mean, the stock and even Ropal, you know, he always talks about, you know, you got to sit through so many beat and raise quarters.

Well, at a certain point, it's extended even from their earnings. And so they have to kind of get knocked back down a little bit so then they can beat them again. So, you know, that's part of it. Yeah.

And certainly one of the things I think, you know, people were looking at with some of the. phenomenal earnings growth that came. It was like, wow, you know, it keeps on going up, but the PE is, is actually not, it's getting better because it's just, you know, the earnings were growing at such a rapid clip.

So, well, Hey, Kathy, I, again, I, this is where, this is where I'm grateful because it's a learning experience for me on how you, how you do this, how you're able to do this, because personally my, my number of 10 baggers is, is still zero. Uh, and even, even my triple digit ones, you know, I don't get triple digit gains that frequently, uh, because I'll be in and out. A lot of times I'll, you know, buy something, I'll sell it and then buy it back. And, you know, even with Apple, uh, for as much money as Bill made on it, there were a number of times I heard him say, yeah, I think Apple's done. And he was completely out.

But then he changed his mind a few months later and said, Oh, here, here we go. It's back to the best thing since sliced bread. So.

Right, exactly. And actually, that's another one. That's another one I purchased, I hope, for the long haul. And then, you know, it wasn't working. I sold it, but now I'm back in it.

So there are exceptions and it just, you just got to be paying attention and do what works for you and have that, you know, post analysis and experience. So you have those tools in your tool belt. One more thing that I think is very important that we just stress here. These were first stage bases that you were doing this out of.

Yeah, first stage bases. Yeah, so. This is not something like you're buying it up here and saying, oh, let me, you know, let me get this, you know, 35%, you know, MCP, you know, here, you're, you're really kind of looking at these first stage basis.

Right. I mean, basically anything under a 50% gain, you're following the core rules of taking your 20% when you can get it, maybe you can get 30%, you know, but. Once I get past that 50%, I'm in that 100% category, then I'm implementing the, I guess, the first stage, the first step of my long-term rules, which is the 50% to 60% retention of gains. Now that I have the experience with NVIDIA, if I feel like I have a stock that could do more for me, most likely then I'll be selling those add-ons in that 50% to 60% retention of gains area and then holding on to that core. That's what I'm thinking for.

moving forward. And now with NVIDIA, with the original shares from 2020, I'm going back to, okay, what's the 35% level, which is going to be around $50, right around where that current, again, those weeks right in there. Yep, exactly.

So it's going to be interesting to see what it does. Because again, we just saw that and it's still on your chart to the left. You know, it likes to consolidate and then like, You might come back to it.

It might undercut it. It might not. So that's what will be interesting to see what happens next with this one.

And those are the levels I'll be looking at for those original 2020 shares. Awesome. Well, thanks for sharing this. And when we come back, we're going to talk about some stocks that might be in those first stage bases that Kathy looks for. So stay tuned.

We'll be right back. Welcome back to the Investing with IBD podcast. Justin Nielsen here and my special guest, Kathy Donnelly, author, co-author of The Life Cycle Trade.

along with some of our other former guests and probably future guests, Eric Kroll, E. Bobak, Kurt Dale, of course, was in that group as well. But one of the things that you did with this book is really kind of focus on how a stock starts, you know, from its IPO to what you call the due diligence phase, that institutional accumulation. you know, all of these different phases.

And so maybe we could kind of share with our listeners some of the stocks that you're looking at right now. I mean, there was a there was kind of a paucity, if you will, of IPOs to look at for a while. We had such a strong SPAC and IPO market leading up to 2021. And then it was like the the hose went to a trickle, you know, or or a kink in the hose. There was nothing coming out. But now it seems like it's picking up a little bit.

What Yeah, I mean, there's a few more out there, not as many as I would like for sure. But I would hope with the market that we're having, if it continues to, you know, go up and do well, that we'll see more. I think Eric did look at some numbers a while ago. He might have shared it, I think, on IBD Live or on the podcast about how the number of IPOs kind of lags because they want to make sure the market's good before they kind of come out. So.

