Specific Entry Point Analysis: The SEPA Strategy
Mark has used his three decades of experience and study, and refined and retooled that information into Specific Entry Point Analysis or SEPA. He studied what makes a stock price move up drastically to join the special circle of super performers. There are three empowering points which convinced him:
1. To buy a stock there is a right time and a wrong time.
2. Stocks with super performance capability can be identified before they dramatically increase in price.
3. By correctly investing in these stocks, it is possible to turn a small capital into a fortune in a fairly short period.
Mark constructed a blueprint of the characteristics shared by super performance stocks and called it a Leadership Profile. It helped him to identify in detail the qualities and traits of the most successful stocks of the past to discern the cause of its outperformance in future. It focuses not just on the price magnitude but also on the time element.
While filtering the database, he compared each stock to how well it fitted the optimal Leadership Profile and ranked it accordingly. This would result in a surprising increase in the possibility of finding the next super performer.
The purpose of SEPA is to take all the relevant data available and pinpoint the exact spot to enter a high-probability trade in terms of risk versus reward. It combines the corporate fundamentals along with the technical behaviour of a stock.
The primary characteristics are broken down into five major categories:
- Trend-. Almost every super performance phase occurred while the stock was in a distinct price uptrend. In nearly every case, the trend was identifiable early in the super performance advance.
- Fundamentals- Most super performance stages are propelled by an improvement in earnings, revenue, and margins. This typically occurs before the onset of the super performance phase. In most cases, earnings and sales can be measured earlier.
- Catalyst- Every stock that makes a tremendous gain has a catalyst behind it. The catalyst may not always be noticeable casually but a little work on the company’s story could lead you to a potential super performer stock.
- Entry point- Most super performance stocks give one or multiple opportunities to detect a rapid rise at a low-risk entry point. Clocking the entry point is crucial. Incorrect timing can lead to big losses and vice versa.
- Exit points- It is not necessary for all stocks with super performance characteristics to result in profits, even if the entry time is correct. Hence, defining stop-loss points is important to move out of a losing position. Contrarily, at some point, a stock must be sold to achieve a profit.
Mark developed SEPA to recognize an exact point to place a trade for lowest risk and the highest reward. His goal is to buy a stock and be at a profit instantly. To accomplish this, he considers all the appropriate fundamental, technical, and market factors and pinpoints the position at which there is a valid convergence.
He wants to see these factors merge like four cars coming at the same time at a four-way crossroad. The SEPA method accumulates supporting likelihoods to produce that alignment.
Normally, a super performance phase prevails when a stock is relatively new, for example, during the first 10 years after the IPO.
Most companies experience the high-growth phase when they’re relatively small. As they grow older and more refined, their growth starts to stall, along with the appreciation rate of their stock prices.
Often, small-cap companies are the super performers. However, it’s important to confirm that they’re already beneficial. Look out for stocks with a fairly small total market capitalization. Ceteris paribus, a small-cap company will have more potential to appreciate than a large-cap, based on the stock supply available. It will take lower demand to move the small-cap stock than a large-cap stock.
A simple conduction of quantitative analysis will serve better than a complicated one. You must not put too much into each screen. Otherwise, you may involuntarily eliminate good prospects that meet all your criteria except for one.
A better approach to be successful is to run separate screens with smaller lists of compatible criteria, the correct understanding, good work conduct and discipline. To succeed, you have to finalize an approach that suits you and must commit to refine and improve the understanding and execution of the same. It requires time and dedication, but the goal should be to become a specialist in your approach.