Ep. 296 Risk Management Rules: The Bad Habits Of Traders And How To Correct Them
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Hello and welcome to another episode of the Investing with IBD podcast. It's Justin Nielsen here, your host, and it is November 20th, 2024, NVIDIA Earnings Day. We've got a lot to talk about and to help us get through it. Look, you know that we're big on rules here. The best way to kind of get your emotions out of the equation is to really have a set of rules, and especially when you're first starting out, that is absolutely critical. So who best to kind of discuss that idea than Scott Bennett? Scott Bennett.

return guest that we have, and also the founder of Invest With Rules. So just as the name suggests, you are a big believer in Invest With Rules. And of course, you now have Invest With Rules advisory firm as well. So welcome back to the show, Scott. How are you doing?

Justin, thank you so much for having me. It's actually my fifth time on the investing with IBD podcast. So in the spirit of SNL and the five timers club, I will send you my measurements for my new jacket. So thank you for that.

Perfect. You know what? We'll have to start getting the – I'm not sure what color we should do, but I feel like an IBD blue would be appropriate. So, you know, our producer, Mike, is in the background. I'm going to delegate that to Mike. So, Mike, that's all you, buddy. So good job.

So let's get right into it, Scott. And I'm going to share the market chart real quick. We're going to start with the NASDAQ. And of course, we're going to get into your take on the market, the indicators that you use. And also, importantly, you've got some adjustments. So for people that have been on your...

seen any of your previous visits here, you have some volatility adjusted measures that you've introduced into your rules thing. And I think it's important before we kind of get into that,

And we'll get into it later, but I think it's important to just recognize that sometimes we say rules, rules, rules, but it's a moving target, right? You want to, at times, be very flexible with, hey, sometimes I need to adjust my rules for different markets. So any adjustments that you're making to this market, we've had kind of a wild time. I mean, starting with this August market,

ugliness, you know, as August 5th unfolded and we came all the way down to the 200 day. September didn't start with that great of a action. And we were getting a little bit of nauseousness maybe ahead of the election in November. But where do you see things now?

Great question. So to start with the NASDAQ, and we'll talk about when to potentially look at your rules and look at your process. But the NASDAQ is, I know tonight, right now is NVIDIA Day as they're reporting earnings. And so far, it's holding up. But I would simply say the NASDAQ, in our view, is on what we call a gas signal, which is a short-term and a long-term uptrend.

So very mathematically based. I try as best as I can to take the emotion and some of my subjectivity out of it. Same goes for the S&P 500. Same goes for the small cap index. Interestingly enough, the international market, so if you think like all world minus U.S., that's actually in a short-term downtrend within a long-term uptrend. But you're in a strong market, and I would start with,

We categorize it on a scale of, we'll call it zero to 10. And right now the market, the S&P is on a nine out of 10. So it's a strong uptrend is where we're at at the moment.

Well, and to kind of put a fine point there, I'm just going to go to your slide here. One of the things that you mentioned is in terms of that market aspect, you kind of go to William O'Neill, the founder and chairman or previous chairman of Investors Business Daily about following the trend. So what is it about this quote that you like so much?

so much. Yeah, great. So we follow rules and there's no better person to learn the rules from than William O'Neill. And very simply, he said, follow the trend and you should be actively buying stocks when the market is in an uptrend. And when the market is in a multi-month downtrend, it's often best to stay on the sidelines. And if we kind of move forward in the slides just for a moment, I would say,

I'll give a kind of a personal story. So I'm living in Colorado. I'm friends with the very popular IBD guest, Kathy Donnelly. And we were in 2022, we were sitting at lunch at Kava saying, how incredibly exciting will this be when the bear market's over and the bull market starts? And we're sitting at Kava.

And that's your market leader. And when the market's in an uptrend, buy stocks, be invested. And very simply, we took a little bit of a page and we simplified our trend roadmap. I'll cover some of the changes we've made. But from the great work of Stan Weinstein, so how to profit or the secrets to how to profit in bull and bear markets.

The stages made a lot of sense to us, and it allowed us to shrink our stages down to four, which is well more understandable for our members.

And we have our proprietary signals, which we kind of use polite driving analogy in the world of compliance. So always being cautious to do your own due diligence and to manage your risk tolerance. But we have signals, think driving signals. So a U-turn is after a horrible short-term and long-term downtrend. And then when 2023 rolls around, we get our U-turn signal.

And what we really want to do is to sit tight and hold great long-term trends. And that's what we're looking for, these gas signals. The overheat simply says, be cautious. It's a little bit extended. Be patient. The coast signal is the short-term trend is under pressure, like the international markets. And very likely, many times over, the stage three topping or the coast goes back to gas.

And then what we want to do, no different than the amazing CanSlim methodology, the M in CanSlim, when we hit a break signal, short-term and long-term downtrends, we run. So if we move to the next slide, how I would say the changes that we made, so we were...

