Veteran trader, IPO expert and author, Kathy Donnelly, joins Yahoo Finance's Jared Blikre to explore trading methods and tactics for timing the volatile world of stocks with explosive growth potential — tackling common IPO misconceptions and exploring trading opportunities based on back-tested strategies while leveraging the actionable insights of Yahoo Finance Premium. Not a subscriber? Start your free trial to join future webinars live!

Video Transcript

[MUSIC PLAYING]

JARED BLIKRE: Thanks everyone for joining us for another Yahoo Finance Premium webinar-- trading IPOs and super growth stocks. I'm Jared Blikre.

It was only a few months ago, the COVID sell-off just about shut down the US IPO market. But it has come roaring back. And we've got a lot of vintage 2019 IPOs that are now market darlings, household names. And you know them-- Peloton, Zoom Video.

We also have direct listings and a slew of SPACs that are coming to market. We're going to tell you what those are about and explain exactly how to trade those. Sometimes they're a little bit different.

And to help with all of this, we're going to be joined soon by Kathy Donnelly. She's a proprietary equities trader and also co-author of "The Lifecycle Trade," which lends its name to this webinar. She's gone back to 1982 to analyze all of the biggest IPOs, and she's going to share her findings with us and some custom stats stuff you're not going to see anywhere else.

You can also join in the discussion. And we're going to talk about that in a second, exactly how you can do that. Just want to let you know, we're also going to be demonstrating our premium service-- how you can use it to find stocks, both going up and down, shorts and longs, how you can use it to analyze your portfolio and fine tune it.

And before we get started for real, just some housekeeping notes on the webinar software that we're using, which is Blue Jeans. It's a secure video conferencing platform, which is now part of Verizon.

And we're going to be running polls-- lots of polls-- for the next 45 minutes. And you can find these at the right hand tab on your screen. There you can also post questions at any time, using that same tab at the right. Feel free to use your real name. You can also post them anonymously.

Then finally, at the bottom left you have a slider, so you have some viewing options. The slider can resize the presenting screen, as well as the guest and host video boxes.

So let's get started. And we're going to get started with a poll. I want to know, "when was the last time you bought a stock during its first year of trading?" Was it this year-- in 2020-- last year, or before 2019, or never, maybe? Again, you can use the right-hand tab to answer that poll. And we're going to get to those results in just a minute.

But now I want to bring in Kathy Donnelly. Thank you for joining us here.

KATHY DONNELLY: Thanks, Jared. It's a pleasure to be here.

JARED BLIKRE: Yeah, it's great to see you. And we've got a lot to get to. So why don't you bring us through the life cycle phases that you have developed and outlined in your book? Because I know that you've done a ton of research-- and this is what really impressed me-- you've got stats to back it up. This is 100% scientific. So what is your method?

KATHY DONNELLY: Yeah, exactly. Well, when we first started looking into this, we wanted to see if there was a way we could pinpoint what is it that will make an IPO be a big leader, be a super growth stock. And so we just went into the database, like you said, back into 1982, and just looked at all the stocks that had come out, and really tried to pinpoint what those characteristics were.

And so basically what we did is we were able to identify phases. When the IPO first comes out, usually there's a phase. It's either going to go up or it's going to go down. And then there's a period of time where it really doesn't do anything. We call that the institution of due diligence phase. And that can take six months to a year.

And then right about at the end of that phase, which can be even longer than a year, there'll be a first mature phase that'll come out. And then that's the phase we want to look for. Because that'll usually be the start of the last phase-- the advance phase. And that phase is the phase where you really have the most-- hopefully, the most rewarding part of the stock run.

Now the stock has to have the fundamentals and the revenue, for sure. We definitely want to see those things, too-- and most especially with IPO's revenue, because sometimes they won't have those earnings yet. But you want to see that sponsorship, that accumulation, which powers that advance phase, and can really be one of the rewarding times of that stock.

JARED BLIKRE: Yeah, everybody's looking for that first pop, 100% gains. That seems to be a common theme, everybody's looking for that.

I just want to go over some of the stats. We have, actually, a table that you have compiled on IPOs gaining 100%. Now in your book, you did the research from 1982 to 2017. But you've also just gone and done an update and there's some surprising findings here. What do you-- what did you look at?

KATHY DONNELLY: Yeah, we definitely saw that the IPOs from last year to-- then this data was through July 24, so just through two weeks ago-- we're actually doing better than what we found from 1982 to 2017. And we've been running the numbers since 2017, as well, where we've seen that the numbers have come out to be that IPOs are acting normal. But we're definitely seeing them a little bit better than normal.

And I think we have to account for that with this great bull market that we're having. I mean, we went down 30%, 40%, and now we've just powered up. And this is clearly showing that we've got a strong rally. The first year of a [? bull ?] market rally is always the strongest, and so our numbers for our IPOs are showing that as well.

JARED BLIKRE: All right. Oh, I want to get to some tickers here. We have the top five IPOs of 2019 and 2020-- GSX Techedu, Biotech, Karuna Therapeutics, Palomar Holdings, Zoom Video. Zoom is really getting a lot of attention.

