zlib.pub_how-to-make-money-in-stocks

How to Make Money in Stocks

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How to Make Money in Stocks FOURTH EDITION A WINNING SYSTEM IN GOOD TIMES OR BAD WILLIAM J. O’NEIL New York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan Seoul Singapore Sydney Toronto

Copyright © 2009, 2002 by William J. O'Neil. All rights reserved. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of the publisher. ISBN: 978-0-07-161414-6 MHID: 0-07-161414-1 The material in this eBook also appears in the print version of this title: ISBN: 978-0-07-161413-9, MHID: 0-07-161413-3. All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occur- rence of a trademarked name, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trademark. Where such designations appear in this book, they have been printed with initial caps. McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate training programs. To contact a representative please e-mail us at [email protected]. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. —From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers This text contains the following, which are trademarks, service marks, or registered trademarks of Investor’s Business Daily, Inc., William O’Neil + Co. Incorporated, or their affiliated entities in the United States and/or other countries: Investor’s Business Daily®, IBD®, CAN SLIM®, SmartSelect®, ACC/DIS RTG®, SMR®, Stock Checkup®, Stocks on the Move™, Daily Graphs®, Daily Graphs Online®, O’Neil Database®, and The William O’Neil + Co. 197 Industry Groups®. TERMS OF USE This is a copyrighted work and The McGraw-Hill Companies, Inc. (“McGraw-Hill”) and its licensors reserve all rights in and to the work. Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copy of the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, distribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hill’s prior consent. You may use the work for your own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminated if you fail to comply with these terms. THE WORK IS PROVIDED “AS IS.” McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TO THE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUDING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, AND EXPRESSLY DISCLAIM ANY WARRAN- TY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WARRANTIES OF MER- CHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant or guarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free. Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inac- curacy, error or omission, regardless of cause, in the work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed through the work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequential or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility of such damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tort or otherwise.

• CONTENTS • Part I: A Winning System: CAN SLIM® Introduction You Can Learn and Benefit from America’s 3 100 Years of Super Winners CHAPTER 1 The Greatest Stock-Picking Secrets 9 CHAPTER 2 How to Read Charts Like a Pro and Improve 110 Your Selection and Timing CHAPTER 3 C = Current Big or Accelerating Quarterly Earnings and Sales 152 CHAPTER 4 A = Annual Earnings Increases: Look for Big Growth 161 CHAPTER 5 N = Newer Companies, New Products, New Management, 171 New Highs Off Properly Formed Bases CHAPTER 6 S = Supply and Demand: Big Volume Demand at Key Points 180 CHAPTER 7 L = Leader or Laggard: Which Is Your Stock? 186 CHAPTER 8 I = Institutional Sponsorship 193 CHAPTER 9 M = Market Direction: How You Determine It 199 Part II: Be Smart from the Start CHAPTER 10 When You Must Sell and Cut Every Loss . . . without Exception 239 CHAPTER 11 When to Sell and Take Your Worthwhile Profits 254 v

vi CONTENTS CHAPTER 12 Money Management: Should You Diversify, Invest for the Long Haul, Use Margin, Sell Short, Buy Options, IPOs, Tax Shelters, Nasdaq or Foreign Stocks, Bonds, Etc.? 273 CHAPTER 13 Twenty-One Costly Common Mistakes Most Investors Make 302 Part III: Investing Like a Professional CHAPTER 14 More Models of Great Stock Market Winners 311 CHAPTER 15 Picking the Best Market Themes, Sectors and Industry Groups 323 CHAPTER 16 How to Use IBD® to Find Potential Winning Stocks 340 CHAPTER 17 Watching the Market and Reacting to News 382 CHAPTER 18 How You Could Make Your Million Owning Mutual Funds 393 CHAPTER 19 Improving Management of Pension and Institutional Portfolios 403 CHAPTER 20 Important Rules to Never Forget 424 Real Success Stories 429 Index 443

I• PART • A Winning System: CAN SLIM®

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• INTRODUCTION • You Can Learn and Benefit from America’s 100 Years of Super Winners After the market debacles of 2000 and 2008, most investors now know that they need to take charge and learn much more about what they’re doing when they save and invest their hard-earned money. However, many investors don’t know where to turn, whom to trust, or what they must stop doing if they are to achieve dramatically superior investment performance. You don’t have to give your money to a Bernie Madoff, who’ll take it but won’t tell you exactly what he’s doing with it. Instead, you can and should read a few good investment books, attend some investment classes, or par- ticipate in an investment meet-up group so that you can learn how to invest with real confidence. At the very least, you should learn and under- stand well the sound principles and proven rules and methods that will protect and build your investment portfolio over time. Half of all Ameri- cans save and invest; now it’s time to learn to do it intelligently with criti- cal knowledge. When I started investing, I made most of the same mistakes you’ve prob- ably made. But here’s what I’ve learned: • You should buy stocks when they’re on the way up in price, not on the way down. And when you buy more, you do it only after the stock has risen from your purchase price, not after it has fallen below it. • You buy stocks when they’re nearer to their highs for the year, not when they’ve sunk so low that they look cheap. You buy higher-priced stocks rather than the lowest-priced stocks. 3

