Friday, June 25, 2010

How To Use The IBD #1

I thought I would take some time to go over how I use the IBD and how to get the most out of it each and every day. The IBD is a must have resource in your stock market investing arsenal. But because it is so full of information, it's tough to get a handle on how to use it and use it quickly and efficiently. While in the past, I've talked about the IBD 200, today, I just want to spend some time going over the front page and set up a system to follow so you don't miss anything.

Personally, I use the eIBD of the Investor's Business Daily on But occasionally, I will pick up a print edition of the paper. When I want a print copy, I can usually get one over at my local borders. The electronic version is available on the same day and it makes the print edition seem like "old news". Regardless, both are exactly the same.

When you open the paper, the first thing I like to do is read the market summaries at the top. By the time I get the paper though, I've usually already looked at the market indexes online so I don't spend a lot of time there. Next, I look at the Big Picture and check the Market Pulse to see the market direction. Then I read "IBD's Top 10" to get a handle on the top headlines of the day and there are also two articles that I might read if I am interested.

I think the key to the front page is to also note any stocks mentioned and put their tickers in your stocks to review list. I'd recommend reading the list with a pad of paper to note the symbols. You definitely want to check them out further.

So as far as an action plan, here are the steps I'd take to the front page.

  • Read the market summaries at the top of the page

  • Read the IBD's Top 10 headlines

  • Read the Big Picture Column

  • Review the Market Pulse for the general market direction

  • Check out the two stories on the front page, read if interested

  • Make note of stocks mentioned on the front page

Today, here are the stocks I noticed on the front page:

  • Stocks in the Top 10 Headlines: Oracle ORCL, Apple AAPL, Google GOOG

  • Stocks in the Big Picture Column Up In Volume: Hasbro HAS, Valeant Pharmaceutical VRX, Tibco Software TIBX

  • Stock highlighted in an article: Oracle ORCL (Apple'sAAPL  iPhone 4 was also mentioned in a caption)

I stuck with stocks that have positive news. IBD editors highlighted these stocks for a reason and you should take note of all stocks mentioned on the front page. Here today, I have six stocks to add to my research list.

Friday, June 18, 2010

Stock Trading Using The IBD 200 Composite List

Once I got a handle on the basics of stock market investing, my first thought was where do I begin to find stocks that are worth investing in? After reading William O'Neil's book How To Make Money In Stocks and Stockbee's post about how to begin stock trading using the IBD 200 composite list, I was hooked on using this list to find potential winners. The IBD 200 list is great because it lists the stocks that are ranked highest by IBD's Smart Select Composite rating and therefore narrows the field of potential stocks to look at. The key thing to remember here is that just because it appears on the list doesn't make it a winning stock, it's still has to have the other CANSLIM fundamentals and a good stock chart setup to find the correct pivot point.

What I do, is take these stocks from the main tables of the eTables service on as I explained in my post called where to find the IBD 200, and look for stocks breaking out to narrow the list of 200 to just that I need to review each day. The great thing about using this strategy is that you can adjust your criteria to limit the number of stocks the jump onto your review list by adjusting the breakout thresholds.

My initial screen on the IBD 200 list is a 2% price increase on a 100% volume increase. Depending on the day, this eliminates the vast majority of the stocks particularly if the market is in a downward trend like it has been lately. You can use any screening method you want but that is what I do because O'Neil says that stocks breaking out making new highs are the best ones to look out. Once I've identified those stocks, what I do is then look at the fundamentals to see if they also meet the benchmarks set forth in CANSLIM. If they don't then, they are not analyzed any further.

You can do this each day on the list. By looking for breakouts, you'll be honing in on the stocks showing strength and strong earnings most likely. This list should the be scrutinized against the watch list of stocks you should be maintaining to see if they are better or worse than your top stocks of I'd say 20 or so. Each day, you should review the stocks on your watch list for potential buy points by watching the charts price and volume action to identify specific chart patterns like the cup with handle, flat base and so on.

But even if you do all that, you need to be prepared to sell your investments following strict selling rules and also remember that you should only invest when the market is in a confirmed uptrend and after doing your homework.

Good luck!

Friday, June 11, 2010

My Solution To Bank Reform? One National Bank

As a break from talking about stock market investing, I wanted to spend some time talking about bank reform. Over the next several months, I think that we will hear alot about bank reform and Wall Street reform but my prediction is that it won't really matter to most of us small investors. Why? The rules will still be made in such a way that the system can be manipulated.

I was at the bank today and I was asked about the new overdraft rules as they pertained to my credit card and I got to tell you that the last round of changes really did nothing to add any protection to my account being robbed by the banks. The one rule they could have passed that would have helped everyone is changing the rule that allows the paying the largest item first and then paying the smaller items therefore charging more fees. Earlier this year, I read that half the banks would have lost money if they hadn't collected overdraft fees. I ask why? Remember that these banks pay no interest on deposits for the most part and they still can't make money lending at sometimes 29 percent interest. It seems like it would take an idiot to run a bank that can't make money doing that.