And I also want to mention that we've got Fastly and Livongo Health, those rounded out the top 10. But we're looking at the top five here.

Let's take a look at some of these tickers. In fact, you were just talking about Fastly before we started here. So I'm going to share my screen and everybody at home can look over my shoulder. Here we go.

So here's Fastly. What are you seeing here? This goes all the way back to the IPO in May of last year.

KATHY DONNELLY: Yeah, Fastly has just been amazing stock. And you see there, right where you have your little crosshairs, and that's when it first came out. And it really had-- it went down. So it was what we call a pump and dump.

So soon after its IPO went down, it created that due diligence phase, basically where you have your cursor now. And then it started its initial-- oh, I'm sorry-- this must be a daily chart.

JARED BLIKRE: Oh, let's change it to a weekly.

KATHY DONNELLY: Yeah, please. Sorry about that.

JARED BLIKRE: There we go.

KATHY DONNELLY: There we go. Yeah, there we go. So, still, you have the pump and dump pattern, which is usually right when an IPO comes out. It just goes down. It doesn't even go up at all. And it created that nice little due diligence phase, about a year long.

And then you see that big green candlestick, where it started to come up. And that was the-- oh gosh-- yeah--

[LAUGHS]

JARED BLIKRE: That's OK.

KATHY DONNELLY: I apologize.

JARED BLIKRE: We're all using different charting systems here.

KATHY DONNELLY: It's a different chart than I'm used to, apologies.

Yeah, so you had that initial due diligence there phase. Then you came up all the way to where it started its run, and that was the turbulence phase. So if you want to show where it came-- yeah, right there, where it got back to prior highs, and then it shot out.

So right there, right where it was coming off that bottom, was where we had the start of that advance phase. Now, you don't know for sure if it's really going to work until it gets past that turbulence zone. But as you can see, once it cleared that resistance, it was all the way up from there.

So this is a great model stock so far of what we call a super growth stock. It's already gained 100% or more, and hopefully it's going to keep going. We'll see. But we've got the market behind it.

And it's no surprise that this is one of the leaders in 2020, because it came out in 2019, it had time for institutions to research this, figure out what it's about. And it's got the story. It's got the cloud story. People working from home, they need this product.

JARED BLIKRE: Yeah, those clouds stories definitely powering a lot of stocks right now. And I just want to point out this line-- this indicator line-- is anchored VWAP. This is a feature available for free on our Yahoo Finance charts.

And one thing I like to do is when we have this big gap up, like this, is to put an anchored VWAP on there. It shows the average volume weighted price beginning at a certain period of time. So at this psychological moment, probably an earnings release, I'm guessing.

This tends to capture price action. It tends to be support or resistance. And we can see it was initially here. And we haven't come back and tested the line yet, but we'll do some more with technical analysis in a bit.

I just want to tell the audience, feel free to ask questions. You can do so on the right-hand tab where you were weighing in with your poll. And speaking of polls, let's get the first one here-- the results of the first one. So we have-- I've traded a new stock, select all that apply.

Well, it looks like this is a little bit of a different poll. But the winner is "I've never traded a new stock within its first year," that's 28%. And then 21% of you said "within its first year," 11% said "within three months," 20% one month, and 20% on day one. Pretty interesting there.

Well, before I go on, I want to add-- I want to get another poll in. And this is going to be poll number six, guys-- Nick and Mike-- "what percent of IPOs increased 100% in their first year?" Is it 10%, 20%, 50%, or 80%? All right.

KATHY DONNELLY: Well, I want to say, it sounds like you've got some savvy viewers. 28% [? thinking, ?] at least for the first year, not buying an IPO was really great.

JARED BLIKRE: Yeah, we haven't-- we haven't released the results just yet.

KATHY DONNELLY: Oh, sorry.

[LAUGHS]

JARED BLIKRE: That's OK. It's similar wording to the first poll. I didn't want to give away the answer there. But that's fine. I want to get to some audience questions.

Here we have from Ash in the audience, "is a tech rally a bubble when earnings are looking good?" I'm going to say bubbles are kind of defined by price action. And a lot of times, you hear the phrase disconnected, especially when the market becomes disconnected from fundamentals, which I think just about everybody believes it has done over the last few months.

You know, fundamentals are a useful tool. It's not my principal tool, but generally, over the very long term-- over years-- you want them to match up. For jumping in and out of stocks in days, weeks, even months, it can be difficult to use earnings for that. But I'll also throw it to you, Kathy, how do you use earnings, and can they signify a bubble?

KATHY DONNELLY: Well I mean, earnings is what fuels the stock higher. You can buy a stock on a technical pattern. But I think what really keeps a stock going year after year is solid earnings.

For sure it can start a bubble, it could end a bubble, but at the end of the day, I think if you're just watching the stock chart pattern, you'll know when that run is over. So bubble or not, you just need to watch what that stock is doing.

JARED BLIKRE: Gotcha. Here's another question from Lucas, "is there any particular strategy one could employ around the time that lockup restrictions expire?"