4 A WINNING SYSTEM • You learn to always sell stocks quickly when you have a small loss rather than waiting and hoping they’ll come back. • You pay far less attention to a company’s book value, dividends, or PE ratio—which for the last 100 years have had little predictive value in spot- ting America’s most successful companies—and focus instead on more important proven factors such as profit growth, price and volume action, and whether the company is the number one profit leader in its field with a superior product. • You don’t subscribe to a bunch of market newsletters or advisory services, and you don’t let yourself be influenced by recommendations from ana- lysts, who, after all, are just expressing personal opinions that can fre- quently be wrong. • You also have to acquaint yourself with charts—an invaluable tool most professionals wouldn’t do without but amateurs tend to dismiss as com- plicated or irrelevant. All these vital actions are completely contrary to human nature. In reality, the stock market is human nature and crowd psychology on daily display, plus the age-old law of supply and demand at work. Because these factors have remained the same over time, it is remarkable but true that chart pat- terns are just the same today as they were 50 years ago or 100 years ago. Few investors know or understand this. It can be to your inspiring advantage. In this fourth edition of How to Make Money in Stocks, I’m showing you right up front, in Chapter 1, 100 annotated color charts of 100 of America’s greatest winning stocks, covering each decade from the 1880s to the end of 2008—from the Richmond and Danville Railroad in 1885 and Northern Pacific during the famous corner of the stock in 1901, when it raced from $115 to $700 in one week, to Apple and Google in our twenty-first century. There is a lot you can learn from studying these great examples. You’ll see that there are such things as chart bases that have been repeated year after year with enormous success. There are 105 examples (among the 100 stocks) of classic bases that look like cups with handles when viewed from the side. Some are small, others large, and still others in between. In addition to cups with handles, we’ve identified eight other distinctively different, highly successful base patterns that have occurred in cycle after cycle. Bethlehem Steel in 1915 is our first powerful high, tight flag example and served as a perfect historical precedent for later high, tight flags such as Syntex, Rollins, Simmonds Precision, Yahoo!, and Taser. All of these stocks had huge price moves. Charts will help you tell the better stocks and general markets from the weaker, riskier stocks and markets that you must sidestep and avoid alto-

5Introduction gether. That’s why I put all these examples in Chapter 1, with notes marked on the charts to help you learn a skill that could just change your whole life and let you live better and smarter. A good clear picture is worth a thousand words. These 100 examples are just a sample of what you’ve been missing. We have models of more than 1,000 great stock market winners over the last 100 years. It takes only one or two to make your year or your future. But you have to get serious and work at really learning and knowing what you’re doing when you invest. You can do it if you really want to. You’ll probably find this a whole new way of looking at America and its stock market. From the railroad to the auto and the airplane, from the radio and TV to computers, from jet airliners to space exploration, from massive discount stores to semiconductors and the Internet, this country has shown rapid, unceasing growth. Living standards for the great majority of Americans have improved materially from what they were 100, 50, or even 30 years ago. Yes, there will always be problems, and everyone likes to criticize. But America’s innovators, entrepreneurs, and inventors have been a major dri- ving force behind its unparalleled growth. They have created the new indus- tries, new technologies, new products, new services, and most of the jobs from which we all have benefited. Now it’s up to you to learn how to intelligently take advantage of the relentless growth opportunities America’s freedom makes possible and that entrepreneurs keep presenting for everyone during every business cycle. In the following chapters, you will learn exactly how to pick big winners in the stock market and nail down the gains they produce. You will also learn how to substantially reduce your mistakes and losses. Many people who dabble in stocks either have mediocre results or lose money because of their lack of knowledge. But no one has to continue to lose money. You can definitely learn to invest wisely. This book will provide you with the investment understanding, skills, and methods you need if you are to become a more successful investor. I believe that most people in this country and throughout the free world, whether they are young or old and regardless of their profession, education, background, or economic position, should learn to save and invest in com- mon stocks. This book isn’t written for the elite, but for the millions of ordi- nary guys and gals everywhere who want a chance to be better off financially. You are never too old or too young to start investing intelligently. • YOU CAN START SMALL—If you’re a typical working person or a beginning investor, you should know that it doesn’t take a lot of money to start. You can begin with as little as $500 to $1,000 and add to it as you earn and save more

