Founder Ken Berman launched Gorilla Trades while working full-time as a stockbroker on Wall Street. Like most founders, he wasn’t sure the business could develop trust with investors, hedge funds or institutions. Since then, his investing system has identified countless winners, with thousands of new subscribers in the past two decades.
In this interview, Berman shares his journey with Gorilla Trades and some thoughts about the current market.
When did you find a passion for investing and trading?
I learned about the market at an early age when my middle school ran a stock-picking contest. Each student selected two assets and tracked the performance for six to eight weeks. My picks of Polaroid and Disney (DIS) won me the contest and jump-started my interest in investing. I would call my father’s stockbroker each afternoon to track individual stocks—at that time the closing bell was at 4:30 PM and the newspaper was the only way to monitor performance. From there I got to know the ins and outs of investing.
What triggered you to start Gorilla Trades?
In the late 90s, I was a stockbroker for Smith Barney—now a division of Morgan Stanley— when I developed the initial algorithm for the Gorilla Trades platform. It could identify stocks primed to breakout using a blend of 14 technical indicators. Yet the brokerage firm appeared uninterested in what I developed. During that time, online brokerages like TD Ameritrade (AMTD) and E-Trade (ETFC) were also starting to gain traction, giving investors access to low-cost solutions in the market. It was a perfect storm of events that let me branch off on my own.
What were some early challenges of getting Gorilla Trades off the ground?
Trust is foundational to nearly every part of building a new company. It takes time, resources, and effort to create a following that leads to growth. In investing, trust surfaces from performance. I needed to prove my algorithm consistently identified stocks in an uptrend or prepared to breakout. I started offering the service for free to build brand awareness, but early subscribers knew they would soon need to pay.
At the same time, most of my advertising efforts centered on message boards because Twitter (TWTR), Facebook (FB), and Google (GOOGL), to some extent, weren’t available. It took several years and a larger advertising budget for Gorilla Trades to become what it is today. Now users pay $499 per year for access to daily stock picks, risk management tools and comments on prevailing market conditions — a fraction of what they would spend on most independent research.
Can you speak to the nuts and bolts of the algorithm?
It’s based entirely on technical parameters consisting of leading and lagging indicators. Some of that includes oscillators like relative strength, momentum indicators including the moving average convergence divergence (MACD), simple moving averages, volume, and velocity, among many more. Each factor is weighted differently to detect even the slightest change in a trend. For example, volume and velocity play a bigger role in the process than say a simple moving average. While the model employs technical indicators, we incorporate market capitalization to weed out small and illiquid stocks.
What do subscribers receive for signing up?
Every evening we run the algorithm to find stocks set to jump a leg higher in the near future. Users receive a list of long positions in individual names but also specific metrics to manage risk and reward like stop loss levels, a risk grade from 1 to 5, and entry points. It’s meant to help investors find harmony in their long-term investment strategies. But it doesn’t end there. We hold subscriber’s hands the entire way, raising both stop loss levels and price targets as stock returns appreciate over time. Recommendations are typically held several months but often extends to multiple years if the long-term uptrend stays intact. Biotech company Abiomed (ABMD) was first recommended to subscribers in May 2017 when shares traded at $140 and remained on our daily screen for more than a year and 200% increase.
How much of your investment process is balancing emotion and process?
I learned early in life hunches and gut feelings don’t work. When I was a stockbroker, it bothered me when seemingly normal, rational individuals made extremely biased investment decisions based on greed and fear. For this reason, I designed the entire Gorilla Trades system to manage risk and remove emotion from investing— the major reason investors lose money.
Do you think the recent wave of volatility invites a shift back to active management?
There’s a common misconception that buying and holding an index fund can remove risk from the equation. Sure, the S&P 500 generates about 8% annual returns but it also experiences a fair share of ups and downs. A major pullback — like the 2008 Recession— has the potential to cut the market in half and leave investors strapped for capital. Amid higher volatility, active managers are better equipped to navigate tougher conditions, seek bargains, and avoid names with greater risk. During the Financial Crisis, for instance, Gorilla Trades recommended a handful of profitable short and long positions that combined outperformed most major indexes.
Where do you see the most opportunity in today’s market?
Technology and biotech continue to show up on Gorilla Trades as sectors with the biggest room to grow. They are the linchpins of a strong market that will support the decade-long bull run through these volatile conditions.
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