Evidently that's who is running the banks though because that's what happened in a lot of cases.

The other day, I switched banks. It was a tough decision because just in the 1 mile road within my house, I can count 8 banks. The bank I went to, offered me several hundred dollars to open accounts, if i did a list of like 8 different steps. I'm guessing that they know I won't do them all. But even still, they will pay me $275 dollars if I do and I opened 3 accounts. On one of the accounts, I can get a free Ipod touch. Isn't that cool?

The policies from bank to bank really aren't any different though and in the end, they all seem to charge us a bunch of fees from the so called "free accounts". And the additional banks really don't compete in a way to get my business. Let me give you an example of how banking works.

One bank discovers that they can charge a fee to make loan. We'll call it a loan processing fee. It's $25. In order to get the loan, you have to pay it you don't have a choice. The bank books a lot of loans during the year. They didn't have to raise the interest rate to make any money. Another bank, being the crack researcher it is at the next banking conference talks to someone from the first bank and discovers the holy grail of bank fees they hadn't thought of. Then they go back to their bank and institute the same fee.

What has competition given us? A higher fee of course instead of a lower one. I know when I worked at a bank, I used to call the other banks to see what they were charging for their mortgage loans. Then we would just match it. How stupid is that?

That's why I contend that we don't need several thousand banks in the country. We need one. And we need one that won't steal our money. I know that a lot of capitalist out there will call me a heathen in the name of competition, but it's really competition that doesn't help us and take our capital away that could be used to consume goods instead of nothing.

I had to laugh the other day when I went to the bank and the teller I was talking to was named Robin. I thought how appropriate because that's exactly what they do.

Stock Market Investing Advice: What's Wrong With It?

As usual I spend my time spouting off here about my stock market investing thoughts and ideas and today I was wondering what is wrong with the stock market investing advice we receive? You'd think that we could hire a broker or financial advisor and in turn, make a killing in the market. But it doesn't work that way. Typically, this is what happens. We're contacted by a financial broker or we make contact with them because we are lost and confused about what to do. The advisors are happy we consulted with them. They take our money and earn their fee or their commission. We're happy that we have a plan and no longer have to worry about investing. It's in good hands.

This plan works really well when the market is going up. We've already talked about how William O'Neil has researched that three out of four stocks go up when the market goes up. You've got a good chance that things will go well.

The plan doesn't work so well when the market turns down. This is when you should get a call from your broker or advisor to tell you, hey we've seen this before, the markets topping you need to get out. But the truth is, they don't know when to sell and because they don't know when to sell, you get to watch all the gains you made evaporate for really no good reason. This is where the buy and hold philosophy as it pertains to individual stocks just doesn't work.

I can name in an instant a number of people who lost a fortune because they held individual stocks to long and in some cases, with some bank stocks, lost their entire nest egg. This is the kind of situation you can avoid by being a CANSLIM investor with specific selling rules to follow. The myth of following stock market investment advice using the buy and hold strategy for individual stocks is that you guarantee yourself that you will give away your gains.

O'Neil recommends selling any stock that goes below 8% of your purchase price and locking in gains as you go along. What's the point of investing in stocks if you are just going to hold and hold and hold. At some point you have to cash gains in. Learning when to sell is as important as when to buy and this is the area that your stock market investing advice stinks. Start making your own decisions with at least some of your money. Learn the market. Through experience and a specific strategy, you can do better than your broker.

Thursday, June 10, 2010

How To Invest In The Stock Market For Beginners

I've been advocating that you take control of your stock market investing from your broker for a while now, but lately I've been getting questions from my readers about strategies specifically on how to invest in the stock market for beginners. Beginners are easy targets for scams because it's easy to want to make money fast in the stock market. The typical scams are from the penny stocks angle as these are cheaper stocks and therefore more affordable to the beginner.

I guess if I was new to investing in the market and wanted some advice on where to begin, I think the first thing that I would do is study the basics of the stock market and investing. A good book that covers that is The Neatest Little Guide to Stock Market Investing by Jason Kelly. This book provides a good base of knowledge if you are new. One of the nicest features of the book is that he spends some time covering the "masters" of investing in the stock market. You'd be in good shape if you studied each of the masters. According to Kelly, they are Benjamin Graham, Phillip Fisher, Warren Buffett, Peter Lynch, William O'Neil and Bill Miller. Each master focuses on a different investing strategy.

What you'll want to do when you first start investing is adopt a strategy or investing style. By adopting a strategy of one of the previous stock market investing gurus, you've already shortened your learning curve. Just do what they tell you to do. It seems simple, but it really isn't. It will be easy to shift from one idea to another but this is asking for a direct way to losing in the market.