At Invest With Rules, we had a very successful 2022. So when the market was under pressure, these signals were really helpful. But as 2023 and 2024 rolled around, one of the biggest challenges that we faced was these kind of ever-present V-shaped recoveries.

And how do you deal with it? And after an enormous amount of backtesting and study, it's simply, and how you can apply this personally when listening is you have a short-term signal and a long-term signal. It's trying to make your short-term signal a little bit quicker.

So I know a lot of great IBD minds look at like a good example, not exactly ours, but the 21 day exponential moving average. So something a little bit quicker. And then the long term signal, make it a little bit longer. And that's where you can sit with great gains. That way you can try to get better tax advantages for your returns.

So the short-term investor plays in the U-turns and the gases, and the longer-term investors will sit through some of these, we'll call them bases or these co-signals, but then in general, having a process to run and hide when these stage four declines come. Now, just to kind of understand a little bit, when you say short-term and long-term, you know, you kind of suggested, you know,

with some moving averages. Is that kind of like what you think of as, you know, short term is more on the month side or 21 days, whereas, you know, your longterm is more again, stretched out closer to a year to, to start looking at those capital capital gains, the longterm capital gains. Uh, is that fair enough to say, or it really is. So we look at price, we look at momentum, we look at a lot of, uh, relative and absolute, um, uh,

So we're analyzing a lot of the trend from the way I think about the short term would be maybe days to weeks. And very simply, the long term becomes more weeks to months, but really heading more towards months. We're really trying to stretch out that long term. So once we have a cushion of gains, we're going to be able to do that.

How can we try to really try to grab the lion's share of that return without never getting out at the top? Obviously, never getting out, never getting in perfectly at the bottom. But having to get that big chunk of the trend is our objective. Yeah, no, absolutely. And I guess, you know, I'm going to go back to the chart here. So.

I mean, certainly on the short term, there was a lot of noise here. And I guess that's something that you have to be aware of. You know, the shorter term you use signals for, the noisier they're going to be. You're going to have more of those U-turns. You're not going to be going in the same direction for very long before you, you know, turn around and go the other way. So I guess what is kind of your sweet spot? Or is that kind of why you do the blend? Yeah.

It's why we do the blend. And I also think another piece to the puzzle is having kind of two pieces to your position. So having one that's a little, obviously always minding your risk tolerance, so never having the losses get large, but very simply once the gains are there to say, okay, well,

at least what we're going to simply do is we're going to abide by the shorter term signals with a portion of our position. And for the longer term position, we really want to grab that kind of lion's share of our gains, call it 60, 70% of our, of our gains and take those off the table. So we do think of it in pieces is what we're trying to accomplish. So not making very large, really challenging binary all in all out decisions. Yeah.

Right. And just to kind of get a sense, too, because everyone's a little bit different, but Bill O'Neill was definitely a big proponent of concentration. And certainly as he got older, I will say, he...

he was a little bit more open to having more stocks as opposed to maybe just a few, like, you know, two or three stocks. I saw him do that, you know, sometimes just one or two stocks, Apple and Google, for instance, you know, for a while. So like position sizes, I mean, how large do you let your positions get? Or do you kind of let the market say, Hey, if it's working, it's going to get more money. Do you have like a limit? It's a great question. So,

We've actually tailored that. So how I would answer that today is where we're heading towards is 25% positions is where we're heading with our starting positions. And very simply, with an enormous amount of backtesting, what that does give us is diversification, which we're looking for. It does give us a lot of the upside, but

a good example during earnings season, like what if you have a really large concentrated position and things don't go right? Like, can you wake up in the next morning and feel comfortable being down eight, 10, 15% of your net worth and,

For a lot of the, I'll speak to our advisory side of the business, a lot of our clients are 50, 60, 70s. And the answer is that that's not the type of risk tolerance that no one can handle. And you're not going to be employed very long. So we don't want to be too washed out. But having these targets of around 5% and then managing the risk, managing the gain, that's how we feel comfortable today. Yeah.

Perfect. So you know what? I'm going to go back to your slides here. And one of the things I want to make sure that we're kind of delving into is this idea of the...

the different things. So the short term, long term at the U-turn, your short term is an uptrend. Your long term is in a downtrend. And maybe you could just, again, walk us through all of that. So it's, it's everyone's using the same kind of terminology that you are. Yeah. It's a great point right now. The beauty is there, there are no U-turns and it's usually after a bear market. It's, I always wanted math and computers to tell me immediately without me having to stare at charts and very simply, very,

the program that we're running is, if you think about after a really big bear market, or even after 2022, the market's down 19.5%.

on the year, I want an early signal. If I'm going to take a partial position, this is where I'm going to want to do it, especially with indexes where they are innately diversified in themselves. But because we're, call it in almost two years into the bull market, a lot of positions are in these stage two short-term and long-term uptrends we'll call gas signals. So if you look down below at the chart, so off to the far left is relative strength and

And off to the far right is what we'll call relative weakness. So communication services, it's the top dog right now. And it's the Netflix, it's Google. Then comes XLY, which Amazon's been holding up nicely, but really it's Tesla the last couple of days. Then you have energy and financials. And the only thing just to note is you'll see that

The Q's and SPY and IWM, they're all kind of, everything's clustered to the left, so it's all strong. What's not acting very well, you'll see XLV, so healthcare, materials, international, and we're really simply, in the IBD methodology, we're trying to head towards strength and try to shed and move away or minimize positions that are acting relatively weak.