6 A WINNING SYSTEM money. I began with the purchase of just five shares of Procter & Gamble when I was only 21 and fresh out of school. Mike Webster is one of our in-house managers who also started small. In fact, Mike sold personal belongings, including his music CD collection, to raise cash for investing. Prior to managing money for the firm, he had a gain of over 1,000% in his personal account in 1999, a very unusual year. Steve Birch, another of our in-house money managers, started managing money earlier. He took advantage of the roaring bull market of the late 1990s and protected most of his gains by going mainly to cash in the bear market. Between 1998 and 2003, he had gained over 1,300%. Both Mike and Steve have had their rough years, but they’ve learned from their many mistakes, which we all make, and gone on to achieve significant performance. You live in a fantastic time of unlimited opportunity, an era of outstand- ing new ideas, emerging industries, and new frontiers. However, you have to read the rest of this book to learn how to recognize and take advantage of these amazing new situations. The opportunities are out there for everyone. You are now in a continu- ally changing and, hopefully, improving New America. We lead the world in high technology, the Internet, medical advancements, computer software, military capability, and innovative new entrepreneurial companies. The communist/socialist system and the concept of a centralized “command economy” are now relegated to the ash heap of history. They did not work. Our system of freedom and opportunity serves as a model of success for most countries in the world. Today it’s not enough for you to just work and earn a salary. To do the things you want to do, go the places you want to go, and have the things you want to have in your life, you absolutely must save and invest intelligently. The income from your investments and the net gains you can make will let you reach your goals and provide real security. This book can just change your whole life. No one can hold you back but yourself. • SECRET TIP—The first step in learning how to pick big stock market winners is to examine leaders of the past, like those you’re about to see, to learn the characteristics of the most successful stocks. From these observations, you will be able to recognize the types of price patterns these stocks developed just before their spectacular price advances. Other key factors you’ll discover include what the quarterly earnings of these companies were at the time, what the annual earnings histories of these organizations had been in the prior three years, what amount of trad-

7Introduction ing volume was present, what degree of relative strength there was in the prices of the stocks before their enormous success, and how many shares of common stock were outstanding in the capitalization of each company. You’ll also learn many of the greatest winners had significant new prod- ucts or new management, and many were tied to strong industry group moves caused by important changes occurring in an entire industry. It’s easy to conduct this type of practical, commonsense analysis of all past successful leaders. I have already completed such a comprehensive study. In our historical analysis, we selected the greatest winning stocks in the stock market each year (in terms of percentage increase for the year), spanning the past 125 years. We call the study “The Model Book of Greatest Stock Market Winners.” It’s been expanded recently to cover stocks dating back to the 1880s. It now analyzes more than 1,000 of the biggest winning companies in recent mar- ket history in detail, super stocks such as Texas Instruments, whose price soared from $25 to $250 from January 1958 through May 1960 Xerox, which escalated from $160 to the equivalent of $1,340 between March 1963 and June 1966 Syntex, which leaped from $100 to $570 in only six months during the last half of 1963 Dome Petroleum and Prime Computer, which advanced 1,000% and 1,595%, respectively, in the 1978–1980 stock market Limited Stores, which wildly excited lucky shareowners with a 3,500% increase between 1982 and 1987 Cisco Systems, which between October 1990 and March 2000 advanced from a split-adjusted $0.10 to $82 Home Depot and Microsoft both increased more than 20 times during the 1980s and early 1990s. Home Depot was one of the all-time great per- formers, jumping 20-fold in less than two years from its initial public offer- ing in September 1981 and then climbing another 10 times from 1988 to 1992. All of these companies offered exciting new entrepreneurial products and concepts. In total, we actually have 10 different model books that cover America’s innovative and highly successful companies. Would you like to know the common characteristics and rules of success we discovered from this intensive study of all past stock market leaders? They’re all covered in the next few chapters and in a simple, easy-to- remember formula we have named CAN SLIM. Each letter in the words

8 A WINNING SYSTEM CAN SLIM stands for one of the seven chief characteristics of these great- est winning stocks at their early developing stages, just before they made huge profits for their shareholders and our country (companies and employ- ees all pay taxes as well as helping to improve our standard of living). Write this formula down, and repeat it several times so you won’t forget it. The reason CAN SLIM continues to work cycle after cycle is that it’s based solely on the reality of how the stock market actually works rather than on our personal opinion or anyone else’s, including Wall Street’s. Fur- thermore, human nature at work in the market simply doesn’t change. So CAN SLIM does not get outmoded as fads, fashions, and economic cycles come and go. It will beat big egos and personal opinions every time. You can definitely learn how to pick winners in the stock market, and you can become part owner of the best companies in the world. So, let’s get started right now. Here’s a sneak preview of CAN SLIM: C Current Quarterly Earnings per Share: The Higher, the Better A Annual Earnings Increases: Look for Significant Growth N New Products, New Management, New Highs: Buying at the Right Time S Supply and Demand: Shares Outstanding Plus Big Volume Demand L Leader or Laggard: Which Is Your Stock? I Institutional Sponsorship: Follow the Leaders M Market Direction: How to Determine It Please begin immediately with Chapter 1. Go for it. You can do it.

