QUESTION – Thank you for taking the time to participate in the Q & A session. Before we start in detail. Would you like to share with everyone who may not know, who you are, what you do, where you live, work or trade at?
KATHY: Hi! My name is Kathy Donnelly, and I am a proprietary equity investor. I currently live in Denver, Colorado with my husband, and pup Jolie. Prior to trading stocks full-time, I worked in the Oil & Gas industry as an Environmental Engineer. I consider myself a long-term growth investor. I like to find top growth stocks that will hopefully run 1 to 11/2 years and go up several hundred percent! That’s the goal anyway. Ha, ha. I also run a local IBD Meetup to help others learn the CAN SLIM® system developed by William O’Neil, a legendary trader and one of my mentors.
In my spare time, I have dedicated the last couple of years training for Ironman events. My next event is coming up in June. My goal is to become a two-time Ironman 140.6 finisher. And to balance that out, I also enjoy CrossFit and hiking!
QUESTION – We also understand you just presented at the recent Annual Chart Summit in Colorado. Can you explain to our audience what exactly this conference is and what your presentation was on (as we understand you are also a noted author?)
KATHY: I was honored to recently present at Chart Summit 2019 hosted by Brian Shannon with AlphaTrends and JC Parets with All Star Charts and presented by StockTwits. Chart Summit is a live conference on technical analysis with the goal to learn, interact, profit, and have fun! I presented research findings from a recently published book I coauthored: The Lifecycle Trade-How to Win at Trading IPOs and Super Growth Stocks. (www.thelifecycletrade.com)
My goal was to share key findings we discovered after a three-year study of initial public offerings (IPOs). Fun fact: I met my coauthors, Eve Boboch, Eric Krull, and Kurt Daill at a local IBD Meetup in 2006. I was only beginning to learn about growth stock investing. Eve, Eric, and Kurt were essentially my mentors. I immersed myself in my stock market education by attending Investor’s Business Daily events in addition to the local meetup. We all became good friends and now, we can also call ourselves fellow coauthors.
Now back to your question :-), in our study we were able to uncover unique insights into the behavior of Super Growth Stocks starting with their IPOs. We identified phases that stocks go through from their IPO to a mature stock, and within those phases, the patterns each stock creates as well. It’s kind of like art. We let these phases and patterns jump out at us. Because we are all very rule-based traders, we also felt it was important to include buy and sell rules in our book as well. What I think makes our book unique is that we tailor the buy and sell rules accordingly and how you can use them in the different phases and patterns. Additionally, we help with trade and risk management and share our personal good and bad trades. I did my best to present these core concepts at the Chart Summit.
QUESTION – What failure or setback both professionally and personally have you experienced that has set you up for later success?
KATHY: When I first started trading, I did not have a system. I tried different methods and inevitably lost money. It wasn’t until I discovered the William O’Neil book How to Make Money in Stocks that I was able to employ a method that finally started to make money. However, it took me a long time to truly be successful. Even with my new found knowledge, I did not stick to the rules. I chased stocks past buy points and made up reasons why it was okay. I took big losses because I thought the stock would come back as quickly as it went down. One big lesson was when I purchased shares of Intercontinental Exchange (ICE). I bought it and sold it several times all the way to the top and realized after doing a post analysis that I only had a very small gain when I thought I had done much better. Or I would do a post analysis of a big winner for the year that I purchased and thought I had made money on, and found I actually didn’t make any profits. These lessons learned were some of the pivotal insights that really set me straight to stick to my rules. Post-analysis is a key task I perform on all stocks that I buy. It helps keep me fresh and allows me to tweak my rules or test new rules as my trading experience continues to grow. In my opinion, it is imperative to have and follow a rules-based system.
QUESTION – You come across as very humble, honest and ethical in your approach to trading & IPO’s. Can you explain briefly your journey as a trader from the beginning to today.
KATHY: Thank you. I was lucky that my parents were investors and instilled in me the importance of investing for retirement. They were value investors. When I started researching what value investing was like, I determined that it was not the system for me. Mainly because I wanted to retire early! This is when I started reading many different books on investing. Finally, when I came across How to Make Money in Stocks, I found a system that clicked with my personality and skillset. My degree is in engineering, and I liked the rules and fact-based system. Even after my successes, I always consider myself a student of the market, still learning and re-learning. Reviewing the rules and hearing new ideas from others at stock meetups help me to stay humble and constantly hone my skills. This is why I attend at least two meetups and sometimes three meetups a month. My coauthors Eric Krull and Kurt Daill run an online meetup called Pilot Investors Group; I run a local meetup in Denver; and, a good friend runs one in Fort Collins.