Which is a good point, because that's the day when insiders who got in at the IPO price, or who are actually in the company, they can dump their shares. And a lot of times, you will see some selling on those days. So any strategies around there, Kathy?

KATHY DONNELLY: Yeah, that's a great question. And I think that's why the IPO advanced phase that we talk about when a stock has its initial run, usually it's short lived. It's 90 to 120 days. And you could say that that could be in line with when they have those secondaries, or the lockup period ends.

And so that's why I think it's just important to remember that that IPO advanced phase is not going to last a long time. So you need to be ready, you need to be aware of those dates, and then wait out that due diligence phase for when it sets up again, months later.

JARED BLIKRE: Yeah. Well, I want to move on now to some of the lifecycle patterns that you have identified and names coined. And pretty simple definitions, but I found them very helpful to figure out where a stock is within its phase. Can you go over some of those?

KATHY DONNELLY: Yeah, absolutely. The late bloomer, I feel, is one of the more popular patterns. And basically that's an IPO that has an initial IPO base, and then it has a little bit of a run up, maybe 20%, maybe 50%, and maybe even 100% or more. But then it comes back down, and it consolidates, and has that due diligence phase we talked about. And then the thing-- the key to look for there is that first mature base that is built within that due diligence phase, which starts the last one.

The pump and dump-- I mean, Facebook is the classic pump and dump. I'm sure everybody probably remembers, day one it went down, day two it went down, day three, day four. It went down for a long time. So it kind of made a bottom and created that due diligence phase. So you definitely don't want to be buying that one on day one if you're a long investor looking for capital appreciation.

Stair stepper-- Google is a great example of a stair stepper, because it made that initial base, it went up, based again, it went up, and it just stair stepped itself all the way up. So that's a great one.

The rocket ship-- it looks like we have some rocket ships going right now with some of these SPACs. We'll see. They could also be one hit wonders. But those are those ones that are shooting up 100% or more, and they're either going to come back or they're not going to come back. To be determined on some of those SPACs.

And then the disappointments are just the ones that never do anything. I mean, 28% of the IPOs really aren't even liquid enough. We'll probably talk about that a little bit more later. And 11% of them don't even ever make-- make their best high in just a few weeks, and then they never make a new high again.

JARED BLIKRE: I think the bottom line is you have time. You don't have to start on day one.

KATHY DONNELLY: You have time.

JARED BLIKRE: We all have time here. I want to get to a few--

KATHY DONNELLY: Patience is a virtue.

[CHUCKLES]

JARED BLIKRE: Yes, it is.

I want to go over Tesla. This is a slide from your book, actually, that shows the different phases. And maybe you can just kind of walk us through it here.

KATHY DONNELLY: Yeah, this is-- we really highlighted Tesla's as the model lifecycle trade stock. And this is the late bloomer pattern I was talking about. It had that IPO base in the beginning, an initial run up, and created that turbulence zone that we were talking about when we were talking about Fastly.

And that was that due diligence phase, where it really didn't do much. We abbreviated here [? IDDP. ?] And then it created that first mature base, broke out, and had that really great, great run there, institutional advance phase, that I think a lot of people played.

Now we've got some other graphics here on this chart, because we coined in the book different rules that you can use to trade it. And what's really great about it, I think, is that you can pick the rule that works your personality, whether you're a long term holder and you can withstand some draw-downs like myself, or maybe you just want to-- don't want to withstand those draw-downs and just take the gains when you have them. And so we have rules for that, too.

JARED BLIKRE: Yeah. Rules, and rules, and rules, which are really good. That's another point I just want to hammer home. This is what a trading system looks like. This is what you want to have is defined rules for entry, exit, money management. So when things get hairy-- and they will-- then you don't have to panic and figure out what to do next.

Just a quick audience question here on Tesla-- "is it going to join the S&P 500?" I'll take this. You need four quarters of profit. It's done that. We'll have to see what happens in the next quarter, but they've got the market cap. I think they've got to be $5 or $6 billion, and Tesla's, what, $300 something?

Just an incredible run that Tesla's had. So, yeah, I expect Tesla to join the S&P 500 sometime, not necessarily imminently. But these guys meet about once a month, so it could happen pretty soon.

Also got a question here for you, Kathy. "What is your trading timeframe, position or swing?" I see you have different rules in your book, and people can kind of mix and match them. So is it good for both the shorter term traders and the longer term?

KATHY DONNELLY: Yeah, we have rules for the short term traders and for the long term traders. And the question regarding my particular stock style, I'm a long term.

So the 40-Week Rule that we talk about in the book, that was actually a rule that I designed and we tested. And it was mainly because I like to buy that stock at that first mature base, and then hold it until it breaks the 40 week line. So that's the rule I like. The draw-downs, I mean, they can be enlarged, but ultimately it's the biggest percent gain of all the rules that we tested.

But if you're a short term trader and you don't like a lot of draw-downs, you might prefer the Ascender Rule or the Everest Rule. The Ascender Rule has some triggers where you can take some profits at the [? 21, ?] and then you take some profits at the 50, and then the last bit you can hold on for a bigger run. And that's a good one.

