For the next interview in the StockTickr Interview Series (RSS feed), I spoke with Bruce Brotnov. If you’ve ever spent anytime on the Investor’s Business Daily online forums, you’ve probably run across Bruce. His thread called the Poorman’s Corner has over 500,000 posts and is by far the most popular thread on the site. In that thread you’ll notice Bruce’s forthright style and eagerness to lend a hand to beginning investors.
I asked Bruce why he named his investment service “Poormans” (a contrarian name if I’ve ever heard one 😉 ), how he picks stocks, and what indicators he can’t live without. Read on for the entire interview.
(By the way, Bruce recommends my favorite trading book of all time: Stan Weinstein’s Secrets for Profiting in Bull and Bear Markets. I’m pretty sure Stan is still around, although I’m having trouble tracking him down for an interview. If you can help me get in touch with him, please let me know.
StockTickr: Tell us a little about yourself, Bruce.
Bruce: My name is Bruce Brotnov and my wife and I returned to our native state of Idaho in 2000 to take care of aging moms. I received my Bachelors and Masters Degree at the University of Idaho and was commissioned into the Army as an Engineer Officer and was on active duty from 1970 to 1978, with the last assignment as an instructor at the US Military Academy at West Point, NY. I left the Army to attend Bible College and received at Theology Diploma and then a Masters of Divinity before returning to the Federal Government as a civil engineer and active in facility management of Government installations. My last assignment before taking an early out in late 1997 was the Engineer Manager for Defense Intelligence Agency (DIA) facilities. Since then I helped a friend start a Hedge Fund in South Carolina and then departed for the West Coast to be nearer family. I started the Poormans Investment Strategy newsletter in April 1996 and after moving to Idaho I added portfolio management for several individuals after becoming a Registered Investment Adviser in March 2001. I continue to provide a newletter over the internet and manage portfolios.
StockTickr: How did you get started investing in stocks?
Bruce: In 1987 my wife and I attended a dinner and session with USPA & IRA (or close) for investing and rather than go that route we went with mutual funds with Fidelity and just before the crash in October 1987. Following the crash I started researching and investing in individual stocks and learned a lot from the investment board on Prodigy and others from 1990 on.
StockTickr: Most investors have a horror story about losing their shirt when they first started trading. What’s yours?
Bruce: I started in the market in May of 1987 and then came the “market crash of 1987” and Joe Granville (leading voice at the time) said that the DOW at 1700 (down from 2500) was going to go to 1000. Thus, I learned the first lesson about buying high and selling low as I sold low and lost 25% while my brother in law started about the same time and just stayed put and he had all of his losses recovered by the end of 1987.
StockTickr: Do you trade for a living now?
Bruce: I am not a trader but intermediate term investor, but I focus mostly on helping others in the market and only check my own performance once a year at tax time. I have a pension and income from the newsletter and portfolio managment as most of the stock gains are in my IRA account.
StockTickr: What single lesson did you learn along the way that has helped you the most in your trading?
Bruce: I learned that I wasn’t a trader, but an investor and such needed to find stocks that met criteria for fundamentals along with technical analysis (TA + FA). Thus, the greatest lesson was probably patience and depend on stocks getting recognized for their worth.
StockTickr: Describe your style of investing. How long do you typically hold stocks?
Bruce: I am an intermediate term investor and typically hold 2 weeks to 6 months and probably 3-4 months on average. I assume I will always hold at least 2 weeks unless the stock quickly hits fair value or I find I have made a mistake. I tend to follow Peter Lynch style of holding a stock as long as the fundamentals remain solid. As such I also allow a stock to drop 25% or more if fundamentals are sound. He said any good stock can fall 25% and still be a good stock. I have maintained the same style since 1996 and the 1 year model averages are 52.2% per year, which also the same result for the last 7 years as posted on my web site.
StockTickr: Most traders do fine with entry points, but everything falls apart with their exit strategy. What’s your exit strategy for winning and losing trades?
Bruce: As I said above, I tend to hold a stock until it hits a fair value or until it breaks down fundamentally or technically. I also like an old Street strategy of selling half a position when a stock has doubled and thus recoup the original principle. Selling is my toughest area as I tend to hold too long.
StockTickr: What 3 books do you recommend traders read?
