Monday, August 30, 2010

How I Made 21% Buying Stocks Using Stockbee’s IBD 200 Strategy

If you caught my earlier posts about buying stocks using the IBD 200, then you should know that today I closed out my position in Open Table, Inc. (NASDAQ:OPEN) at the beginning of the trading day today. The results? I originally purchased 22 shares of OPEN at $44.95. Today, I sold it for $54.39. This was a 21% gain.

I wanted to share with you a couple of things that I learned about buying stocks during the process and why I think that this is a great way to find stocks to buy.

First off, I wanted to say that this stock market investing method is really simple. Stockbee does a great job on his site explaining things to all of his readers. What I really like about it is how you can have a watch list created for you each week. It's automatically pruned each week to 200 stocks. I like this because you don't have to figure out when to take stocks off your watch list.

Second, I think it's important to point out that you only want to buy stocks when the market is in a confirmed uptrend. I didn't select this stock until the IBD Big Picture column gave the green light. The other day, the market started a correction and I started thinking about sellling it. I really probably should have sold it a few days ago. I feel like I lucked out that it didn't go south like my Cummins Engine stock did. I sold that position as well for a 7% loss. It's since went down further.

If you are just beginning to learn how to buy stocks, I'd suggest that you also focus on one stock at a time. It's easier to keep an eye on one stock.

I also set a price target of $53.49 up front (I sold it at $54.39) as well as determined when I would sell if it dropped. Knowing this information up front makes deciding what to do a lot easier when you are in the moment.

I sold it mainly because the market is in a correction right now. If it wasn't I probably would have tried to keep for it at least 8 weeks. This is what O'Neil recommends when it goes up this much so quickly.

The final thing I noticed is that right before it's 20% plus gain completed it's final run, the stock was downgraded by analyst. Today it was upgraded by Bank of America. This might be a clue that the big money is on the way out. I am not sure. It's just a hypothesis at this point, but I think it's possible that the stock will fall now that it was upgraded. We will see.

You can read more about how I used the information in How To Beat The Market For $1.25 Per Week in my post called Stock Market Investing For Beginners Using The IBD 200.

Thursday, August 19, 2010

Bluefin Stock Screener Review

I wanted to be one of the first to talk about the Bluefin Stock Screener review, or should I say preview. The Patient Fisherman is giving advance access to all Stockbee members. Stockbee says that it works in conjunction with the strategies on his blog. You can see the screenshots of what the program is going to look like through the link above.

This is a great development because it will save a lot of time for Stockbee members but once it's released to the general public, you'll need to join up at to get the most out of. One of the best features out of the box is that all the screens that he currently puts links to on his site are now incorporated in the the Bluefin Stock Screener. This will save you a lot of time as well.

Another plus that I see is that you can export these lists to excel. This is something I like to be able to do because I use the IBD to analyze the charts of specific starts. I can just copy and paste the stock tickers right into my stock lists on

Creating great watch lists before you start buying stocks is crucial to your success.

In fact, after picking your stock market investing strategy, the next thing you've got to learn about is how to screen for stocks. Using a tool like the Bluefin Stock Screener will help you out tremendously. To get the most out of it though, it would be a good idea to become a member of Stockbee's site first. Which isn't such a bad thing because then you'd get early access to it as well.

Tuesday, August 17, 2010

Buying Stocks – A Case Study

Buying stocks of publicly traded companies in the stock market today is one of the best ways for you to create your financial empire from scratch. That said, the vast majority of people lost a ton of money in the last bear market. Every time I think of family members who lost nearly half of their portfolio due to the market's most recent collapse, I ask myself -- why? Why is it that Wall Street preaches this buy and hold mentality to the masses when the logical thing would seem to be to sell when you have a gain?

The answer I think is simple. Wall Street profits whether you win or lose. They do this through fee income. They also profit when you lose because they are most likely trading against you. While I don't think it happens exactly this way, I picture people with tons of money sitting in a room and asking themselves one question, how can we manipulate the market so we can number one protect our capital and number two, make a killing.

I think the first way they do this is by telling us to do one thing - buy and hold - while doing the exact opposite. Buying and selling to lock in gains. To me this is lesson one. If you are going to buy stocks on your own, you must learn how and when to sell your positions. You must learn to lock in stock market investing gains instead of letting them slip away.

But I guess that I am getting ahead of myself. That's just the first thing I wanted to impress upon you that you should learn to do what Wall Street does and not way they say. Be leery of the media and the potential manipulation of the stock market by news and press releases. Believe first and foremost in your strategy, your research and your plan. Work to be a master of your investment philosophy - whatever that might be.