Once you've identified an investing style that meshes with your personality, I'd next spend time practicing the mechanics of locating stocks, buying stocks and figuring out when to sell the stocks in your portfolio by using a stock simulator. You can find several online and sometimes even with your broker. I know that OptionsXpress has a nice one. You could always use

After you've got the mechanics down, it's important that you start investing with real cash as soon as possible. The reason is that a simulator can only take you so far. The reason is because it all play money. Beginners can only become experts investing in the market by learning from real life experience. Only by making actual trades will learn what you need to know. Start small, but start getting that experience as soon as possible.

Where To Find The IBD 200

In developing your stock market investing watch list using the Investor's Business Daily, you'll probably want to make use of the IBD 200 list which, if you want to know where to find the IBD 200, it's in each Thursday's paper. In order to obtain the list, you'll need to be a subscriber. If you are not familiar with what this list is, it's a list of the top 200 stocks ranked by the Smart Select Composite Rating developed by William O'Neil. The popularity of this list was increased when Stockbee made this post about it.

The one problem with this list is the fact that it only comes out once a week. There is however, another way to get this list but get it daily. You can do this by subscribing to the eTables service. As a subscriber, you can access the list daily and watch for potential breakouts.

Here's how you do it. First log into and navigate to the stock research tab. Under premium tools, you'll find a link to the eTables service. Once in, you'll notice a tab for the main tables. Click that and this will give you the top 300 stocks ranked by the Smart Select Composite Rating. What I like to do is export the list to excel so it's easier to work with. Once in excel, the stocks rated 96 or above will give you slightly more than the 200. You can delete the others if you want.

Then, what I do is take these stocks and put them in my stocks watch list on You'll have to do them in groups of 50 as that's the limitation of these watch lists. The benefit of doing this is that you can see breakouts alot easier. Personally, I've been looking for breakouts of 2% in price increase and 100% in volume increase. IBD makes this easy to see as you can sort the list accordingly.

Keep in mind that you only want to invest when the market is in a confirmed uptrend. The market pulse for the stock market today shows that the market is still in a correction. O'Neil recommends only investing when it's in an uptrend for the CANSLIM strategies to work.

Wednesday, June 9, 2010

How To Use The IBD To Calculate Market Direction

The first step in your stock market investing education should be to learn how to use the IBD to calculate market direction. In his book The Successful Investor, O'Neil lists this as step one to becoming a CANSLIM investor. Determining the overall general market direction is crucial because his research shows that three out of four stocks follow the trend. If the market is going up, there's a 75 percent chance your stock will too. And, the opposite happens if the market is going down then you've got a 75 percent chance it will go down. Because of this statistic, you are only going to want to invest in the stock market when the market is in an uptrend.

Fortunately, the IBD makes this process easy. The first thing that you can do is read the Big Picture column. It contains a nifty little feature called the Market Pulse. Each day the market pulse tells you the current market direction. Another thing I suggest is watching the IBD TV market wrap as it discusses what happened to the market indexes each day and also tells you if there is a change in the market direction. While the IBD TV video is free, you have to be a subscriber to either the paper or the electronic version known as eIBD to get the Big Picture column.

Really though, it's a good idea to learn how to analyze the market yourself and make your own determination. Look at the S&P 500, the Dow Jones Industrial Average, the NASDAQ and the New York Stock Exchange and make note of the price and volume action for each index on that day. What you are looking for is if the market went up or down on higher volume. These are your clues to getting a handle on whether the market is under buying or selling pressure.

Once you have decided whether today's action is an accumulation day or distribution day, then watch the IBD TV video to see if you were right. While there are some nuances you'll need to get a handle on like keeping track of distribution days, figuring out if the market is attempting a rally day or identifying follow through days, watching that video and reading the Big Picture column are all you need to learn what you need to know.

Investing In The Stock Market Online

Once you've studied stock market investing for while, you'll eventually get to the point where you'll have to start investing in the stock market online, for real. A long time ago, you used to enlist the services of a full service broker who would recommend what to buy, place orders for you and you'd pay a hefty chunk of change for their advice. Today, though, you have the luxury of making all of the decisions from what stocks to buy and when to sell them. Plus, you can do it from the comfort of your own home. This freedom to invest from anywhere has basically opened up a whole world of opportunity for people to make money in stocks. It's also done a huge service to the investment brokers as well because it lets them off the hook of doing the one thing they did poorly anyway and that is telling people when to sell.

This skill is the one skill you'll need to acquire in learning how to invest in the stock market online. Because without it, you'll lose money in your trading account just like they did for you. The only way you are going to learn how to invest though is by getting real world experience. What I recommend when first starting is only investing money that you can afford to lose. Set aside an amount of money that won't hurt you if you lost it. Start small, maybe with a $1000 bucks or so and start getting your feet wet.