1• CHAPTE R • The Greatest Stock-Picking Secrets Right up front in this latest revised edition, you’ll see 100 charts of the greatest winners from 1880 through 2008. Study them carefully. You’ll discover secret insights into how these companies set the stage for their spectacular price increases. Don’t worry if you’re a new investor and don’t understand these charts at first. After all, every successful investor was a beginner at some point—and this book will show you how to spot key buying opportunities on the charts, as well as critical signals that a stock should be sold. To succeed you need to learn sound, historically proven buy rules plus sell rules. As you study these charts you’ll see there are specific chart patterns that are repeated over and over again whether in 1900 or 2000. This will give you a huge advantage once you learn to recognize these patterns that in effect tell you when a stock is under professional accumulation. It is the unique combination of your finding stocks with big increases in sales, earnings and return on equity plus strong chart patterns revealing institutional buying that together will materially improve your stock selec- tion and timing. The best professionals use charts. You too can learn this valuable skill. This book is about how America grows and you can too. The American dream can be yours if you have the drive and desire and make up your mind to never give up on yourself or America. 9

Richmond & Danville–1885 Completed railroad route from Richmond to Danville, Virginia in 1856. By 1890 it covered Weekly Chart 3,300 miles throughout the southern states. Price up A weeks in black America’s first cup-with-handle ch long one…74 weeks of price and v Price down To count the weeks in a base, begi weeks in red week that closes down in price at p High, low and looks like a cup-with-handle if view close plotted for each week Jun 1882 Sep 1882 Dec 1882 Mar 1883 Jun 1883 Sep 1883 Dec 1883 Mar 1884 Jun 1884 Sep 1884 Dec Richmond & Danville incre

Price 10 A WINNING SYSTEM Buy 400 © 2009 Investor’s Business Daily, Inc. hart base…a 340 volume action. 300 in with the first 260 point A. Pattern 220 wed from the side. 190 160 c 1884 Mar 1885 Jun 1885 Sep 1885 Dec 1885 Mar 1886 Jun 1886 Sep 1886 Dec 1886 140 120 eased 257% in 70 weeks. 100 80 70 60 45 38 32 28 24 20 17 15 Volume 5,400 2,400 1,000 40 0

Tennessee Coal & Iron–1898 Mass-production of steel for The Spanis Lowered freight costs by using its own Weekly Chart operating costs by employing convicts. Weekly trading Average weekly volume, color of trading volume for volume matches prior 10 weeks color of price Jun 1895 Sep 1895 Dec 1895 Mar 1896 Jun 1896 Sep 1896 Dec 1896 Mar 1897 Jun 1897 Sep 18 Tennessee Coal and Iron inc

sh-American War. Price The Greatest Stock-Picking 11Secrets railroad and lowered 220 . 190 160 Buy 140 A classic shorter 120 16-week cup- with-handle (note 100 4 weeks of tight closes at bottom) 80 Volume increase 70 on breakout 60 50 40 34 30 26 22 19 16 14 12 10 8 Volume © 2009 Investor’s Business Daily, Inc. 80,000 50,000 30,000 18,000 897 Dec 1897 Mar 1898 Jun 1898 Sep 1898 Dec 1898 Mar 1899 Jun 1899 Sep 1899 Dec 1899 creased 265% in 39 weeks.

Northern Pacific–1900 Chartered as the first transcontinental railroad by Abraham Lincoln in 1864. Contributed Weekly Chart largely to the opening of the Northwestern United States. 10-week moving average line of prices Relative P Dow Jon Uptrendin outperfor Dec 1896 Mar 1897 Jun 1897 Sep 1897 Dec 1897 Mar 1898 Jun 1898 Sep 1898 Dec 1898 Mar 1899 J Northern Pacific increase

Northern Pacific Corner 1901: a financial Price 12 A WINNING SYSTEM contest for control of the railroad. At the end, 600 James Hill and J.P. Morgan secured control 500 Dow Jones Ind. 400 Sell: climax top 340 Add 300 260 Buy 10-week cup- 220 with-handle 190 160 18-week 140 double bottom 120 Price Strength Line vs. 100 nes Industrial average. ng line means stock is 80 rming the market index. 70 60 © 2009 Investor’s Business Daily, Inc. 50 40 34 30 26 22 Volume 250,000 120,000 60,000 30,000 Jun 1899 Sep 1899 Dec 1899 Mar 1900 Jun 1900 Sep 1900 Dec 1900 Mar 1901 Jun 1901 ed 1181% in 29 weeks.