Or if you don't even want to do that, you can do the Everest Rule. And that one is just always looking two days back. And that's really for those parabolic moves. That's for those ones we were looking at really shooting up IPO advance phases, or some of these SPACs that are moving straight up. That's the rule you want to look into for those type of trades.

JARED BLIKRE: Gotcha. Well, we're going to read the results of our last poll there, which is "what percent of IPOs increased 100% in their first year?" Is it 10%? Well, that's not the right answer, but that was the most popular at 43%.

The right answer is 20%, which 39% of you got, so just about 2/5ths of you. And then at the 50% answer, 14% guessed that, and 80%, 4% of you guessed that. So the correct answer is 20%, right there.

And let's move on to our next poll. And that is going to be-- I just want to get a feel for some of your experience out there-- so, "how long have you been trading?" Is it one year or less, is it one to three years, three to 10 years, or 10 years or more? And you just take a few minutes answer that while we move on here.

And right now, I'm just-- I want to highlight some of the features of Yahoo Finance Premium. So give me a second, and I'm going to share my screen. There we go.

Well, when you log on to our premium page, this is what you see in the dashboard. And I'm going to go over this kind of quickly. We spent some more time over this page-- on this page in the last webinar. But pretty useful.

You have your portfolio, which you can put in manually. I just put in a watch list, but you can automatically upload or interface with your brokerage accounts. And this gives you a lot of flexibility. It will track your portfolio performance over time, with all your position changes and everything.

And then for insights, right here, we have a number of different tools to give you some insights into your portfolio, from valuation-- are the stocks overvalued, undervalued, are you-- what's your level of diversification.

So you can see right here it says, 59% of the stocks are exposed to the communication services sector. That's in my personal watch list, so maybe a bit too exposed there. And then you have the risk level, which says I'm moderately aggressive with a beta of 1. Actually, that's not too big of a beta.

And then as we scroll down, we have investment ideas. We're going to go over some of these. These are research reports by Argus Research. And we all-- we can see these listed here, too. Here is our measure of fair value.

Going down, we have technical events. I find these extremely helpful, because they give you a sense of where the stock is on the short, medium, and longer term sides, as well as the company outlook, which is here. And that gives you an insight into different factors of the business.

Pretty innovative here-- in fact, innovation is one of the categories. But it also gives you insights into hiring sustainability, insider sentiment, earnings, and dividends.

But if you're looking for something to trade, this is what I look at every day when I do my reporting and recommend ideas on our programs here. And this is going to give you both fundamental and technical overviews, or ideas, in various stocks. And this comes out in batches throughout the day, so you always have something fresh.

And what I want to do now is filter by technology. And let's take a look at Microsoft. I hit this recently . This will give you some of the talking points in the report. You can download the report, view the whole thing. You can also look at the chart. And it loads Microsoft, and here we have it.

And since we're on the chart, I just want to highlight some of the other things that I find useful. I talked about the technical events, you can see those embedded right in the charts. Those are right here.

So if I hit short term technical events, it's going to show me some things that have triggered recently. We see a bullish MACD signal, bullish Williams %R, bullish CCI, et cetera. It will also give you patterns, and we'll get to at least one or two of those, as well. Here's the mid-term, which would be weeks to maybe a couple months. And we can see it's a little bit bearish there.

And then over the longer term, we have a couple moving average crossovers. And those are done-- those are computed on weekly charts. So if I click on this, it's going to give me an explanation of what's going on. It automatically loads the weekly chart. It shows the moving average crossover. And, on the right, you can get a description of some of the details there.

And then just going back to our research report, I want to take a look at Autodesk, too. Because this is based-- this bullish call is based on a technical pattern. It's called a continuation diamond. And if we load it, it's going to show us exactly what that pattern is. And this is something I find really helpful, because it's easy to miss this if you're just looking at the chart.

So I hit midterm, I'm going to hit continuation diamond, and there you go. You can see the diamond formation here from which it's broken out of. And then it tells you what it means, the event description, and it also gives a target. If we go back to the original report here, we have a target of 260, which is about 11% to the upside.

And if you're just taking a look at this and you're looking for a stop, I'm just looking at this moving average right here, I believe-- yeah, this is a 50 day moving average. So right under there, maybe at 229 or so-- if you want to be really conservative, down here about 225 or so. Bringing Kathy back in, you had some thoughts on Autodesk, maybe?

KATHY DONNELLY: Yeah, Autodesk-- since I knew you were going to talk about it, I was curious to see what initial pattern it was when it IPO'd in 1985. And it was a stair stepper. And here it is, still a strong stock, along with Microsoft. Microsoft was also a stair stepper. So what a coincidence that you picked two stair steppers that are both still stair stepping their way up, slowly but surely over time. So great, great stocks.

JARED BLIKRE: All right. Well, let's move on here and take the results of our latest poll. "How long have you been trading?" One year or less, 30% of you, one to three years, 25%, three to 10 years, 20%, 10 years or more, 25%. So we've got a pretty good mix here of new traders and veterans alike, probably some Robin Hooders here, who we welcome.