And the next slide goes into the top 15 stocks by market cap. And I only politely took one of the Googles because that's a little too easy. Why do both? If you don't mind, jump into the next one. There you go. And then, and the also thing is I always want to have kind of a standard, but here's obviously Tesla to the far left, Walmart,

We're going to get in later in our segments just to talk about earnings growth. But I mean, look at Walmart and a forward earnings expectation of 10 to 11%. And look at that run that it's had this year. So sometimes...

Slow growth can be the answer, but Eli Lilly off to the far right has really acted really, unfortunately, poorly since everyone thought the GLPs would be there forever and be the strongest item in the portfolio. So this helps us to judge the

how we look at the market and how we look at everything. So, uh, it's these gas signals. You can see there's the majority of what we're looking at is gas signals. Uh, there's only two break signals, which is just Microsoft and Eli Lilly. And we have Nvidia earnings, uh, as we speak. Right. Uh, yes. And so if we, if we go to the next slide, um,

Kind of walk us through, because this kind of shows how your signals are overlaid onto the market chart of the last year here. Yeah, so this is an investment. Or I guess last few months, I should say. Yeah, it's a 60-day window. It's all it really is. And very simply, what I'm trying to do, again, use...

use computers to help me to say, okay, well on September 11th, that was the gas signal after that coast signal. So if I did have capital that was raised, if something else got an essence stopped out, that's where I'd want to be entering. And then you'll notice that there really wasn't too many overheat signals. So the market's just been kind of calmly moving back up. It had a little bit of a pullback at the end of October and,

And we got the 1115 gas signal. And that's kind of what we've been working on right now. So on the short term side of the ledger, 15 days calendar days, it's a 2.2% return. And that's certainly election time. And this has been a really, we also judged the long term signal. So

Since all the way March 14th, 617 calendar days, the NASDAQ is up 69% on the long term. So we're using our signals. We've been long for most of this. And we're trying to innately have, again, those two blocks of positions. One is a little bit more short-term minded, more defense. And one is trying to achieve long-term gains, long-term capital gains. Right. Right.

And then you've got one more slide for this segment. And what are we looking at here? It looks like we've got a number of ETFs. And this kind of is, you've got something extra here, the road tripper. What's the road tripper? It's a great question. So I'll cover road tripper first. So road tripper means like, what's my initial risk unit? So let's use the IBD. Let's say 8%.

So that's my risk unit. That's all I'm willing to risk on this investment. But once I gain three times my risk unit, so I'm up 24% in the position, then what I will simply do is I will lower my trailing stop loss to capture roughly 60% of the gains. So there's absolutely nothing mentally worse than making tons of money and then giving it all back.

So what we're trying to accomplish with the road tripper is to allow the big winners to keep running. So at Invest With Rules, level one are these major stock indexes. And we're heavily invested in the S&P, the NASDAQ and small cap. And we have a very small position international. But level two is we go after ETFs. And we've been playing for a while. We've been in the fun Bitcoin trade.

which has done well. That's a road tripper. We've actually added two positions of financials. That's clearly one of the stronger areas of the market that we want to be in. We have positions in utilities, gold. It's kind of paused for a bit, but we have two positions in gold. We just recently added a position in natural gas stocks. And I guess we'll see what happens with Palo Alto tonight for the cybersecurity sector.

And we're not perfect. Cyber is down slightly. Silver is down slightly. But we have very tight risk protocol over those. So kind of looking left to right, obviously we want green across the screen. But if there's ever a time where it's a coast, that means that a trailing stop might be coming relatively soon. And if it's a good example like Bitcoin, I need a mechanism to say, hey, politely stop buying. We call it overheat, just like kind of a pause. Yeah.

Mm-hmm. And so what kind of things are you looking at? And I do have a position myself in the iShares Bitcoin Trust, iBit. So in that regard, when you get that overheat signal, is that just a don't buy more? Or is there some offensive selling that you do to just, okay, look, I've got a good gain in this. Let me take some off the table. That's a really good question. So

So here's the, our answer is what's an overheat? So what we're very simply looking at is the relative strength index. Is it over a certain barometer? And the barometer that we're using is 68. So it's not exactly the nomenclature of go to 70. So we want to make sure that we're not like stretched at the very end of our trade. So that would first say to us, pause and be a little bit patient. There's probably an opportunity on a little bit of a pull in to add more.