Price = Bethlehem Steel–1914 Bethlehem Steel produced about 60% of the 10*eps Allies’ munitions during World War I. America 242 steelmakers chose to stabilize profits for 80 Weekly Chart domestic contracts so foreign orders accounted for most of the profits. 70 Market c 60 Quarter by quarter plot of 50 earnings per share for prior 45 12 months (earnings scale is on the left) 40 36 Bu 8-month base during 32 30 Market 28 closed du 26 World W 24 22 20 18 16 15 14 13 12 11 10 9.00 8.00 7.00 6.00 5.00 4.50 4.00 3.60 3.20 3.00 2.80 2.60 2.40 Sep 1912 Dec 1912 Mar 1913 Jun 1913 Sep 1913 Dec 1913 Mar 1914 Jun 1914 Sep 1914 De Bethlehem Steel increas

an Dow Jones Ind. Price 700 correction Sell: climax top 600 500 Buy 400 6-week high tight flag 340 300 uy Can usually buy a market 260 The Greatest Stock-Picking 13Secrets leader the first 2 times it 220 WWI pulls back to its 10-week 190 uring moving average line 160 War I 140 120 © 2009 Investor’s Business Daily, Inc. 100 80 70 60 50 40 34 30 26 Volume 10,600 3,600 1,200 400 ec 1914 Mar 1915 Jun 1915 Sep 1915 Dec 1915 Mar 1916 Jun 1916 Sep 1916 Dec 1916 sed 1479% in 99 weeks.

General Motors–1915 Acquisitions turned Buick Motor Company into the mega-corporation General Motors. In 1914, manufact Weekly Chart 8-cylinder engine, a major development in high-speed Jun 1911 Sep 1911 Dec 1911 Mar 1912 Jun 1912 Sep 1912 Dec 1912 Mar 1913 Jun 1913 Sep 1913 Dec 1 General Motors increas

tured first Dow Jones Ind. Price 14 A WINNING SYSTEM d engines. 600 GM breaks out as Dow Jones turns up 500 into new uptrend 400 Market correction 340 300 Add 260 220 Buy Note: 4 weeks in a 190 Base row tight price closes 160 140 9 months in base 120 before buy point 100 80 70 60 50 Big volume at 117/100 40 © 2009 Investor’s Business Daily, Inc. buy point 34 Market 30 closed during 26 World War I 22 Volume 9,000 5,600 3,400 2,000 1913 Mar 1914 Jun 1914 Sep 1914 Dec 1914 Mar 1915 Jun 1915 Sep 1915 Dec 1915 Mar 1916 sed 471% in 39 weeks.

Price = S.S. Kresge–1923 The mid-1920s was a transition period from 20*eps mom-and-pop corner stores to corporation-owned retail chains. S.S. Kresge grew from 233 stores in 5.00 Weekly Chart 1924 to 451 stores just 4 years later. 4.50 4.00 3.50 3.00 Market correction 2.50 2.25 2.00 Buy 1.80 Earnings per share 1.60 acceleration 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.75 0.70 0.65 0.60 Buy 22-week saucer- 0.55 with-handle 0.50 0.45 0.40 0.35 14-week cup- 0.30 with-handle 0.25 Big volume increase Volum 0.23 3/2 4/3 0.20 0.18 Dec 1921 Mar 1922 Jun 1922 Sep 1922 Dec 1922 Mar 1923 Jun 1923 Sep 1923 Dec 192 S.S. Kresge increased

Sell on the way up if stock Dow Jones Ind. Price goes above uptrend line on a 100 logarithmic chart plotted over 3 “peaks” spread out over a 80 period of months 70 60 Add at 10-week moving average line 50 40 34 30 26 22 19 16 14 12 10 8 7 6 me up 4. 5 © 2009 Investor’s Business Daily, Inc. The Greatest Stock-Picking 15Secrets 3. 8 10/ 1 3/2 Volume 65,000 30,000 12,200 5,600 2,600 23 Mar 1924 Jun 1924 Sep 1924 Dec 1924 Mar 1925 Jun 1925 Sep 1925 Dec 1925 Mar 1926 d 836% in 154 weeks.

Utah Securities–1924 The public utilities industry was growing rapidly as more homes and businesses Weekly Chart were wired for electricity. Dec 1920 Mar 1921 Jun 1921 Sep 1921 Dec 1921 Mar 1922 Jun 1922 Sep 1922 Dec 1922 Mar 1923 Utah Securities increas

Sell: climax top Price 16 A WINNING SYSTEM Dow Jones Ind. 180 160 Buy 54-week base 140 130 Big volume increase 120 on buy week 110 100 90 80 70 60 Pullback: about half the time, 50 a breakout from a proper base 45 may pull back to its buy point or slightly below. Rarely will it ever 40 pull down 8% below your exact 36 buy point if properly executed 32 28 26 24 22 20 18 16 15 14 13 12 11 10 9 8 7 6 Volume © 2009 Investor’s Business Daily, Inc. 30,000 14,000 6,000 2,000 Jun 1923 Sep 1923 Dec 1923 Mar 1924 Jun 1924 Sep 1924 Dec 1924 Mar 1925 Jun 1925 sed 538% in 63 weeks.