I guess we'll see. But yeah, it would be nice. Well, and again, remember with IPOs, they're trying to get the most money that they can for their offering. And so it does make sense to not be the first, you know, to stick your neck out. You know, it's like more, oh, OK, you know, let me let me see that I'm going to get the money that I want or maximize that.

So let's go ahead and start with Reddit. Of course, you know, in the investing world, Reddit seem to take everyone by storm with the with the meme stocks, GameStop. And, you know.

know, AMC and Bed Bath and Beyond and all those. So now that it's its own IPO, what do you think? Could this turn into a meme stock?

You know, give us 100% in a day? Yeah, well, I mean, we'll see. I do need to disclose that I currently have a position in it.

And right now, it looks like it's still, you know, in that early stage, right? I mean, at this point, it'll probably, if once it's if it if market surge shows it as a base it'll probably just show us the first stage rates right it's too late there's no there was no ipo base really to be had um i kind of like this pattern because it kind of looks like a cup with handle and yeah i would kind of like almost say this looked very cup and handle-ish of course it didn't work right you know came down and uh you know it probably would have been a more than a seven percent eight percent uh draw down there but then came right back and took that level. Right. And it's now, well, not today, I guess, but it did cross over that peak week that it had when it first started trading. But now, of course, it's getting rejected.

And that's to be expected. We call that the turbulent zone. And it may create another turbulent zone if it keeps going sideways and doesn't really perform.

But that would be to be expected. This one I was really lucky on. I'll just share, you know, Eve's, Eve's a really a pro at these, right when that first IPO has come out and she's talked about it, I think many times where she looks for that U-turn. And so I kind of took a cue from her on this and I do a downward trend line from that peak day and kind of drew it. Go down.

No. There you go. Go down. How deep do you want it?

Go to like 50 where your buy point would be 50 because that's pretty much where I bought it. And basically, and actually, I didn't draw that line. Now that I think about it, it was right there.

I could see doing 50 more like this. That makes more sense. You know, we don't remember. There's no second point to draw it off. Yeah, there's no second point.

So sorry about that. But you know how it is when you buy a stock. You're like, where did I buy that?

Why did I do that? Yeah. So I saw this U-turn happening. I thought of Eve and I'm like, okay, well, maybe at 50. And, you know, 50 is like a psychological level, right? Five.

So I thought, well, I'm going to set a stop by. And if it hits, then I'll get it. And of course it hits like the day before earnings. And I'm like, oh, no.

But that was a good earnings report. And it's kind of, it's held that level since then. And, you know, like we were pointing out, it kind of has that little bit of handle. It keeps shaking out every time it makes new highs.

As you can see there, we're now on that third shakeout from now a new high above that turbulence zone. So, you know, it looks promising. We'll have to wait and see.

You know, what comes to mind is that maybe it'll turn into a stair stepper. So something with the lifecycle trade is that we kind of coined you know, what the different patterns look like and the different patterns just help us identify what rules are the best ones to use or what to look for. So when they come back up and they create like, you know, like this, a cup of handle, and if it doesn't undercut that whole structure, you know, and keep basing, I know Chris Kessel doesn't like stair-steppers, but maybe this one will stair-step for us. We'll have to see.

Yeah. And to be fair, you know, Chris Kessel doesn't like stair-steppers because they're slow. But if you like slow, you want a stair stepper, right? It's, you know, you want it to just consistently kind of build a higher base, a higher base, a higher base.

And, you know, you can make a lot of progress up if you're using stairs. Nothing wrong with that. Now, you had basically a 40% plus gain on this.

So you're not, are you using, you're not using MCP rules at this point? I'm not using MCP rules. And so with an IPO.

The other thing that I do, especially if I'm buying like within a few weeks of the new IPO, I'm only using like half a position size. So and then I buy once I sit still. I did try to buy it when it looked like it was breaking out of that handle, but I just sold that position.