If you are not comfortable starting with real money, then start with a stock market simulator first. This is extremely beneficial because you can work on your system of decision making first. Take the time to fine tune the set of actions you need to take from stock selection to the sale of your stock so that you have the mechanics down first. Look at it like playing a sport. Get in the gym first, then start playing some practice games, but finally take your game in front of the fans with real cash. Only with real cash can you add the most important ingredient that you'll need to be successful in making money in the stock market. That ingredient is emotion. The emotion of stock trading is the wild card you'll need to get a handle on.

Once you feel you are ready, you'll need to open an account online. You'll find a slew of online stock brokers to work with from Etrade to Ameritrade to Tradeking. I finally settled on Tradeking mainly because you can make a round trip in a stock (buy and sell transaction) for about $10. If you are started small, transaction costs will eat you up. Not only do you have to pick the right stock and lock in a gain, you will also have to cover your commissions that these online brokers will cost. You'll need a healthy balance between bare bones service at the lowest cost possible to the higher priced brokers and their fancy tools. Personally, I get the tools I need from the Investors Business Daily and don't feel the need for a lot of high tech tools that the online brokers provide.

Also, don't feel that once you start investing online that you have to stay with the same broker. You can always change as you feel your needs change. In the meantime, good luck!

Tuesday, June 8, 2010

The Neatest Little Guide to Stock Market Investing #1 Tip

As part of my stock market investing strategy, I try and keep up to date on books available. One book I saw at the bookstore was called The Neatest Little Guide to Stock Market Investing by Jason Kelly. To be honest with you, I saw this book many, many times and always passed on it. But if you spend as much time in the bookstore as I do, you will discover two things. The first is that most of them are far too general in scope and are basically worthless and two, you'll eventually pick up books you see because you have looked at everything else. The latter was what happened to me. Having finally picked it up, I decide that the book was worth purchasing and read it right away.

One of the things that kept me away from the Neatest Little Guide to Stock Market Investing was mainly it's hokey title. It's been my experience that books that have stupid titles also aren't very deep. Not so with this book on investing. Now, I am speaking to those that are new to investing in the stock market. If you are a hardened veteran investor, you probably already know what you are going to find in it. It's no where near the quality of William O'Neil's How To Make Money in Stocks, but it's a good primer to get you ready for it.

He spends some time in the book going over the benefits of investing and specific investing strategies and the gurus behind them. He then lays out a specific step by step method of picking stocks. I found this all very useful but didn't apply his recommendations to my overall strategy - which is CANSLIM. CANSLIM is also discussed in the book. I think that the one point that he came across to me when I read the book, is that whatever you do, pick someone who has been successful in the market and model what they have done.

That being said, the #1 tip I learned from his book was in his discussion on using a watch list to keep a list of stocks that meet certain criteria. For every stock that you come across, he recommends comparing it to a list of 20 high quality stocks on your list. If it is better, then remove the worst stock off your list and add the newcomer on.

I found this information valuable because there is very little information published on how to manage a stock market watch list. I think this is one of the most important tools you can use. I did think that he used too many criteria and substituted the top fundamentals recommended by O'Neil in place of his. This made for a much for familiar list of fundamentals to review that more closely resembled what I read in the IBD.

To me the hard part is still on deciding exactly which are the most important fundamentals because all stocks show different strengths. What is the deciding factor in whether a stock is deemed better than another. I emailed him this basic question. He suggest that you do just that but never received an answer back. In the absence of any other direction I decided to take the following approach.

Let's say that you want to keep a watch list. To keep it simple, let's say that you keep it to four CANSLIM fundamentals you are looking to focus on.

  1. Earnings per share has to be greater than 25%
  2. Earnings per share growth past three years greater than 25%
  3. Sales growth in the most recent quarter greater than 25%
  4. Return on equity greater than 17%

The first thing I would do is rank the criteria from most important to least important. I've already done that above. Earnings are my most important screen.

The easy part is if a stock you find doesn't meet your thresholds. But what do you do with when two stocks meet your threshold and let's say that one stock has higher earnings and the higher sales? What I would do is rank them by the most important fundamental (in this case earnings).

Here's an example: (both stocks meet all of your minimum criteria)

  • Stock A has earnings of 125% and sales of 45%
  • Stock B has earnings 50% and sales of 200%

I would keep stock A because it's my most important indicator even though sales are higher. If the sales turn into earnings, then the stock will come back later for a future review on the many IBD screens available in the paper.

In his book, he also suggests keeping a watch list of 20 stocks. I thought that this was too many. I would stick to 10. All in all though, I was happy with the Neatest Little Guide to Stock Market Investing. In addition to the paperback, I also bought the electronic version for my e-reader.