Du Pont de Nemours–1925 A leader in science and technology across many industries including agriculture, film and autom Weekly Chart Hybridization of seed corn in 1926 by Henry Wa moisture-proof cellophane were 2 notable achie Market correction Market correction 4 weeks tight closes Buy Buy at moving average line Flat base 3 weeks Buy 3 weeks tight tight closes Handle drifts do along weekly lo Sell: climax top 20-week cup- with-handle Add 2/1 Buy 35-week double bottom- with-handle 9-week cup- with-handle 9 weeks Shakeout but Volume up in-a -row never 8% below up last buy point Volume up 13/10 Mar 1925 Jun 1925 Sep 1925 Dec 1925 Mar 1926 Jun 1926 Sep 1926 Dec 1926 Mar 1927 Jun 1927 Sep 1 Du Pont de Nemours increa

y Dow Jones Ind. Price motive. 340 Sell: climax top with 300 allace and excessive 3/1 split 260 evements. 220 190 160 140 120 100 t 80 own 70 ow prices 60 50 40 34 30 26 22 19 16 © 2009 Investor’s Business Daily, Inc. The Greatest Stock-Picking 17Secrets 14 12 3/1 Volume 130,000 50,000 16,000 6,000 2,000 1927 Dec 1927 Mar 1928 Jun 1928 Sep 1928 Dec 1928 Mar 1929 Jun 1929 Sep 1929 Dec 1929 ased 1074% in 225 weeks.

Price = Burroughs Adding Machines–1926 The largest manufactu 20*eps in the first half of the they introduced the “B 8.00 Weekly Chart weighed less than twe 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 Market correction 3.50 3.00 2.50 2.25 2.00 1.80 1.60 Buy 1.50 1.40 1.30 1.20 1.10 Earnings acceleration 1.00 begins 0.90 0.80 Buy 0.75 0.70 0.65 0.60 17-week flat base 0.55 0.50 0.45 Handle has tight closes and 0.40 drifts down in weekly prices 0.35 44-week saucer-with-handle Note: volume 0.30 dry-ups along lows in B 4/3 base means no further selling Sep 1925 Dec 1925 Mar 1926 Jun 1926 Sep 1926 Dec 1926 Mar 1927 Jun 1927 Sep 1927 Burroughs Adding Machines in

urer of adding machines Market top Price 18 A WINNING SYSTEM 20th century. In 1925, 160 Burroughs Portable” that Dow Jones Ind. 140 enty pounds. 120 Sell: climax top with 100 excessive 5/1 split 80 Add: 3 tight weeks Buy 70 after breakout and then 60 pulls back to 10-week 50 moving average line 40 Buy 34 8-week flat base 30 tight closes 26 22-week base 22 19 Depression begins, stock falls from 98 16 to 29 in 5 weeks 14 12 Note: 3 weeks tight closes and tight price Breaks below 10-week 10 spreads prior to breakout moving average and closes week below on 8 Note: extreme volume huge volume. Beginning 7 dry-up near low just of Great Depression 6 Breakout before breakout, no one is noticing the stock 6/5 5/1 Volume © 2009 Investor’s Business Daily, Inc. 30,000 14,000 6,000 2,000 7 Dec 1927 Mar 1928 Jun 1928 Sep 1928 Dec 1928 Mar 1929 Jun 1929 Sep 1929 Dec 1929 ncreased 1992% in 168 weeks.

Price = Intl. Business Machines–1926 IBM was expanding and develo 20*eps in the 1920s. In 1925, it release Weekly Chart with a speed of 360 cards per m 20 duplicator. In 1928, it redesigne 18 Market correction almost double the previous cap 16 Very important: after shakeout, 15 if stock comes back up through Vertical lines on earnings lin 14 10-week line on even greater mark when earnings report 13 volume you must buy it back! was released 12 11 Buy Buy 10 9.00 Add Add Base-on-base-o 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 7-week base 3 weeks 2.25 tight closes 2.00 1.80 1.60 Sell: down 8% from cost 1.50 due to premature buying, 1.40 36-week cup-with-long-handle stock wedged up along lows 1.30 that finally corrects for wedging over prior 12 weeks. Handle 1.20 up along lows by shaking out. It should drift down along low 1.10 then goes up 400% 1.00 0.90 0.80 6/5 3/1 Volume picks up on shakeout Sep 1925 Dec 1925 Mar 1926 Jun 1926 Sep 1926 Dec 1926 Mar 1927 Jun 1927 Sep 1927 International Business Machines

oping new, successful products Price ed horizontal sorting machines 500 minute and the first standard ed the punch card to hold Dow Jones Ind. pacity. 400 Sell: exhaustion gap 340 ne Buy 300 260 220 190 160 140 y 120 Depression 100 begins 80 on-base 70 60 Key: A successful investor learns to do what most investors 45 are not willing to do. Psychologically, most investors don’t 38 use charts, do not want to buy stocks making new highs, and can’t bring themselves to cut every loss at 8%. Even fewer can bring themselves, after selling a stock at a loss, 32 s to buy it back higher. This is the difference between 28 The Greatest Stock-Picking 19Secrets e successful and unsuccessful investors. 24 ws 20 Note: 5 red weeks 17 © 2009 Investor’s Business Daily, Inc. with volume up Volume from prior week 14,200 7,800 4,200 2,200 Dec 1927 Mar 1928 Jun 1928 Sep 1928 Dec 1928 Mar 1929 Jun 1929 Sep 1929 Dec 1929 s increased 400% in 161 weeks.