I think the Robin Hooders get a bad rap. A lot of their trading-- you know, I'm just going to say this as an aside, if you're a portfolio manager, you want to be adding as the price is going up. And that's kind of the style that I see, based on some of those parts out of their platform.

But moving on, I think it's time for another poll, though this one is going to be-- I think we've got to wait for this one. So we're just going to hold off on this poll.

What I want to get to are some of the sell rules. We talked about the Ascender, Midterm, 40-week, Everest Rule. How do you use these on a day to day basis, Kathy, to really, I guess, manage your trades? And is there any thought-- are you looking for a diversified portfolio here, or are you just looking at stocks that catch your eye and you stick with them for a while?

I know I put a lot of questions in there. But what are your thoughts?

KATHY DONNELLY: Yeah, no worries. You know, I try to-- I would say fairly concentrated portfolio. I usually will own about eight to 10 stocks, and try to get it-- weed and feed. So as the ones that I chose didn't work, and the ones that I chose that worked, move the money into the ones that are working, so that I can get to a 15% to 20% position over time on a really big winner.

And I'm generally focusing on that institutional advance phase, so right after that due diligence phase. Because I know that that's going to be my best chances for being able to hold the stock for its entire run. And essentially when I say its entire run, contained within that 40 week line.

Now if I decide, you know, a brand new IPO comes out, it's built a solid base, it's already got needs and it's already got revenue, then I'm also going to try those, as well. But I know those are shorter term trades. And so then in that case, I would implement either the Ascender or the Everest Rule, because I know I won't be able to hold on to it as long.

Yeah, so here we show the different-- the rules on the side there, with the different categories and how well that they work. And you'll see-- well-- [LAUGHS] --basically the one hit wonder, for example. That's the one that 100%, 200% or more in a short amount of time. The Ascender Rule or the Everest Rule, you're going to be able to contain the majority of that.

And the 40-week Rule won't work. In most cases, in that IPO advance phase, you're not even going to have a 40 week. So there's no way you'd be able to use that rule.

But then once you get into that institutional advance phase, then you can really choose which rule works best for you. If you want to wait until just the break of the 10 week line, then the Midterm Rule, there's a variation there that is associated with looking at the 10 week line. And that's where you could take some gains there, wait for a new setup, and then try it again, if you like, or wait and look for another one.

JARED BLIKRE: All right. Great. Well, we had a webinar one month ago, we were talking with Brian Shannon, someone who you know very well. I just want to play a clip of that, because we talked a little bit about IPOs as well. Here's what he said.

BRIAN SHANNON: Yeah, IPOs are tricky. When they first come out, you know, it's incredibly difficult. I don't get involved, generally. If I do get involved, Jared, it's a very short term strategy to start out, and it really uses the anchored volume weighted average price.

So from, you know, on the first day, if the stock starts dropping below its volume weighted average price, I don't want anything to do with it. Because it's telling me that the sellers are in control of the stock. If you look at a couple of the recent IPOs, you'll see-- and put a volume weighted average price from the IPO date-- you'll see that it tends to really attract buyers. So pullbacks towards that volume weighted average price are often a good place.

And there you have Zoom. You can see how critical that red volume weighted average price was, where it dropped below it in September, and then the buyers regained control in February, and it's been up in a way since then.

JARED BLIKRE: All right, well there you have Zoom. But I want us to take a look at Fastly, because this is a part of our next poll. And we're going to ask you, given this chart right here of Fastly, and everything you've learned so far, at what phase of the lifecycle pattern is it in? So we're not only looking for the stock pattern, but also the phase.

So is it a, pump and dump in the institutional due diligence phase, is it a late bloomer in the institutional advance phase, is it a rocket ship in the institutional advance phase, or is it a rocket ship in the IPO advance phase? And we'll get to those results in just a little bit.

But since we have the screen up, let's take a look at some IPOs here. Here's Livongo Health. It's really big in the news today, some negative news bringing it down about 9%. Kathy, what are you seeing in this stock right now?

KATHY DONNELLY: Livongo looks-- definitely looks like a leader, [LAUGHS], for sure. Now, we just had news today about the proposed merger of Livongo and TDOC, I guess that they voted on last night I believe. So, you know, we don't-- there's news out there, but we want to see how the stock responds. So we're going to see.

But this is definitely one that I was watching right when we were having that turn where the market bottomed. And this is one of the first ones out. And it just powered through and got through that turbulence zone, which was the prior high of when it first IPO'd. And it's just been going up ever since. So it's definitely in its institutional advance phase.

But what moving average lines do you have on there, Jared?

JARED BLIKRE: These are anchored VWAP lines.

KATHY DONNELLY: Oh, those are the anchored VWAPS, OK.

JARED BLIKRE: Yeah, this is from the very beginning-- and Brian Shannon's real big on this. I know it's not really in your repertoire. But let's just go through this, because it's pretty interesting.

KATHY DONNELLY: Yeah.

JARED BLIKRE: From the beginning, you can see that it undercut its IPO low-- its first day trading low-- pretty quickly, it looks like about the second week in. And then it just started using that anchored VWAP line as resistance. It finally punched above, but kind of trading around it, as it's going sideways here.

