WRO #76 Hangin' Out with Mark Minervini (Part 2)

ELI5/TLDR

Two old stock-market hands — Mark Minervini and Mike Webster, both disciples of legendary investor Bill O’Neil — sit around for a couple of hours and talk shop. The trading half is a clinic in one idea: cut your losses fast, ignore the urge to buy cheap, and just sit on your hands when the market is bad. The other half is two guys in their fifties geeking out about Van Halen, the Eagles, and why you’d survive a desert island with Boston’s first album. The throughline is that mastery — in trading or drumming — comes from doing one thing obsessively, not chasing the next shiny thing.

The Full Story

This is part two of a long, loose conversation. Minervini is a momentum trader — he buys stocks that are already going up, not ones that look cheap. Webster spent years inside William O’Neil + Co, the firm behind Investor’s Business Daily and the “CAN SLIM” growth-investing method. Both men treat O’Neil as a kind of departed master, and a lot of the talk is them comparing notes on what the old man actually meant.

The first rule: go where the money is

Minervini opens with the bank robber Willie Sutton, who supposedly explained his career choice with “because that’s where the money is.” His point: most people fail not because they’re bad at execution but because they’re pointed the wrong way. They try twenty-seven strategies and master none.

If you’re going east looking for a sunset, you’re not going to find it.

His fix was to find people who had already done what he wanted to do and copy them. He’s blunt about why you should trust a rich practitioner over a clever theorist:

I would never take advice from somebody who didn’t already accomplish what I was looking to accomplish.

When someone pushed back — great basketball coaches were often mediocre players — his answer was that he’d still wait for the coach to win a championship first.

Grade your own trades like a report card

The most portable technique here is brutally simple: keep a scorecard of your own behaviour. Minervini built what he calls a “model book” every year — he’d tag each trade with the mistake it embodied (“sold too soon,” “bought late,” “held the loss”) and then tally the percentages to find his recurring sins. The insight is that the right target percentage differs by category. Selling at the exact top is nearly impossible, so 50% “good sells” is excellent. But cutting a loss is a decision you make before you enter, so the only acceptable score is 100%.

Eighty-five percent of the time I cut my loss. That’s no good. It should be 100%.

The general method he describes — find your single biggest weakness, grind it until it becomes a strength, repeat — is how the man once known for blowing up became, in his telling, known for discipline and small drawdowns.

Stop trying to buy the bottom

A recurring theme: the amateur instinct to buy low, and why it’s a trap. Webster tells a story about a guy who faxed over a hundred charts, every one with a relative-strength reading of around 80. O’Neil’s rule was to buy strength between 80 and 99 — and this fellow wanted to get in at 80 so he could catch the move before it became 99.

You want to buy that Versace shirt on the bargain rack for 50 off.

Minervini’s counter is a single question he applies to everything: is it necessary? If you make 25% whether you bought at the bottom of the chart pattern or coming out of the top of it, then buying the bottom — with its extra risk and worse odds — was never necessary.

I’m not looking to buy the lowest price. I’m looking to buy the right price. The right price is the stock moves in my direction quickly.

The 6:05 train

His best analogy, and worth keeping. Imagine you catch the 6:05 train every morning. One day it’s not there at 6:10. Can you conclude anything? No — it’s just a little late. But by 7:45, two hours gone, the odds that something is genuinely wrong have shot up. The further reality drifts from the expected, the more confidently you can act.

The whole edge, he says, is having a reference point. A single price bar floating in the air tells you nothing. The same bar, when you know the stock just made its biggest one-day jump on its biggest volume after a long quiet stretch, becomes information you can manage risk against. He credits O’Neil with the underlying line:

You don’t need to know where the stock is going. You just need to know where it’s been.

What takes you to heaven takes you to hell

A genuinely useful mental model. Every trading strength is also the seam where you’ll eventually fail. If you religiously cut losses, you’ll go to hell by getting stopped out a thousand times in a choppy market. If you don’t cut losses, you’ll enjoy riding through the noise — right up until volatility turns a 50% decline into a 90% wipeout that never recovers.

What takes you to heaven takes you to hell. And what you have to do is manage that.

The corollary is O’Neil’s “loud warning to the wise” — in a bad market, the patterns everyone has read about in the books will break out and then fail, because they only work inside a trend. The system isn’t broken; it’s telling you to go to cash. Webster recalls O’Neil keeping his portfolio managers at 1% total exposure in ugly markets — just a “pilot buy” to keep a finger on the pulse.

The sentence that built a career

Minervini says one O’Neil line made him $100 million:

While you do nothing, those who are less skilled and less disciplined are laying the groundwork for your success.

It meant nothing to him at first. Then it clicked: when a strategy stops working and the crowd abandons it, that’s exactly when the inefficiency it exploits reopens. He’s delighted when respected veterans declare that breakouts “don’t work anymore” — to him that’s the crowd giving up, which is the whole point.

That’s like saying gravity isn’t going to work anymore. Nvidia came out of absolutely perfect patterns.

The choppy, noisy part of a chart pattern, he argues, is the less-disciplined traders doing the dirty work — getting shaken out — until the supply dries up and the stock tightens into the clean structure that precedes a real move.

Don’t curve-fit; factor-model instead

On research, he draws a sharp line between back-testing and what he does. Naïve back-testing leads to “data fitting” — torturing the data until it confesses to a strategy that only ever worked in hindsight. His version: study the winners and ask what they share. If you interview 500 Olympic gold medallists and every one eats the same thing at 9am, that habit is probably important. He also describes a “dart test” — pre-select high-momentum stocks, throw darts to pick among them, slap on an arbitrary stop loss, and watch it still beat the market for years. The lesson isn’t that stock-picking doesn’t matter; it’s that a disciplined stop on a pre-screened universe carries an enormous amount of the load.