Price = Wright Aeronautical–1927 One of only three companies that con 20*eps manufacturing aircraft engines after W Most U.S. fighter planes used Wright 15 Weekly Chart the 1920s. The revolutionary air-coole 14 debuted in 1927. 13 12 Big uptr 11 10 9.00 8.00 7.50 7.00 6.50 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.25 2.00 1.80 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.75 0.70 0.65 0.60 0.55 Dec 1924 Mar 1925 Jun 1925 Sep 1925 Dec 1925 Mar 1926 Jun 1926 Sep 1926 Dec 1926 M Wright Aeronautical increa

ntinued Dow Jones Ind. Price 20 A WINNING SYSTEM World War I. 300 engines in 260 ed engine 220 190 Sell: climax top 160 140 Do Not Buy Here! Note this is a Buy 120 3rd stage base. Seven weeks ago fast run-up to 91 with stalling, 100 closes barely up for week on greater volume than prior week. 80 Stock also wedges up along lows. 70 60 Big EPS turn Buy 45 Buy as soon as stock 38 Buy recovers back above 32 28 10-week moving average 24 line on volume. 20 10-week cup- Add after few weeks below 17 with-handle 3 weeks 10-week moving average 15 line as stock goes back 13 tight closes above line on volume 11 volume on prior Huge above Breakout week Volume rend to base average volume volume higher 80,000 than prior week 50,000 30,000 18,000 © 2009 Investor’s Business Daily, Inc. Mar 1927 Jun 1927 Sep 1927 Dec 1927 Mar 1928 Jun 1928 Sep 1928 Dec 1928 Mar 1929 ased 464% in 76 weeks.

Price = Radio Corp of America–1927 Radios gained in popularity during 20*eps from 5,000 in-home sets in 1920 t million by 1924. In 1926, through 6.50 Weekly Chart and acquisitions with RCA’s own n 6.00 National Broadcasting Company (N the first major broadcast network 5.50 5.00 4.50 4.00 3.50 3.00 2.50 2.25 Remember: examples of great winners are split-adjusted for all splits. Don’t fall into trap of incorrectly thinking because buy point marked on RCA’s chart was 2.00 14, that was the real price at that time. It was really 5 times 14, or 70 since 1.80 all stocks in these 100 examples have been adjusted for stock splits (note the 5 for 1 split shown at bottom far right just above the volume weekly bars. For 1.60 1.50 1.40 example both Cisco and Microsoft’s 1st buy point on their first base was in the 1.30 $30 range and Google was $113. Of the more than 1,000 models we have of 1.20 history’s greatest winners, the vast majority began by coming out of their first 1.10 base from $30 up to $100 or more. Since our rules are historically proven, 1.00 we avoid $3, $5, and $10 stocks because the quality, liquidity and caliber of sponsorship is much lower. Our minimum is $20 for stocks on the NYSE. 0.90 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 0.23 Dec 1924 Mar 1925 Jun 1925 Sep 1925 Dec 1925 Mar 1926 Jun 1926 Sep 1926 Dec 1926 Mar 1 Radio Corporation of America

g the 1920s Note: Once RCA, in the June Dow Jones Ind. Price to over 2.5 & September 1928 quarter, 140 mergers undercuts the low price of point A 120 network, the and completes a new base, it now NBC) became becomes a 1st stage base. 100 in the U.S. 80 Do Not Buy! Third Buy off 19-week 70 stage base is too base 60 obvious...everyone sees it. 50 Buy after 3 weeks below 10-week A 40 moving average line, when Shakeout: but 34 volume picks up and price moves barely closes 30 back up through the 10-week line. week down and 26 This is a second stage base. 22 Shakeout of buyers closes at top area 19 Buy who were wrong in for the week buying from 3rd stage 16 7-week base breakout to new high. 14 flat base 12 10 8 7 Huge volume Above average volume 6 The Greatest Stock-Picking 21Secrets and higher volume 5 for 1 split 5 than prior week 5/1 © 2009 Investor’s Business Daily, Inc. Volume 1,600,000 800,000 400,000 1927 Jun 1927 Sep 1927 Dec 1927 Mar 1928 Jun 1928 Sep 1928 Dec 1928 Mar 1929 Jun 1929 increased 739% in 74 weeks.