My business partner, Mike Olofsson, he's great. He actually is an IBD enthusiast. He was for a while a Founders Club member. So we obviously use Market Surge. We're huge fans and subscribers. But he actually did a study, which is really interesting, where if one uses the relative strength index 10-day, not 14, and if it gets over, it gets near 90 to 95, that could be an area...

where one does take some off the table. But it's rare that that really occurs. And I'll give him credit for his study. But we tend to want to be trend followers. So there's a high probability this trade can keep going. And what if it doesn't pull back? And then you're kind of

potentially over trading where you could just sit there and at the moment it's done nothing wrong. It hasn't violated any of our, of our short-term long-term signals or rules.

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So let's transition a little bit because, and first of all, I want to make sure that people understand when you say relative strength, the RSI, that is different than our relative strength rating. That's a technical indicator that a lot of people use. It can be kind of like a stochastic or oscillator. So there's a number of different ways that you can use it, but

You're getting a range from 0 to 100, so it's easy to confuse it, but it's not comparing that stock versus all other stocks like our relative strength rating is doing. It's really kind of comparing that stock to itself. Where is it in relation to its own strength?

Did you have anything to add on that RSI? I just want to make sure people understand the difference. No, that's a great point. Yeah. So the RS rating at IBD is great. It's comparing to the S&P. So in essence, relative. So it's comparing it to something. I'm just going to stop you real quick. It's the relative strength line that compares to the S&P 500. Right.

The RS rating compares to all other stocks. So that's a percentile. So they are different. You know, it's a common common confusion amongst our subscribers that one doesn't necessarily follow the other. And, you know, sometimes you can have something that has a very high relative strength for a very long time.

because it's a 12-month rating. So the RSI, I will say, can sometimes be a little bit more reactive to a pullback, whereas sometimes you can see something down 20%, and it can still have a relative strength rating of 99 because of its 12-month performance. So enough of that tangent.

What I want to get to now, Scott, is because this is really interesting, is how, again, to this point of iterating and recognizing, oh, you know what? If I do this tweak to my rules, I can maybe get something either better performance or reduce drawdowns. And sometimes it's...

It's a matter of being able to withstand the vacillations or sit on the sidelines, as you said from your first slide from Bill O'Neill, that can make a big difference. So I'm going to put – we're going to go back to your presentation, and you have another really good quote from Bill O'Neill that I want you to share.

Absolutely. Yeah, it's a good point. And I think so our big premise is follow the trend, follow big money, follow risk management rules and follow big money. This is one of my favorites. So stock prices do not go up by accident. The surge in demand is caused by by institutional investors. Seventy five percent of the float is really these high quality. They're going after these high quality leaders at

what we call billion-dollar fund managers. So I'll quote Bill. So funds are like elephants jumping into a bathtub. They're simply so big, the water rises and splashes all over the place. And that's what we very much track at Invest With Rules. And I think IBD does a great job of it as well. And if we move to the next slide, the only, I would say, differentiator

is there is a bunch of data that exists from I'm looking at about a trillion dollars. It's not the entire market. So to be clear, I am looking for an edge. But with invest with rules, it's a 30 day lag. And so as an example, the data is available at the end of September, and then we cut it, clean it. And we were simply doing is we're delivering it right at the end of October. So 30 days lag.

The 13F reports, I want to be crystal clear, this is not inside information. It's wildly ethical. But the 13F reports, they come out at the end of the quarter, which is right, just happened, 45 days after the end of the quarter. So on call at the 14th, 15th is where people start to share what these hedge funds are typically up to. But if you go back like a month or you go back two months, then the Invest With Rules data has the potential to be

In this case, it could be even more. It's like 45 days better or 75 days better. So at certain points, it's way quicker. But if we move forward, what we're simply trying to do is take kind of recent data.

On the next slide, and we have this universe of stocks, and we very much weight what the funds are buying. So we have the universe, what the funds are after. We have an earnings growth kind of cut. And very simply, it's usually in the neighborhood of around 10% forward earnings. So that's where it could be.

a rocket ship type company that we all love at IBD that are on, on like that pop up on my market search charts, or it could be kind of a slower company. That's just kind of chugging along nicely. But the one thing that we did back to the rules and adjustments, we are putting more of a weight on what we'll call VOMO volatility adjusted momentum. So think appreciation or whatever the return is rate of change, uh,

And we're going to divide that by the average true range. So we're very simply, we go through this process. We're looking for these short-term and long-term uptrends. And we're trying to compare. Now we're going to relative. We're saying, okay, well, if there's, let's say this is an issue that a lot of investors face is, okay, I'm ready to buy something.