I was like, why am I doing that? Let's just stick with the core and we'll see how it plays out. Because, yeah, by nature, IPOs are so much more volatile. So if you're going to try them, I mean, that's what I would recommend and that's what I do. And so since you're starting with a half position, you are basically looking at, hey, is this something that down the road I can add to?

Right, exactly. I mean, if it were to now build what we would call a first mature base and without an institution of due diligence, you know, it looks like it's got the accumulation and all the things. Then at that point, I would probably consider adding to it for sure. Yeah.

OK, let's take a look at another one now. Hood. you know a lot of people were kind of pointing to the bitcoin and you know everything like that but you know bitcoin hasn't been doing that great lately uh and hood is still doing just fine yeah let's look at the weekly chart okay so uh clearly this one uh we would call this one a late bloomer because it did have a little bit of a run-up i think i can see from your charts there yeah yeah just a little bit and then it declined if they had gone straight down and and not even had any type of rhyme, we would have called it a pump and dump.

And which Facebook was a classic pump and dump way back when it IPO'd. No, I'm going to go there real quick just to kind of show what that looked like. You know, right here. Yes. And then it was what, a year and a half before, you know, and it was, it was earnings, right.

When it came out with the earnings, you know, that said, Hey, we can, we can monetize this thing, you know. that was when it changed everything, but okay. Back to hood. Yeah.

So back to hood. So we call this what it's in now is an institution due diligence phase. So those consolidations that have been happening there sideways.

Yeah, exactly. Um, you know, we're, we're looking for our first mature base and you can have multiple bases, which in this case, it has had multiple bases. And it's only this very last one that got a little bit tighter. which we like, right? We like it when the bases get tighter and maybe that shows a character change, which so far looks like it's been doing.

And I need to disclose, I have a position in this as well. I forgot to say that. So just some numbers here. This consolidation, this big one was 41% tap.

This one was 40%. This one was 23 and then this one was 21. And look at that. We have some three weeks tight in there too.

Right. So even right now, it looks actionable for a potential secondary buy point. Or if you weren't in it already, you could maybe try some. I mean, but there is risk because you have this overhead resistance. And now granted, it is more than a year and a half away, but I still find that it still plays a part.

I think there's some psychology in there that, you know. keeps it from just going to the moon kind of thing. So, uh, Especially with something like, I think hood was, you know, a lot of, especially the younger generation, you know, it was something that was really on their radar.

So you got to imagine that there's people that, you know, maybe, maybe stuck with it this whole time and are going to be selling, even though, again, we usually think of it as, you know, if you, if you didn't get worn out or scared out with, this, then you're probably a long-term holder. Um, you know, yeah, this will be an interesting one to see how that plays out. And so you highlighted that, that first stage base and, um, you know, it looked really good.

And so I think, you know, with the knowledge that, okay, it's not going to be all time highs, but it is progressing out of that, um, initial area where it was that, you know, there's, there's room for some upside. And would you be looking at, uh, this this tighter base here the 23 down here or do you kind of say oh well this was all so muddy over here you're looking at this um 21 base cut base up here no my when i when i screen for stocks over the weekend um i'm looking for that first stage base that tighter base so the deeper ones like i won't usually buy those i mean i have tried them i mean truly it was an example where i tried it multiple times before it finally worked um But for hood, I did not do that. And once I saw that tighter base, I was like, okay, maybe this one could go and I really had to like, make sure I didn't have a bias because I had a little bit of a bias on it just based on some past news of it from, you know, years ago about the way that they disclose their information. Right.

So it'll be interesting to see what happens. And let's go ahead and wrap it up with a semiconductor besides NVIDIA. This is Arm Holdings. And this is kind of an interesting one because, yes, you know, we have an IPO. So it has it has that element.

But I remember trading Arm Holdings in the 90s. You know, it went under the ticker symbol AR. What was it? ARMHY back then. It's, you know, from the United Kingdom.

So, yeah, this was one that we were familiar with. It's just we haven't seen it for a long time on our our stock charts. Right. And, you know, even I talked about this one in January of this year when we were IBD Live, the IPO sisters, when we were both on at this at the same time. And this is one has done very well since then.