QUESTION- How would you describe what makes a successful Trader or Investor, especially within the IPO space – keeping in mind that it has been reported that 90% of traders fail.
KATHY: Discipline is key to becoming a successful trader for the long haul. I like using the definition of discipline and modifying it for trading as the practice of obeying one’s trading rules and trading plan. It can’t be whimsical. Whatever process a trader has they must follow and follow well. It’s important to learn from mistakes, and tweak rules as necessary by conducting a post analysis. For IPOs, it is even more important since new issues can be volatile and often do not have great fundamentals. Having rules that tell a trader when to sell the stock is just as important, if not more, as having rules to buy the stock. With hot IPOs investors frequently get caught up in the fanfare and allure of a new company becoming public because they may have used the product and think it is great. In the past, I have been caught up in that too, until we did the study. Based on our statistics, we now know that there is no reason to buy a stock on the first day it trades. And unless it forms an IPO base, there is no reason to trade it. I prefer to wait for the Institutional Advance Phase that we talk about in our book. This phase usually doesn’t start until almost a year or more after the IPO date, but if a proper pattern forms, it’s the less volatile and hopefully, most rewarding phase of the stock advance.
QUESTION: What is the role in having a balance all around life in your day to day activities? Outside of trading, what hobbies do you enjoy?
KATHY: Life balance is very important to me. I mentioned that I have a long-term trading style. I don’t day trade unless the stock I bought quickly reverses, and I have to sell to cut losses. I like to keep occupied by training for the Ironman in the mornings. I keep tabs on the market via alerts from my iPhone. This allows me to be very flexible with my day and not be tied to the computer screen. I feel there is a lot of noise during the day that can mess with my emotions and possibly cause me to make trades based on intraday wiggles vs. rules. I prefer to let the weekly charts tell me something is wrong instead of having a predisposed thought that tempts me to not follow my rules. Luckily, as a proprietary trader, I can set my own hours which allows me to have this lifestyle. I do most of my research after the market closes with longer days of screening and chart reviews on Monday and Friday to wrap up and prepare for the week.
QUESTION – What advice would you give to your younger self?
KATHY: That is a tough question! I would tell myself that life is hard. No one ever told me life would be hard. You have to be prepared for anything and everything. Patience and perseverance is key and never give up on your dreams!
QUESTION – What good & bad advice do you hear often in trading and life?
KATHY: The best advice I ever learned was from William O’Neil. After attending several of his IBD seminars over the years, Bill said something to me that clicked more than anything else. He said that you don’t have to sell a stock when it goes below the 10-week moving average line unless it does so on huge volume. The first week a stock closes below the line is a key week. What’s interesting is that I had heard him say that at the very first seminar I ever went to, but it didn’t sink in until many years later. That bit of advice coupled with the famous quote by Jesse Livermore “It never was my thinking that made the big money for me. It always was my sitting” has shaped my trading life the most.
I try to always be a positive person and information that could be construed as bad advice might not be bad advice for someone else. I guess the only thing I will say is what I said earlier about IPOs. Don’t buy on Day 1. 91% of IPOs will undercut their Day 1 low, so don’t think you can get rich quick buying an IPO on Day 1. I think there is a lot of hoopla trying to convince the general public they should, and in my opinion, that is bad advice.
QUESTION – What are your favorite books to read and why (besides your own)?
KATHY: Besides How to Make Money in Stocks by William O’Neil, I really like Nicholas Darvas’ book How I Made $2M in the Stock Market. This book was such a fun read. I loved that he was a dancer by day and trader by night, so to speak. I guess it appealed to me because that is the lifestyle I wanted to lead and now, grateful to say, that I do. I can dance, train for my Ironman, go hiking, be there for my family, help others, and many other things by day, and plan for my trades at night.
QUESTION – When you have lost your mojo or focus, what do you do to get back on track?
KATHY: Sleep and meditate! When I start to lose focus or get off track, it’s almost always due to lack of sleep or missing my daily meditations. This always brings me back. When I was in college, I was always sleep deprived. I did not know what it meant to be well-rested. And now, training for an Ironman, I need even more sleep!
Regarding meditation, I’ve been doing that for a few years now. Every now and then I go on a stock market retreat with my coauthor Eve Boboch to hone our trading skills. One year the focus was on meditation. After the retreat, I made it a habit to meditate and it has made a huge improvement not only in my trading, but also in my quality of life. I highly recommend it.
QUESTION – If you could have a big billboard with your favorite saying or message on it, what would it be?