And then we got this breakout here. I'm assuming this is an earnings jump. But let's check-- let's check this out.

If we go to events-- and this is, by the way, free-- a free part of our website, corporate guidance. We can see-- yeah. So if we click on that, preliminary Q1 2020 revenue exceeds previously announced guidance. So we have these breakouts. I put an anchored VWAP on the breakout day.

And then we can see that it captured this pullback here, and this one, too. And it's just broken away. So if I were doing this more consistently, if I were actually trading this, I'd have a lot more lines. I'd probably have one here, too, from this breakout, which was also on an earnings announcement.

And when it breaks one of these that has acted as support, that's an indication that it might be due for a consolidation or a bigger pullback. But that's how we use that.

So now, let's get to some questions here. And we have one for you. "What was your position in Zoom when it IPO'd?" I'm sure you didn't buy it the very first day, but how did you see it evolving and what were you looking at on the first day and as it evolved?

KATHY DONNELLY: Yeah, I was definitely looking at it from-- to see if it was going to build an IPO base, which I believe it did. And then it went up just a little bit. But I actually didn't buy it until after the due diligence phase. So after it had its initial run, and then it had the due diligence, where it went sideways that I talked about.

And then I bought it when it created a base in that institutional due diligence phase. And then I had it as it came out past that turbulent zone into new highs.

And so I was lucky, in a way, I guess. I was watching it, and even though the market was going down, this was one of the stocks, I was actually able to hold. Because it was a player, everyone was using Zoom, because we were all stuck at home.

But yeah, I bought it pretty much right after that institutional due diligence phase, as it went into the institutional advance phase.

JARED BLIKRE: Great. And we had another question--

KATHY DONNELLY: And I still have it.

[CHUCKLES]

JARED BLIKRE: Oh, you still have it. Yeah, good, because it's still advancing here.

Here's another question, "Kathy, do you look at the quality of underwriters? For instance, does it matter if it's by Goldman Sachs or Citigroup?" I'm going to say-- I'm going to guess probably no, but you can weigh in there.

KATHY DONNELLY: Yeah, I mean, I definitely read the article and I find out who the underwriters are. And when I see Morgan Stanley or I see Goldman Sachs, I'm like, great. But if I don't see Morgan Stanley or Goldman Sachs, it doesn't deter me.

Ultimately I'm still looking at what does the company do, does it have strong revenue, and does it have the liquidity requirements-- the $20 million a day that I like to see traded for me to consider that stock.

JARED BLIKRE: Yeah, that's another rule-- an important rule that you go over in your book around liquidity. You've got to trade something that has that liquidity there. And that also shows institutional support.

Here's another question, "how will investors have to adjust strategies post-pandemic? Are we going to see more IPOs as a result of greater capital needs?" I'll steal that. I think we see more IPOs when the market is ripe for IPOs.

And last year, 2019, we had kind of the IPO death march around Uber and Lyft, so many disappointed in the days and weeks that followed. But we still got-- we still got issues like Airbnb that haven't traded yet. So these guys need their liquidity event.

Nobody knows what's going to happen next. Nobody wants to be caught in another downturn and have to go to venture capital and say, we need a bunch of money, but it's all locked up.

So I think we're going to see a lot more IPOs this year. And yeah, it does have to-- it relates to capital needs.

Let's take the results now of our last poll, and this was regarding Fastly, what was the pattern that it was showing? And the correct answer is, rocketship institutional advance phase. And that's our number one result. So people have been paying attention. 39% of you got that right. 36% of you said, late bloomer institutional advance phase, which I think is pretty close.

KATHY DONNELLY: Well, actually, I think it is a late bloomer. Fastly-- I'm sorry, you said rocketship.

[CHUCKLES]

JARED BLIKRE: Oh, yeah, the rocketship got the most votes here. Was that the incorrect answer?

KATHY DONNELLY: Right, the correct answer is late bloomer. And I think I actually said it wrong earlier, when I got discombobulated on the chart. But Fastly had an initial base and it had a little bit of a run up. It was actually like a double bottom. And then it consolidated for a while.

And it looks like a rocketship now, but because it had that year before it finally went-- it had a due diligence phase. A rocketship goes straight up and doesn't have a institutional due diligence phase. So that time between August and May is the due diligence phase, after that initial run up from that double bottom.

JARED BLIKRE: OK, great.

KATHY DONNELLY: So 36% got it right.

[CHUCKLES]

JARED BLIKRE: Yeah, and we're going to do one more poll in just a second here. I'm just seeing-- I'm seeing another question. "Do you expect Airbnb to go public this year?"

I think it's going to happen later in the year, maybe early next year. But depending on market conditions, there is-- they have a lot of work to do on their business. And I'm sure they're desperate for a liquidity event, given everything that's happened. That's a particularly challenging IPO, I think.

So I'm going to look for our next poll. And this is going to be poll [? 9. ?] "What percent of stocks become elite super growth stocks?" In other words-- I'm calling them 10 baggers-- but I know there's a more precise definition. So what percentage of stocks are in your filter? Is it 5%, 10%, 20%, or 30%? And we'll get the results on that in just a few minutes.