And we were both buying it in that first stage. Oh, and I need to disclose I have a position in this one, too. But I sold it when it declined from.

Yeah, right there. you know, and I thought for sure it was going to go into a long institution of due diligence phase because based on the research, like that was a clear signal that the IPO advanced phase, which is what we would call that initial run, was done. So the fact that it's come back is just kind of blown me away. And so maybe this is going to be a stair stepper because if it doesn't have that big, long due diligence phase, and that's what, that's what stair stepper, stair steppers are.

stair-steppers don't have institution of due diligence phases they just keep going so so where were you getting back in uh well let's go to the daily chart that'll be the best way to show it um and then just let's draw a trend line from that high yep yeah so basically that bar that bar right there i didn't buy it on that day i would i think leaderboard might have been buying it on that day putting it on leaderboard that day you So I didn't buy it on that day, but then the next day or the next day after that, where I had those two nice little tight bars, that's where I would find it. So luckily it didn't keep advancing and it gave me an opportunity to get in because it really took me off guard. I was like, wait, what? It's back?

It really is going to make it? So we'll see. And now you've got about a 50 percent gain in this, you know, in a very short period of time.

So how do you how do you handle this going forward? What what category do you put it in? Well, you know, from the whole just the story of it, I want to consider it a long term hold. And if I still had those shares from the first base, I mean, for sure it would be in that category.

But we're just gonna have to see how it responds. You know, I'm not at 100% yet. Yeah. And so we'll just have to wait and see. Yeah.

Now, one more thing on this one, though, this was not a tight consolidation. This was a 48 percent. So what what are you doing, Kathy? Are you breaking your rules? What's going on?

Oh, well, I didn't I didn't say that a certain percentage. I mean, I sold it and then I bought it again. Right.

I didn't understand your question. But no, no. So you were saying that you were looking for tight consolidation. So what what kind of allowed you to take the. you know, take the leap of faith on this one, despite the fact that you, you were looking at a 48% correction in this base.

Oh, well it broke the trend line. And that's, it's just as simple as that. It's just as simple as that.

And at the same time that it broke that trend line, it also was up above that consolidate, uh, consolidation. Um, and then one back here. No, no, just, just that little bitty one, right? Yeah, just right in there.

And it went back over the 50 day line at the same time. So you have all three of those things like three for one kind of situation. And I always like it when, you know, if something goes above a moving average line, and then it also breaks the psychological level, or it's also over this. So the more things you can get in the one, I think are just more signs that it might work. And yeah, that was one of the things I was kind of looking at, too.

It's, you know, yes, this was a 48% depth. but you did have your tight area here. Maybe it wasn't long enough, but you did have something that kind of suggested that it was kind of turning a corner and multiple things at the same time. Well, Kathy, it was great having you on. Always a pleasure.

And next time I'm in Denver, I'll have to come visit you. I know I say that every time, but one of these times it'll be for real. All right.

We'll go on a hike. We'll get you moving. Yeah.

Well, if I can handle the altitude, we'll-Oh, yeah. I'll keep you in the lower areas. It'll be good. Yeah, it's been a while since I've done Pike's Peak.

That was, what, 30 years ago or something. Oh, right, yeah. Yeah, but yeah, very good.

Well, hey, it was a pleasure having you on, Kathy. Thank you so much for sharing your knowledge with folks. And again, folks can also get that Lifecycle Trade book on Amazon.

That's a good one to read. That's going to wrap it up for us today. Don't forget to- Make time for us next week.

I know I said last week that David Ryan was going to be on today, but Kathy Donnelly came in because he had a little thing he had to get taken care of. But David Ryan will be with us next week. Three-time U.S. investing champion, protege of William O'Neill, portfolio manager for Bill for a number of years. And also he was running the New America Fund for Bill and his own hedge fund for a while. You can also see him on IBD Live, but it's going to be great to talk to him next week.

So hope you join us for that. Thanks a lot for watching this week. We'll see you next time.

Transcript for:Insights from the Investing with IBD Podcast

Transcript for:
Insights from the Investing with IBD Podcast