I have three things on my plate. Which one do I go after? And I think that's one of the hardest things that we all, we all battle. And this is one way Vomo can be a good screener to say, okay, well, who's done the best with the least momentum or with the, with the least volatility. And maybe that, that raises one to the top that should be worthy of your time acting more like a quant versus based on your emotion. And when you say rate of change, is there a timeframe that you're associating with that, that rate of change?

Yeah, great question. So we're typically looking out at roughly about a month. We're typically looking out about in the neighborhood of six months and then a little bit after a little over a year. So we're looking at it over multiple time periods to see because there are times where

The IBD rating caught it too. We're like, if you go back a couple months ago, Tesla was super low on ratings, on relative strength line. And now it's a rocket ship. So it is important to have different timeframes when you do your volatility adjusted momentum. Because

It's interesting just how much – look at that line. It's just, I mean, absolutely rocketed. And the election obviously made it just absolutely rip. And I'm just showing a couple other things. The RS rating over relative strength right now is 95. Four weeks ago, it was 52, to your point. Six months ago, it was 17. So, again, to your point on how Tesla has changed.

Yes. And I think if you don't mind heading back to the slide, just so I can cover that one piece. So what I want to do is just deliver what we're looking at very simply, and hopefully it gives you an idea or two. Please manage your risk tolerance, as always. But in general, so every month, so we cut this data and we just do it monthly. So I know a lot of the

The data keeps getting refreshed constantly, but if you don't mind moving to the next one for me. But just once a month. And then we apply our trend roadmap on top of this. So here's a really good example from just a day or two ago. So at the top, we have Boston Scientific, BSX, medical device maker. In the bottom, we have Marvell. And okay, so year to date, Boston Scientific is up 56, Marvell's up 47. So that's kind of a clear differentiator. But what is the VOMO

on the year to date? What's the volatility adjusted momentum on the year to date? And the answer is BSX is a much stronger volatility adjusted momentum than Marvell. And you can kind of see the green rectangle, just how tight that is versus a Marvell chart over the same time period. And the question that I always ask is for anyone, could you have sat through that August pullback with Marvell? And for a lot of people, the answer unfortunately is no.

So that's where adding that extra layer kind of comes in.

Yeah. And I like that you used two stocks here of relatively the same price. So it's kind of you took out that scale issue, right? It's, you know, hey, this is kind of a little bit of an apples to apples comparison here. And yeah, it just kind of shows, again, which one would you rather have? Which one is easier to hold? Which one kind of pays you for the risks that you're taking? Yeah.

Yeah. Thanks for appreciating my extreme nerdism of price. We always appreciate nerdiness here. The joy of, of being a, this loving it. So, um, but, but that's kind of the VOMO. And then I think on the next slide, I share our report. So I want to deliver this to you just to share kind of what, what we're after. And again, um,

Number six on our report from a ranking perspective, again, big buying. We're looking at buying. We're looking at momentum with a volatility look. We're looking at earnings growth. But you can kind of see since this is stack rank since the end of October when it was delivered. But, I mean, app love and hope. I mean, amazing, right? Eighty-nine percent so far. I mean, it's only the 20th of the month, and it's already up almost 90%.

Full disclosure, we do own Axon Enterprises. I'll cover that in the next slide. We own a few of these tickers. We don't own them all. And again, a lot of the stuff at the top will be overheat. Well, just for disclosure purposes, I own...

your top seven. So I'm, I'm, I'm kind of right, right there with you on a lot of these. Uh, so, uh, and, and, and granted, I don't have the same, uh, percentages in some of these app loving, for instance, I, I recently bought cause I just couldn't stand it anymore. Uh,

watching it go up without me after I sold it just before September 11th when it started its move. But yeah, so I'm with you on a lot of these. Again, we're coming at it from different ways, but we're kind of coming up with the same stocks.

Yeah, and I think that's important because, I mean, the CANSLIM model is amazing, and it brings the growth, and it brings this unique rule set, which I love. And we're just heavily weighting it towards fun buying is really what we're up to. And it makes sense, and it helps me to, okay, well…

You have two lists. Can you filter it down? Can you make the list smaller and can you make the list more manageable during the day when it's go time? And I think in general, you're going to see some of these at some point pull back. Now, I'm very much not advocating for any member to go buy all these because there's some below the line that have not done as well.

But this is the top chunk that have done better than the S&P. But month to date, since this was released, this list is up 7.3 compared to the market up 1.85. And I like to look at this from a perspective of the big money, even during the volatility of the last kind of teeny tiny pullback the last two or three days, they're not letting go of this stuff.

which I think is really interesting. Even on a kind of a flat to down day-to-day, it's up 0.29. So they're going after these names. And at some point, follow rules, it's going to all turn, and they're going to at some point let go of some of this. And I just don't want for anyone to have great gains and give it all back. But I would say this is our shopping list. And then very much the VOMO, the short-term and the medium-term,

It helps us because we are a 30-day lag. So the short-term volatility adjusted momentum lets us kind of deal with the fact that this isn't yesterday's buying from these funds because that's not ethical. So because this will then say, okay, well, what are they really going after still? And then that helps just kind of refine the list to what deserves our attention.