I'd like to interview you now, Kathy, on the psychology of trading, because this is very important. You spend a number of chapters on this, like keys to patience with these IPOs. In fact, we have a few slides here. What are some of your observations and how important are they in getting your head in the right space to trade these things?

KATHY DONNELLY: Well, Jared, I think you mentioned it earlier. I mean, we were both talking about it. You need to have a trading plan. And within that trading plan, you need to have rules. And those rules say, I won't buy an IPO unless it's $20 million a day, like for myself, or I won't buy an IPO, until you know, it has an IPO base.

Because as you show here, most stocks undercut their day one low price within three weeks. And that's probably because it might be building an IPO base. So going back to that first poll question, I mean, you don't want to buy an IPO on day one. I mean, there are exceptions. But to know which one is-- you know, the odds aren't going to be in your favor.

JARED BLIKRE: Yeah.

KATHY DONNELLY: Yeah. And in the long term, only 20% are liquid enough. And what I want to say about that is, you know, a lot of them are biotechs. And you showed that when we looked at the top stocks for the year, you know, a few of them are biotechs.

But biotechs, a lot of them aren't liquid enough and a lot of them don't even have revenue. So they are very risky and very volatile. You definitely want to look for those Zooms, Fastly, Livongo, that have at least the revenue tied behind it.

JARED BLIKRE: Yeah, I just wanted to highlight Big Commerce Holdings, which just got an incredible pop today, I think it IPO'd in the 20s, pretty at 79 here. So it is up 230%. And just to illustrate anchored VWAP one more time, it's loaded since the beginning-- this is an intraday chart, of course. We can see how price dipped below. It started using it as resistance, now it's using it as support.

But given the pop here and the stats that you've cited, Kathy, you would expect this low to be undercut fairly soon, within a few weeks, at least statistically speaking?

KATHY DONNELLY: Yeah, exactly. Over half will do that within three weeks. Some of them, like 11%, will reach their high within the first 10 days and they'll never even come back.

But this one's an interesting one, because I was just reading about it last night. And their competitor is Shopify. And we all know Shopify has been a great leader from the very beginning. I mean, I feel like it's broken all the rules. It just keeps going and going.

But yeah, it's going to be a competitor to that company, or is a competitor that company. So who knows, maybe that one will take the place of Shopify. I don't know, to be determined. But it's definitely interesting to see a new competitor in that space.

JARED BLIKRE: Wow. Take the place of Shopify, or Amazon. I think there's enough room for a few competitors in this space. But it's really interesting to watch it evolve. I mean, we talk a lot about technicals here, but there's also stories behind these. And we'll get to some of those stories in a minute.

We've interviewed the Peloton CEO, and I think that could be interesting.

But let's get to the results. We're already getting the results of the last poll. "What percent of stocks become elite super growth stocks?" Is it 5%? Well, that was the biggest-- that was the most populous answer, I guess. 56% said that was the correct response. And then 30% said 10%, 13% said 20%, 1% said 30%, and the correct answer is 10%. Is that correct?

KATHY DONNELLY: Yeah, that is correct.

[CHUCKLES]

And on thing that I want to share with everybody-- I don't think we've talked about Twilio yet, but why don't I just go ahead and bring it up real quick. One thing to look for is those big runs of those IPOs within that first 90 days. What we also found in our research is that if a stock goes up 100% within 90 days-- which Twilio did when it first IPO'd-- then it has twice as likely a chance to go up 500% or more from that day one close.

And so this one, I think, is almost right there, if not there, in that 10 bagger. And definitely met the 500%. So definitely something to put on your stock to watch, IPOs that go up 100% in 90 days.

JARED BLIKRE: Very nice. Well let's do some more audience questions here. This is on SPACs. Can you talk about considerations for investing in SPACs?

And I was talking with you, Kathy, before the show, Draft Kings is a pretty interesting example. I'm going to get that on the screen right now. Because unlike an IPO, number one, you don't really have an IPO price, and you don't necessarily have an IPO date.

Because in the case of Draft Kings, we already had this SPAC-- and that's a special purpose acquisition vehicle. It's designed-- it's registered public and then they find the stock, the company they want to put in it. So it's already trading all the way back to August of last year, July of last year.

But they made the announcement that Draft Kings was going to be the target. And so we got this pop here, and put an anchored VWAP on it. We could see it acting as support and resistance. But they didn't really merge with the company until this date. This was April 24th. And so there are two dates we're dealing with. And I'm wondering how you attach that. So maybe it's a little different.

KATHY DONNELLY: Yeah, this is definitely very challenging. Because it looks like it's been trading but really, like you said, it wasn't publicly traded until April. And the same thing happened with Nicola and some of those other ones. So how do you trade that?

Well, I think the best way that I know how to trade it-- and I did this with [? Space-- ?] is just use those fast rules, the Ascender Rule or the Everest Rule. Because what we're seeing, at least with these few that have come out, they're going straight up and then they're coming down.

So it may be done now, we don't know. But you definitely have to use a fast rule and make sure that whatever profits you get, you preserve.