- Stan Weinstein – Secrets for Profiting in Bull and Bear Markets
- William O’Neil – How to make Money in Stocks
- Bulkowski – Encyclopedia of Chart Patterns
StockTickr: What % of your portfolio do you risk with each trade?
Bruce: I seldom have more than 5% in any one stock and rarely hit as high as 10%. I had MFLX from under 10 and with it running up 550%, I had to keep selliing positions to keep it under 10%.
StockTickr: What technical indicators could you not live without?
Bruce: Wilder RSI followed by Day Moving Averages (Simple)
StockTickr: What type of charts do you use? Line, bar, candlestick, etc?
Bruce: Daily Graphs – line charts and Telescan bar charts with candlestick indicators.
StockTickr: How do you think the market has changed over the last several years? How have you adapted?
Bruce: With the advent of 8000 hedge funds and 40% of the trading by day traders, the market changes are much faster. I keep a closer eye on the charts as I didn’t have chart access until 1996.
StockTickr: What advice can you offer investors who are just starting out?
Bruce: I am an advocate of paper trading as I was told that 4 of 5 new investors lose for the first 5 years and I proved them right. Now there is more information available and perhaps learning curve is faster as I had to learn on my own by trial and error.
StockTickr: What do you like best about investing?
Bruce: I love a positive market and being able to help others in a way I wish I could have been helped. My Poormans Corner thread on IBD forum has just rolled through 500,000 hits this past weekend. I don’t like manipulation by hedge funds nor a FED who ignore the market and are following the same blind path as they did in 2000 before the last 2 1/2 year recession.
StockTickr: Why the name Poormans?
Bruce: I had a thread on Prodigy money board in the early 90s where we shared investment information and mine was called “Poormans CANSLIM”. The reason was that I couldn’t afford a chart program at the time as I found out my rating system that I had developed was similar to CANSLIM. I could find fundamentally sound stocks but didn’t have charts to help with timing. Thus in 1996 when some suggested I start a newsletter, I used the thread name but dropped the CANSLIM (IBD trademark).
StockTickr: Do you ever short stocks?
Bruce: One time in 1998 when I shorted BBY in a down market and it went up 4 points. I know how to short but have not shorted stocks since.
StockTickr: In general, what sort of fundamental criteria must a stock meet to show up on your radar? And then what technical criteria do you look for to enter a trade?
Bruce: I go through all positive earnings reports everyday as listed in a certain financial newspaper (they don’t allow me to mention them) and look for ideal growth of 40% per year and then I made some exceptions. My rule of thumb is a $10 stock should have 0.10 in earnings for the most recent quarter in addition to comparison to the 40% growth over the prior year quarter. The stocks (5-10% of the universe of 8000+) go onto a watch list, which is reviewed regularly. Once I see a stock chart that looks attractive, then I look closer for additional funadamentals before entering into database of 100 favorite stocks.
For trading then my technical criteria comes down to stocks (80% with rating of 6 or higher on 12 point scale) that have already met fundamental criteria and that are bouncing off a base and breaking a down trend (probably most frequent buy). A base might be a simple day moving average or a lower up trend line, but with an eye on the general market trend and its relation to supports such as 50 DMA. Secondly I like a buy of stocks that have been below 50 RSI (Wilder) and have just come above 50 RSI and meet some other technical criteria such as 9 DMA crossing up through 50 DMA. I also like to see increased volume, but may not be the case in a pullback buy as confidence is slowly being restored. In summary I watch: DMAs, Wilder RSI, Volume and specific chart patterns with favorite being high tight flag.
StockTickr: Thanks, Bruce.
Stay tuned – there are several interviews on the way. You can subscribe to these interviews via RSS feed.
- Eric Cahoon
- Ugly from Uglychart.com
- Alan Farley
- Declan Fallon
- Smita Sadana
- Bill Cara
- Van K. Tharp – Free autographed copies of Van’s book still available! Get yours now!
- Brett Steenbarger
- Eyal Maoz
- Gary B. Smith, the Chartman
- Nusair Bawla (alibawla on StockTickr)
- Dave Landry, Swing Trader
- Jeff White, the Stock Bandit
Do you have suggestions for other traders you’d like to see an interview with? Let us know!