So just real quick, kind of talk to me about once you have this kind of list. And again, we're big believers, right, in that concept where you have so many stocks to choose from. Everything about the paper, Investors Business Daily, market surge is about everything.

kind of filtering that list down to a more manageable number and getting to the forefront, really the stocks that are most worth your time, that have the best odds of success. Nothing is 100%, as you've made very clear, and we are right there with you. But two things, I guess. Number one is, okay, once you have that filtered list,

Um, where, where do you do your entries? Um, how does it, how does it start? You know, oh, this is something I'm going to buy now, I guess, to start out with. Yeah. Do you mind moving to the next slide? So the short answer is I, we need for there, um, to be gas signals. So short-term and long-term uptrends, that's, that's mandatory. So number one, it needs to the trend roadmap. So we have the list, we go to the trend roadmap next. So what's the trend? Um,

And very simply, what we're saying is we're going to stack rank it. So if you see as an example at the very bottom is our watch list of things, some things we own, some things we don't own, and the things at the top, politely, we do own. So you'll see the short ST Vomo, so Garmin. I don't own one of their fancy watches, but it is drastically outperforming the S&P 500 over the past decade.

call it month. And same with intuitive surgical. So we are using this volatility adjusted momentum. So return divided by its volatility is

to have a scoring system. Uh, we absolutely want the trends to be there as well. And, and we also, we, we have a little bit of mechanisms to say using relative strength, using extensions from our entry points to say, okay, before we even enter, what is our risk? Uh, kind of back to rules, uh, the, the kind of the other famous Bill O'Neill book, Bill O'Neill quote is like, would you ever like buy

Buy a car without brakes. So we need to know what our risk unit is before we even enter the trade. So as you can see, we have we've had a great run. I mean, Amazon is an example where it was on our list and it fell back. So the funds maybe kind of pause some of their larger buying.

Uh, Axon has been really solid for us. Obviously, uh, we are heading towards more financial. So we have early positions in American express. We added a second position in Goldman Sachs. Um,

There's times where you'll see the rank, but we are trying our best when capital comes free. So to hold about nine or 10 tickers, and this is our shopping list at the bottom. So trend is your answer. Volatility adjusted momentum is your answer. And we're trying to not buy things that are extraordinarily extended from short-term risk units. If your business needs a new application, then developers will have to write code, a lot of code.

Thank you.

IBM, let's create. Perfect. And then we're going to get into a few of your individual ideas in our next segment. I just want to kind of let people know that at investwithrules.com, people can kind of get a little bit more information. You have something where people can sign up for free. And then also, you're a good follow on X, formerly known as Twitter, and you can find us on Twitter.

at investwithrules. So that's something that people should just, yeah, take a follow. How frequently do you post, would you say? I go in waves. Sometimes there's crickets for a while. It's part of the social webbing where I try to at least, no matter what, produce a free email per week and some of that data gets spilled onto X. So I try. Yeah, perfect. Okay, so Scott,

This is going to be a surprise. We didn't actually talk about this ahead of time. So I'm also going to be paying attention to some of the questions that might come up from our YouTube folks. So again, for those that are watching live on YouTube, you can put in some comments with questions and stuff like that. We won't go into individual stocks necessarily, but questions on what Scott's talked about here. And remember, we go live on YouTube every Wednesday, generally at five o'clock

p.m. Eastern, 2 o'clock Pacific. But Scott, what do you got on your radar as your first stock? And I'll share my screen right here. Yeah, if you don't mind pulling up a weekly chart of market search for ISRG, let's look at Intuitive Surgical. This is a stock I don't own. It's on my watch list. We do own Boston Scientific, but this is an area where it's so interesting. I mean, healthcare has been

the indexes have been demolished and these are near all time highs. So into, so why ISRG, um, very simply the, the funds are accumulating. So the, of the trillion dollars that I'm watching, they're accumulating. It has a forward earnings 2025 estimate greater than 10%. You can see the 14 there, the green line of market surge is climbing. Uh, it's robotic surgery. So, uh,

Uh, we definitely have a, an aging population. This they're looking for. I always think it's a funny phrase, like non-invasive surgery or it's minimally invasive, I think is, uh, yeah. So, so non-invasive is a little bit tougher to do, but minimally invasive. Okay. You know, if we can make our cuts smaller than, uh, okay. You know, that's, that's okay. And I should also mention, as you're mentioning the earnings line here, um,

It's got an earning stability of 10, you know, so remember, folks, that 10 or I should say it goes from one to ninety nine. The lower number means more stable. And you can kind of see that a little bit in that earnings line. It's not one that's all over the place. But I also wanted to just take a real quick pause because you did mention the ETFs and, you know, being in a

pretty severe downtrend. And I mean, if you just look at XLV, the healthcare sector, as you said, relative strength line just really down in the dumps. XBI, let me try that again. XBI, you know, that relative strength has really taken a dive in. I mean, last week it really suffered. So to your point, as much as, you know, dumpster fire is a lot of those look like, you do have some stocks that are just, they look so different.