JARED BLIKRE: I just want to pull up Nicola here, one of our top trending tickers almost on a daily and weekly basis. But come down quite a bit, it's really testing its IPO lows just now. This is another SPAC. What is this pattern that we're looking at right here?

KATHY DONNELLY: Well, I mean, it looks like now that it's definitely in a downtrend. I mean, for sure I think the best way to classify these are one hit wonders, until we know otherwise.

[CHUCKLES]

JARED BLIKRE: That's it. I like that. I won't spend too much time on it. They have yet to make a single vehicle. I'm sure they will someday, but I'm going to hold out on this one.

Let's get to a couple more questions that are relevant here to what we're talking about. Do you think-- what you think of the Apple split-- stock split? Is it a good strategy for a new Apple stock buyer?

Here are my thoughts on the Apple stock split. It's looking pretty intelligent on a couple different levels. The first is because it has a lower price, it makes it more accessible for retail investors. And it's probably a good stock for retail investors to own, as opposed to Nicola.

And then the second thing is it's the biggest component in the Dow right now, because it's price weighted. And by doing this, by converting-- by bringing its price down to what it's going to be 120, 115, it's not going to have such an outsized influence on the Dow. So from both the individual stock and from the Dow, just because of the unique way that it's calculated, I think it's a pretty good deal.

And we also got a question on Pinterest. "Does [? PINS ?] fall under the institutional advance phase right now?" And I'll bring up the chart for us.

KATHY DONNELLY: Yeah, I think the answer is yes. And it's right at, I believe, the turbulence zone. And we'll look at it when you pull up the chart. But--

JARED BLIKRE: Here we go.

KATHY DONNELLY: --it had an initial advance, and then it definitely had a due diligence phase. And now it's shot up and it's approaching those previous highs from that initial run when it IPO'd.

So, yeah, if you asked me if it looks to me like it's [? sitting ?] in that turbulence zone, and it's getting ready and it's already probably started institutional advance phase. I mean, to be continued. But that's what it looks like to me and I would be watching it from that perspective.

JARED BLIKRE: Gotcha. Well, I just want to share this note with our audience. We're going to be doing this once a month from now on. It's going to be the first Wednesday of every month. And people-- you can follow me on Twitter. You're going to have to register the same way that you did for this seminar, this webinar.

But also send us questions ahead of time. That helps us prepare a little bit. And encourage your friends to come in, too. We always want some of that action.

Now I want to take a look at Peloton. And our Brian Sozzi interviewed the CEO a little while ago, William Lynch, the Peleton president actually, about the stock price and about, you know, the actual company story. So let's take a listen to that.

BRIAN SOZZI: The stock is still not down as much, compared to what we saw in some of the other IPOs out there. Is this somewhat of a minor win? And I'm curious, what are you hearing from your investors? Why are they sticking with you and maybe not some of the other hot tech companies?

WILLIAM LYNCH: Well, I think the macro environment, as you're noting, has been difficult. And there's been a lot publicized from those other companies.

We feel like we're unique in a lot of ways. One, we're a category one in the valuable connected fitness market, which we pioneered. Two, if you look at our unit economics and the business, it's one of the best business models I've seen in several decades of running consumer businesses.

And also, we're the disruptor in a very valuable category-- fitness. There's 63 million people in the US who go to gyms and are looking for a better way to work out. And we believe Peloton delivers.

JARED BLIKRE: Yeah, well it became quite the trade. I don't know if you own one. But I know our Brian Sozzi-- he was asking the question there-- he owns one. He's quite the fanatic about it.

What do you-- what are your thoughts on Peloton? I'm just going to pull up a chart here. Do you like it? Do you not like it? Did you ever like it?

KATHY DONNELLY: Oh, yeah, well, I definitely like it. I mean, I like any new IPO that sets up. You know, this is a great example of a late bloomer. It had an initial base there, with a 30% run up out of that phase, before it created that-- what I'm calling a very deep, double bottom institutional due diligence phase.

And then, you know, it had that earnings-- that was that big green bar, candlestick, was on earnings. And that was what catapulted it, changed the direction, and it's been a leader ever since.

So, yeah, I think it it's great. I know a lot of people that have Pelotons. My neighbor has a Peleton. Some people just even subscribe to the app, because they can just use it on their phone and they can use their own equipment.

I mean, they've got everything, stretching, yoga. If you're scared to go to work out, or you don't want to go work out anymore, I mean, they seem to have an answer for you.

[CHUCKLES]

JARED BLIKRE: All right, Kathy, I want to thank you so much for joining us, giving your insights, and also those custom stats. It's just been tremendous to have you here. And I encourage everybody to get your book, because this really lays out a trading plan-- how it's done, with scientific statistical rules behind it. And also will get your head in the right space. It's all about money management in the end.

Kathy, thank you. Thank you to the audience, everybody for joining, all your great questions, for participating in the poll. Appreciate all of that. And we're going to see you back in one month, next Wednesday.

KATHY DONNELLY: Thank you, Jared. Thank you, Yahoo Finance. And yeah, thank you all for joining, and thanks for your great questions.