Good companies at great prices.
I’m no stranger to the difficulties of trading. It took me longer than I’d like to admit to “figure it out” and finally turn the corner. And like most traders, I tried just about everything along the way.
Shorting parabolic small caps.
Buying parabolic small caps.
Buying into halts, shorting into halts.
Drawing on charts like a madman.
Trading the “opening drive.”
Trading earnings on day 1.
Trading earnings on day 2.
Trading breaking news.
I really tried it all.
But the breakthrough didn’t come from chasing the hottest setups or mastering some complicated technical pattern. It came when I started buying good companies at great prices.
I noticed something important when I looked around. The top hedge funds in their shareholder letters were focused on this. The most sought-after prop traders, the ones sitting in the office next to me in both NYC and ATX, were making the bulk of their money here too.
They weren’t chasing garbage tickers. They were buying real companies that had gotten cheap… really cheap!
And the beautiful part? This style of trading isn’t as hard as people make it out to be.
Here’s one framework I use to surface these opportunities: stocks that trade a few million shares a day, have more cash than debt, are listed in the U.S., avoid Biotech, Healthcare, Commodities, and Real Estate, carry at least a $300 million market cap, and are down 30% or more year-to-date.
That’s it. A good starting point. (the big opp on $UNH in August populated on this filter)
From there, I dig in, read about the business, understand the fundamentals, and wait patiently for setups.
Personally, I like to see range expansion, the stock finally moving in a meaningful way (speeding up on the final couple of days), and volume expansion, a clear sign that some are capitulating, but the very best are buying a bunch!
Am I often early? Sure. Do I always nail the bottom? Absolutely not. But that’s the beauty of buying good companies at great prices. You don’t have to be perfect. You just have to skew the odds and asymmetry of the trade in your favor.
If you’ve been grinding away at trading and feel stuck, here’s my advice: take a step back. Do less. Focus on quality over quantity. Focus on good companies at great prices.
It’s how Warren Buffett built Berkshire. How Nick Sleep became one of the very best. How Bill Ackman found his winners like Chipotle after the E-coli debacle. And it’s how firm traders I respect, guys like Shark, Swang, Max, and many others, make a large portion of their money.
Sometimes the simplest framework is also the most powerful.
Take a step back from all the witchcraft and just focus on good companies at great prices.
It’s a hell of a lot more fun too.
These opportunities are endlessly scalable, incredibly forgiving, packed with huge asymmetry, and they’re the kind of trades you’ll brag about for years at dinner. ;)
Cheers,
Kyle Vallans
Founder, SaveOnTrading
P.S. The screener I used above is one of my absolute favorites: Stock Analysis.