Yeah, and I mean, this one just keeps climbing. And at this point, we're seeing fund accumulation. It's most people who are here have gains. I'd say the hardest part of being in a two-year bull market is that we're just not getting these bases at the moment. Things are climbing. And

This is what they're going after. So looking at, I mean, most of the IBD ratings are incredibly strong. An SMR of an A. It's EPS at 93. I'm not shocked by the funds they're buying.

And very simply, if we had some room in our availability of our portfolio, we would certainly go here. It's number 18 on our November billion-dollar fund manager report, so it's up. It's a really great ranked stock in our world, and it would not shock me to see this thing keep climbing. Yeah.

Very good. And, uh, what, what, what else you got on your radar? Yeah. Next I'll give you, this is one I barely understand, but I know what it is. So we'll do Carvana, CVNA. So Carvana is, uh, actually, and I do have a position in this myself. Uh, um, I I'll turn to you, Justin. So, um, uh,

buying online? Well, I'll be honest, a lot of this I did off the chart, you know, and then I did hear some folks talking about kind of the way that they were changing their business model. So we've had some articles on that. And again, I think I'm

I, along with a lot of people, looked at the downside move here and thought this was done. I thought it was going for bankruptcy. But what they've done in terms of the auction market is very different, and it's changed their business model. And you've seen that, again, it's –

That change has really kind of excited investors. So first it came from technicals, and then I saw something was going on, and that made me want to dig a little bit more into the fundamentals now. Of course, it still has some ways to go in terms of that stability. You can see a very different earnings line here than what you showed on ISRG, and it doesn't have an earning stability. It's so stable.

you know, from losses to, you know, profits and stuff like that. It's, it's, it's got some, it's got some stability to do before it even gets a number.

Yeah, it's all the way to the far left is consumer discretionary. So it has really strong forward earnings. The funds are buying. Not all of the large funds that we watch are in on this, but obviously the massively large double digit earnings. It's just an interesting company where

I I've driven by it a bunch of times in Denver where you see the cars all stacked up nice and they're doing most of their work online. The vending machine, right? Yeah. The vending, the vending machine, no clue how much that costs, but I mean, this is an example where I see funds buying and I have my own opinions of a kind of a car dealer like this. And then I look at the chart and I say, well, why couldn't it retest all time highs back in 2021? I mean, if, if the earnings are there,

And the fundamentals are drastically improving and their business models kind of changing to some extent. This is why the funds are buying. They're after something like a Carvana to add a little bit of extra beta in their portfolio. And, you know, just out of curiosity...

Again, I want to make sure that people understand that when you're looking at this data, and you did say, okay, it's 30 days delayed, but these funds are doing their buying over such a long period of time. 30 days, at the end of the day, it really doesn't deter from your success when you're kind of identifying that. How soon did this start coming on your radar with funds kind of

putting money back into it. Yeah, it's several, several months ago. There's a bunch of tickers, no different than sitting at Kava and eating it and not owning it. This is something where we go back three months and we kind of mathematically equate to a, we'll call it a super fund. So we take like the massively large number of share count and we're looking at that change.

uh, on a point to point basis. And we go back to roughly three months. So, uh, and then we're doing that volatility adjusted momentum calculations as well. So the answer to your question is Carvana has shown up and it's one of those things where you, you say to yourself, okay, well, um,

Being a two-year in a bull market, does one go for short-term and long-term uptrends that are a relative strength index low? Or do you go for kind of quasi-relative strength index high, like that volatility-adjusted momentum? And based upon an enormous amount of backtesting...

there is a little bit more advantage to strength begets strength, that this keeps going. And you wouldn't expect it. And you'd say at some point, this is going to have a hard landing. And you look at a stock like MicroStrategy or Bitcoin, and you're like, this is kind of... When people... Sometimes I do some interviews with members and I talk to clients all the time. And when clients start to calculate

forward returns. Like if this continues, then extrapolate the danger of extrapolation. This is where like, I'm not saying there's, this is how bubbles start. And I would say this is where I get a little bit more cautious and no one wants to say fear and greed, but there's a little bit of greed going on. And I, I just, I genuinely care about,

uh, uh, that IBD has delivered a lot to me over the years. And I genuinely care about listeners and newsletter members, advisory clients. And I just genuinely want it to be a smoother ride. And I think the answer is we've all been there where we've all either lost great money on, and it's painful and like you're stressed out and it impacts your life and you're checking your phone and it impacts your relationships or you've made great money and you've given way too much of it back. And then you overanalyze it and you get frozen and,