The self-taught streetfighter

Minervini dropped out of school in eighth grade to be a drummer and educated himself instead — he claims a bookcase of 4,500 hardcovers and a vast library of cassette tapes from his self-improvement years (nine Tony Robbins seminars). His view is balanced rather than anti-education: poverty gave him hunger but also a “poverty mindset” he had to spend years unlearning; wealth can breed entitlement and kill the work ethic, which is why he worries about his own daughter. He notes O’Neil tended to distrust freshly minted Ivy MBAs precisely because the grunt work was often missing.

The music half

About halfway through, the conversation abandons stocks entirely. The framing game — you’re stranded on Gilligan’s Island with one album, which is it? — unleashes Minervini’s encyclopedic music memory. He walks his whole listening life: hippie-parent folk (James Taylor, Joni Mitchell), then funk and Motown after moving to a rough neighbourhood (Tower of Power, Earth, Wind & Fire), then hard rock and metal after a move to the country. He name-drops hearing Van Halen and Metallica on cassette before they ever hit vinyl, and frames music history as four seismic shifts: Elvis/Buddy Holly, the Beatles, Van Halen’s first album (“the atomic bomb”), and Nirvana/grunge. The desert-island choice lands somewhere between Boston’s debut, the Eagles, Pink Floyd, and Van Halen I, which they then dissect track by track (he picks “Running with the Devil”).

The show must go on

The closing stretch is a pair of war stories about pushing through illness to perform — Minervini discharging himself from a hospital at midnight to teach a 700-person seminar the next morning (“if I’m going to die, I’m going to die on stage”), Webster crashing through a shower door from sickness and teaching anyway. The point lands gently: relentlessness is the same muscle whether you’re touring, trading, or teaching.

Minervini’s actual parting advice ties it together. The trading mechanics matter, but what made the difference for him was studying the people — O’Neil, Paul Tudor Jones — not just their methods.

The thinking is more important than anything… you have to feel deserving.

Key Takeaways

Grade every trade by category, with category-specific targets. Cutting a loss is a pre-decided rule, so the only acceptable success rate is 100%. Selling near the top is near-impossible, so 50% is excellent. Tally the percentages to find your recurring mistakes.
The “is it necessary?” filter. If two entry points yield the same return, the riskier, lower-probability one (buying the bottom) was never necessary. Optimize for speed and probability, not for the cheapest price.
You only need to know where a stock has been, not where it’s going. Reference points (prior range, base structure, volume history) turn a meaningless price into actionable, probabilistic information.
The 6:05 train model. Deviation from an expected baseline only becomes meaningful as it grows large; small deviations carry no signal. Edge requires a known baseline to deviate from.
“What takes you to heaven takes you to hell.” Every strength is the exact mechanism of your eventual failure — tight stops kill you in chop, loose stops kill you in a crash. Risk management is managing your own strategy’s failure mode.
Chart patterns only work inside a trend. In a correction they break out and fail because everyone (and every algo) sees them. A failing system isn’t broken; it’s signalling go-to-cash.
“While you do nothing, the less disciplined lay the groundwork for your success.” Strategies regain their edge precisely when the crowd abandons them — inefficiency reopens as discipline thins out.
Factor-modelling beats back-testing. Don’t fit a curve to history; study what all the winners share. Beware data-fitting at all costs.
The dart test. A pre-screened universe of high-momentum stocks plus an arbitrary stop loss beat the market for years — most of the edge is in screening for strength and enforcing the stop, not in the final pick.
Study the person, not just the method. How a master thinks, what they value, how they handle drawdown — that mindset is the part that’s actually hard to copy.
Master one lane. You only need one working strategy; the failure mode is chasing twenty-seven and mastering none. Discipline and persistence over novelty.
Buy strength, not weakness. Minervini never gave O’Neil a stock more than 15% off its high — typically within 10%. The Dreyfus fund’s edge, the story that converted O’Neil, was that it always bought at new highs.

Claude’s Take

This is two pros talking to each other, not to a beginner, which is both the appeal and the limit. When they’re on trading, the signal is dense and the analogies (the 6:05 train, “heaven and hell,” the basketball team that lives on threes) are genuinely sticky — Minervini earns his nickname “metaphor man.” The cut-losses-religiously, buy-strength-not-weakness, sit-on-cash-in-bad-markets gospel is well-trodden O’Neil/Livermore territory, but it’s delivered with conviction and concrete numbers rather than platitudes, and the per-category scorecard idea is the kind of practical thing you could actually steal.

The honest caveats: roughly half the runtime is a music nostalgia session and “show must go on” anecdotes that, while charming, carry zero informational payload — fine for fans, skippable otherwise. And there’s a fair amount of self-promotion and self-mythology woven through (“this is the best interview I’ve ever done,” the $100-million sentence, the deathbed-but-blessed monologue). Minervini’s track record is real and his risk discipline is the genuine article, but survivorship bias hangs over all momentum-trading wisdom: the dart-test framing in particular undersells how much a roaring bull market flatters any long-only high-momentum approach. Take the mechanics, discount the certainty.

Score: 6/10. A strong 7-8 for the trading half buried inside a meandering 2.5-hour hang. Worth it if you want the mental models; the rest is two old friends enjoying themselves.