I guess that my second piece of advice would be to only buy stock long. This means to actually purchase the underlying stock in the hopes that it will go up. Don't be swayed by the allure of the fancy strategy. By this I mean, shorting stocks, doing options. Both entail a lot of risk and you could lose all of your money. In addition, avoid investing in penny stocks. Only invest in quality stocks that mutual fund managers would purchase for their fund. Their demand for the stock is what makes a stock's price go up.

Before we get into specific strategy, I want to spend a minute or two talking about the basic law of the free market system and that is the law of supply and demand. The law of supply and demand is what determines the price of a product. The more demand for a stock (product), the higher a price it will trade for. The lower the demand for a stock, the lower the price must go to attract buyers.

The law of supply and demand is crucial for you to understand and I think at the heart of any investing strategy you might employ. This is because it explains first and foremost, what makes a stock go up in price -- which is what you want to happen with any stock you own.

I'm not going to go into the details of supply and demand but if you want to read more about it, here's a good article on it. For now, I hope you can see that the more people want a stock, the more people can charge for it. And the less people who want it, the less people can charge for it.

What you need to know primarily is the more demand for a stock, the higher it's price. But knowing that, the next question is where does this demand come from. From watching the evening news, they always talk about "investors" like it's all of us in our homes. Investors got nervous today about the Greek debt crisis and so on. But the fact is that we, the little guys, have very little impact on the overall price of a stock.

The real players in the market, the ones who create the kind of demand that makes a stock price rise, are the mutual fund managers and the institutional money. They have millions of dollars at their disposal. When they put it to work in an individual stock, the price goes up. This is when you want to get in and you need to figure out how to buy stocks when they do so you can go along for the ride.

But how do you find stocks to buy that are being bought by the big money? You do that by analyzing the price and volume action of the stock on a stock chart. More on that in a bit.

Once you understand that the law of supply and demand, it's time to get more specific. Before you even begin to buy stocks online, the very first thing that you'll need to do is adopt an investing strategy. When it comes to investing strategy, there are two basic schools of thought. Growth and value. While there are other types of strategies or nuances to the these two, you'll need to decide on what type of investor you will be.

The value investor thinks the best stocks to buy are ones that are basically "on sale". They are good companies but for some reason their stock is undervalued either do to the economy or some other cyclical variation that has temporarily depressed the stock's price. One of the best known value investors is Warren Buffett. He developed his strategy from Benjamin Graham who wrote the book called the Intelligent Investor.

On the other side of the spectrum are the growth investors. They believe that new, smaller companies with new products with explosive growth potential are good stocks to buy. One of the best growth investors is William O'Neil who wrote How to Make Money in Stocks and developed the CANSLIM theory. As a side note, he's suggests you don't buy penny stocks for the reasons above as well.

What's been proven over time is that you can make money with either strategy. So, what strategy you pick isn't as important as picking a strategy. Determine which type of investor you want to be and be it. Don't be wishy washy and flip flop from idea to idea. Your first objective should be to decide on a strategy and then work on mastering it.

I said all that above because when you first learn how to buy stock, it's easy to be swayed by all the marketing ploys out there. Everybody is selling an investing newsletter, or website subscription. It's easy to get off track by that. It's also easy to lose your way if you watch the news. Grounding yourself into a specific strategy will help you stay the course.

For me, here on this site. The strategy of choice is CANSLIM.

So with that said, let's get into what I'm going to set out to do here and that's master my chosen strategy by doing a case study that follows the specific steps that I take on a daily basis. The goal is to set up a daily investing routine that's very specific and effective.

Having studied O'Neil's books and the his newspaper the Investor's Business Daily, I've broken down his strategy into six steps I'm going to work on. They are:
  1. Determining the general market's direction before I buy stock online.
  2. Set up a stock screening system that identifies the best potential stocks.
  3. Set up and managing a watch list of stocks I want to keep tabs on.
  4. Using a stock's chart to identify specific chart patterns and buy points.
  5. Follow sound selling rules to lock in gains and limit losses.
  6. Reviewing all stock trades to fix mistakes and areas I need to improve.

Before I start buying stocks online, I want to work my way through these steps by using a stock simulator. I'll be using the one at for that. Using a simulator is one of the best way to learn how to buy stocks for beginners. While it doesn't recreate the real atmosphere and emotion of investing with real money, it does allow me to work on setting up our system. Once I've developed my system, I'm going to keep track of my winning and losing trades and set a minimum goal of being able to pick a winning stock once in every three tries.

Once I have that kind of success rate and have broken down my daily decision making, then I will start to invest with real money. Join me if you want to and let's get to work becoming a master of our strategy.