And my answer to that is there's no Holy grail. It's just polite rules that you can actually follow. And we have our little system and IBD has an amazing system. And the question is, is what I just don't want for investors is to buy and have no sell discipline because that's where you get absolutely squashed at some point. And at some point I have, this would be amazing. It goes up and it's tight to Bitcoin and Bitcoin in theory, it's,

It's a goal that you can't dig out of the ground anymore. It's just a finite thing. But at some point, this will come down at some point. And the question is, what's your plan? Yeah. And I'll be honest, I did have a smaller position in this that grew. And basically, I was up over 100% in a month. And I was like,

I'm good. You know, I can take that and, you know, maybe wait for a pullback and see if I... I still have some of my iBit, but, you know, this... I had iBit, I had this, you know, it was like, okay, I think I have a little bit too much. So I just wanted to scale back on that a little bit. Was this your third stock or did you have another one that you wanted to cover? Let's do one more. And full disclosure, I did not look at your holdings before this recording. Right.

GEV. So the spinoff world of General Electric and GE Verona. So...

Again, I'm sharing names that, in full disclosure, they're on my kind of really close watch list when capital is available. But no matter what administration, we're trying to get to a world of some version of different energy sources, more abundant energy sources. And this is another ticker where the funds are after. This chart is just booming. And sometimes there's just...

it can go a lot higher than you think. The earnings are there. The earnings line just keeps skyrocketing. And this is more of a spinoff versus like an IPO. But again, these are all, everything I'm sharing is short-term and long-term uptrends and

Some of these just won't give you a chance to get in. So having a tight stop on the short-term spectrum to just get in, and then you can always, in theory, lower your stop once you have cushion of gains. But very simply, they're in gas and hydro and nuclear and steam and wind, and they're everywhere. And their earnings are huge, and the funds are after this. So that's why it's on my radar. And it's number four. Carvana was number one. And I'm trying to...

Get the best merchandise I can. And who knows? Maybe the Mag 7 continues for way longer than we think because of indexing, or maybe there's some new guard coming.

Yeah, yeah. So and I think, you know, that's also one of the things where certainly a lot of these stocks that you've shown, as you said, if you subscribe to the strength begets strength model, then, you know, you're really just kind of looking for your opportunity on some of these because they've shown, hey, I'm the leader.

Now, you know, catch me if you can type thing. And whereas a lot of people, you know, will sometimes go for the things that have been beaten down. It's a harder game, you know, sometimes to find those things. You know, it's easier to see them after they've had their U-turn, after they've had the strength. But, you know, when they're in that process of going down, it's just you never know how far down they can go. So it's...

Yeah, I like your strength begets strength. So...

Scott, great having you on. Any final thoughts? Again, I really like your idea of FOMO, something that people don't get confused with FOMO, but that volatility and momentum, that combination, I think it's really important that people understand, look, if you're going to be in more volatile stocks, they've got to deserve it. They've got to kind of earn their keep by producing outsized returns. So final thoughts for you.

No, I hope, uh, uh, you listeners have a, an amazing holiday season. Thanksgiving, uh, follow trends, follow big money, follow risk management rules. So if you have time during the, to finite, to make concrete your rules, because, uh, at some point things will turn. So having, make sure that you don't give back most of your gains, uh, own great merchandise and thank you and your team for all you do. I'm a huge fan and, uh,

a user of IBD for years. So again, thank you for everything. And this has been fun. Yeah, it's always great having you on Scott. And one of these days, when I get out to Colorado, I'm, I keep on promising this to Kathy, but we'll have to just you, you me, Kathy, sit down and, you know, have have lunch at Kava, which I do have a position in that as well. So that's great.

Yeah, thanks a lot for coming on, Scott. And again, for folks that want more information at InvestWithRules, or you can find more information at InvestWithRules.com. Subscribe there for free and you can get a lot of that information and follow that big money, as Scott said. So thanks for being on. Thanks again.

That's going to wrap it up for us this week. Next week, we are going to have Nancy Tangler on the show. She's going to be a first-time guest here. She is a CIO of Laffler Tangler Investments. Now, we are doing something a little bit different. Because of the holiday, we're going to be having her come on the show a little bit early. So we're going to have that on Monday. So...

Part of that reason is because I'm going to be going to Hawaii to visit my daughter for Thanksgiving. She couldn't come out this year, so we're going to her. So that's our plan for next week. So we hope you join us for that. I'm really looking forward to the conversation with her. And thank you so much for joining us. Remember, you can usually get us here on Wednesdays at 10.

2 p.m. Pacific, 5 p.m. Eastern. We do hope that you like and subscribe to the show. It helps us out. Get those comments in there. Let us know if there's guests that you would like to see, things that you would like us to go into more. We would love to help you out in terms of answering questions that you are looking at. So thanks a lot for watching this week, and we will see you next week on Monday.

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