As I complete this case study, I will put a link to each post here:

Buy Stocks: Where I Started
Buy Stock: Follow The Leaders
How To Buy Stocks
Finding CANSLIM Stocks To Buy
Buy Stocks Online: Start Looking At Charts
Best Stocks To Buy
Good Stocks To Buy
How To Buy Stock

Wednesday, August 4, 2010

Stockbee IBD 200 Update

It's time for another Stockbee IBD 200 update. The first stock purchased using his strategy was Open Table Inc. (NASDAQ: OPEN). I've been simulating this test in my stock simulator to see how the strategy pans out. I read his post about how to trade the IBD 200 and decided to test it out. As a side note, I wanted to talk about testing investment strategies. One of the things I noticed about Stockbee's post about the IBD 200 was how simple it was. Because it was so simple, most people loved an idea that required so little effort. But what was missing in the comments as far as I was concerned was that no one commented about how well the strategy worked for them. Stockbee does say that people who did implement it though did make money as well as comment on how not many really put it into practice.

Because of that, I thought that his claim that it's a good way to select stocks needed some proof that it actually did work as advertised instead of taking it at face value. You can read more in my article called Stockbee's IBD 200 Market Update: NASDAQ: OPEN.

So, back on July 12, I bought 22 shares of OPEN in my stock simulator for $44.95. Today, the stock closed at $48.89 which is up 8.77% since that date. Today was a great day for the stock as alot of the gain was today on heavy volume. This is another good sign. The stock was highlighted in the IBD the other day in the Stocks in the News column as well.

Which brings me to one thing I wanted to make sure that I pointed today and that was that on July 30, Forbes analysts downgraded the stock. If you have read any of my articles, then I think you know that I think that downgrade was on purpose to shake people out of the stock. While it remains to be seen if their analysis is on the money, the big money didn't think so because volume was way above average today. I'm hoping for a 20% gain before I close out the position unless it reaches that point in 8 weeks or less. Then I will want to hold onto it.

This is an example of stock market investing today where you want to do what they do and not what they say. Watch the media very carefully because they may not be on your side. This may be the case here as well.

So far so good, I'll have another Stockbee 200 update soon.

Tuesday, August 3, 2010 Scam

My readers are reporting this week that they're concerned about a scam. I guess that this week they released another hot penny stock pick. The alert this week was AlphaTrade (OTC:APTD). I wrote an article called if you want to check it out.

This alert should really be called a "micro" penny stock because it was trading at .005 cents a share. After they announced their pick, it surprisingly went up by about 30 percent but today it's also down 30 percent. My contention has always been that these stocks are being manipulated by someone and the news that is put out is also planted.

Do I have any proof of this? No.

I suppose that you can possible make money in penny stocks and I'm by no means and expert with trading penny stocks, so you can take what I say with a grain of salt. However, you should be exercise caution trading stocks that trade so cheaply.

The first reason is that these stocks are cheap for a reason. It's because they are worth what they are trading for.

Second, because they are so cheap, the big money won't by buying them. So, you can probably expect any run in price to be short lived.

You are better off concentrating on stocks that trade on the NYSE and the NASDAQ and not on the OTC market. William O'Neil even recommends focusing on stocks over $15 for the NASDAQ and $20 for the NYSE.

Also focus on stocks that have proven earnings and sales, not on press releases. The press release strategy makes it seem there's real news, but I think it's manufactured by the people playing these stocks.

Remember that in stock market investing, you generally get what you pay for.

How To Count Distribution Days

I had a reader email me today and ask how to count distribution days. As I write this, the current distribution count stands at two on the NASDAQ and one each on the S&P 500 and the Dow Jones Industrial Average. If you are not sure what I'm talking about, you might want to check out my post called What Is A Distribution Day? Just to summarize again though, a distribution day is when a market index closes lower on higher volume and is indicative of institutional selling.

Take today for example, the NASDAQ closed lower on higher volume and added to the count by one. The other indexes all closed lower on lower volume and therefore didn't rack up a distribution day.

There are a few important things to remember when counting distribution days.

  1. When the count reaches four to five distribution days in a two week period, the market uptrend will change to market uptrend under pressure.

  2. The count of distribution days is dynamic and they can be erased based on time and distance. First time. After a couple of weeks, they are immaterial. Also, the index can erase a distribution day if it climbs high enough to make it irrelevant. Personally, I don't know what the exact rule is. I just pay attention to the big picture column each day.

  3. If the index only loses less then .2 percent on the day, it doesn't count as a distribution day.

As you start to study the overall market direction and the indexes, take the time to watch the IBD TV market wrap and to read the Big Picture column. What I like to do as part of my stock market investing daily routine is review the indexes myself first and then see what the IBD says to confirm if I analyzed it correctly.

In time, you'll learn that counting distribution days is really easy with the help of the IBD.

Sunday, August 1, 2010

Stock Market Investing - Is The Market Bigger Than Us All?

A lot of people who study stock market investing eventually think the market is rigged. I'm no different. I think that for anybody who has invested in a stock only to watch it immediately go down, or for anyone who has retired at the same time all of their company stock tanked and for anyone who wonders why stocks with lousy fundamentals go up in price, you eventually become jaded. Maybe it's age, but as time passes, I am more and more skeptical of how the stock market functions.

As my friend and I were talking about it this week, I realized we sounded a lot like we did when we were complaining about the NBA and it's lousy officiating. Back then, we'd always say that "the league was bigger than us all" and we resigned ourselves to the fact that we couldn't do anything about it. So after that discussion, I said to myself that the market is bigger than us all. I felt better but disappointed. Is the market so out of whack that a small investor has no chance? That's what my friend kind of thought. And, it's easy to agree with all the crap about hedge funds, Goldman Sachs and the whole Bernie Madhoff scheme in the media day in and day out.

But, with all that, I still think that the market is "the place" to make a fortune. What's needed though is a new stock market investing guide for the little guy. One that recognizes that the market is not perfect because it's being gamed by the big money players who don't care whether you make money or not. They only care if they make money. So, if you are tired of getting ripped off by the "system". I hope that you'll stay tuned as I start to put together the guide to stock market investing that proves you can turn the tables and play the same game as they do.

Will it be easy? No. Will it take study? Yes. What's going to be required is that you commit to be a master of your strategy and start looking at your investment program in a new light. You will need to take a long hard look at how you've done things in the past. You'll need to practice your craft and break down every step you take in your daily routine down to separate and distinct checklist that will guide your every decision.

If you can't commit, then what should you do? Well, put your money in a mutual fund and ride it out for 15-20 years. Put it in the best fund you can find or even consider index funds. If you can't meet the minimum investments start with an ETF, but get started because the market over the long haul has always averaged better than anything else. Personally, I suppose everyone should have a base of mutual funds before they start investing in individual stocks -- at least until they become good at stock selection and entry and exit points. While you are learning you might want to consider your stock purchases as tuition until you hone your skills. I definitely think you can out do your broker, if you study and apply what you learn. Mainly because your broker never advises you to sell. This to me is the cardinal sin of a broker because the buy and hold strategy for individual stocks will basically guarantee that you'll watch your gains disappear. Learning to sell is so hard that the brokers don't even know when to tell you to do it and therefore teach the buy and hold strategy.

I guess if you are a real beginner, you are probably going to start from scratch by reading some books. I know that when I first started, I read the Neatest Little Guide To Stock Market Investing and Stock Market Investing For Dummies. I know recently, I picked up a beginner book called, How A Second Grader Beats Wall Street: Golden Rules Any Investor Can Learn. These books can form a good base of knowledge for you. But, the real bible of investing is How To Make Money In Stocks by William O'Neil. This is a must read as far as I'm concerned for anyone serious about getting started in the market.

Why do I think this book is the bible for investors? Because he teaches the CANSLIM theory of investing which focuses on the two most important components of a stock. The first side is the fundamental side which are the earnings, the sales, return on equity. The basic performance of the company. The second side is the the technical side. This is the side that is like an x-ray that tells you things like price and volume. While both sides are important. it's the technical side that tells you the real story.

You see, where CANSLIM can really help you, is by teaching you how to do what the big money does and not what the big money tells you to do. Your job is to identify where the big money is flowing and follow it.

This is key and you won't find this information on CNN, Fox News, Money or the Wall Street Journal. There's only one place you can find that's devoted to sharing that information with you and that's the Investor's Business Daily.

By using their tools - which you can access online - stock market investing with the IBD information at your fingertips is the first change you need to make in your philosophy (if you haven't already).

As you can tell, I'm not really advocating a new investing strategy as CANSLIM has been around for a while. I'm not even saying that you need to choose it for your strategy. Any of the major strategies can and will work and they still do. What won't work is jumping from strategy to strategy. This idea that you one day be a value investor, the next day be a growth investor and then the next be an options trader won't cut it.  This is a major problem as I see it for stock market investing - beginners won't stick to a strategy. What happens then is that you are not a master at any strategy. Pick one and stick to it.

In following that advice, the strategy of choice for this site is going to be CANSLIM for the reasons I gave above. But the techniques as far as mastering any strategy will be the same. Break down your decisions step by step. Master each step. Refine the steps as you go along.

Very, very few people do this. Many people who fail at investing on their own, didn't take the time to master what they set out to do. When they fail, it's easier sometimes to blame others, like the market. And, while I do subscribe to the notion that the market is bigger than us all, I don't believe that you can't succeed. After all, even in the NBA, someone wins the championship. There are winners and losers in every market. You can be one of them.