Price = Minneapolis-Honeywell Regulator–1933 Company wa 20*eps of the pyrom 1934, it bega 6.00 Weekly Chart strategy, incl 5.50 5.00 4.50 4.00 3.50 3.00 Market correction Market correction causes Bu 2.50 the base-on-base-on-base 10 lin 2.25 2.00 Near low of depression 1.80 on Dow Jones 1.60 Buy 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 Buy 9-week bas 0.75 Base-on-base-on-base 0.70 (3 bases, each correctin 0.65 and stopping in top area 0.60 previous base) 0.55 0.50 0.45 Earnings acceleration 0.40 0.35 0.30 0.25 Big volume 0.23 increase 0.20 Dec 1932 Mar 1933 Jun 1933 Sep 1933 Dec 1933 Mar 1934 Jun 1934 Sep 1934 Dec 1934 Mar 19 Minneapolis-Honeywell Regulato

as responsible for the invention Dow Jones Ind. Price 22 A WINNING SYSTEM meter and the thermostat. In 120 an an aggressive expansion 100 luding foreign markets. uy: comes back over 80 0-week moving average 70 ne on volume increase 60 50 se © 2009 Investor’s Business Daily, Inc. Notice how this 3rd base-on-base 40 finally is tighter and less wide and 34 loose than prior bases in March 30 26 ng and September 1934 22 a of 19 16 3/1 14 12 10 8 7 6 4. 5 Volume 3,200 1,600 800 400 935 Jun 1935 Sep 1935 Dec 1935 Mar 1936 Jun 1936 Sep 1936 Dec 1936 Mar 1937 Jun 1937 or increased 987% in 170 weeks.

Price = Coca-Cola–1934 Five cents bought you a Coke in the 1930s. 20*eps Coke was expanding into foreign markets and Weekly Chart was becoming a bestseller in Western Europe. 14 13 Market correction Market correction Market correc 12 11 Earnings acceleration 10 9.00 Buy 8.00 6-week 7.50 Buy 7.00 6.50 27-week cup-with-handle Add: 2nd pullback to 10- 6.00 moving average line 5.50 Add: 1st pullback to 10-week 5.00 moving average line 4.50 4.00 3.50 3.00 2.50 2.25 2.00 1.80 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.75 0.70 0.65 0.60 0.55 0.50 Mar 1933 Jun 1933 Sep 1933 Dec 1933 Mar 1934 Jun 1934 Sep 1934 Dec 1934 Mar 193 Coca-Cola increased

Dow Jones Ind. Price 300 ction 260 220 Buy 190 Buy 160 140 5-week flat base 120 5-week flat base k flat base 100 Add: comes back across 10-week line on 80 volume increase from prior week 70 -week 60 4/1 45 © 2009 Investor’s Business Daily, Inc. The Greatest Stock-Picking 23Secrets 38 32 28 24 20 17 15 13 11 Volume 13,800 5,000 1,800 60 0 35 Jun 1935 Sep 1935 Dec 1935 Mar 1936 Jun 1936 Sep 1936 Dec 1936 Mar 1937 Jun 1937 565% in 165 weeks.

Price = Deere & Co–1935 One of only a few competitors left standing in the 20*eps farm equipment industry after the Great Depression. 7.50 Although it was losing money in the midst of the 7.00 Weekly Chart Great Depression, Deere gained farmer loyalty by 6.50 carrying farmers’ debts for as long as possible. 6.00 5.50 5.00 4.50 4.00 3.50 3.00 2.50 Note: there is also a giant Buy 2.25 cup-with-handle from Sept. 1933 to Sept. 1935 2.00 1.80 4 c 1.60 p 1.50 t 1.40 2 weeks volume 1.30 dry-up 1.20 1.10 1.00 0.90 0.80 0.75 0.70 0.65 0.60 0.55 0.50 0.45 0.40 0.35 0.30 0.25 Jun 1933 Sep 1933 Dec 1933 Mar 1934 Jun 1934 Sep 1934 Dec 1934 Mar 1935 Jun 1935 Deere & Co increased

Dow Jones Ind. Sell: poor Price 24 A WINNING SYSTEM earnings report 160 140 Buy 120 100 Add: bounce back above 10-week 80 Buy moving average line 70 60 25-week base 4 weeks tight closes 50 9-week Sell: price closes week below 40 base 10-week moving average line 34 on volume increase and above 30 average weekly volume 26 22 Add: bounces off 10- 19 week moving average 16 line on volume 14 Stock up 8 12 weeks in a row 10 4 weeks in a row tight closes, last 2 weeks tiny 8 price spreads from high 7 to low of week 6 Volume up on Big volume Volume © 2009 Investor’s Business Daily, Inc. breakout week Volume up 25,000 Volume up off 10,400 10-week line 5,000 2,400 Sep 1935 Dec 1935 Mar 1936 Jun 1936 Sep 1936 Dec 1936 Mar 1937 Jun 1937 Sep 1937 d 307% in 104 weeks.

Price = Schenley Distilling–1943 In 1941, Schenley Distilling was, by govern 10*eps mandate, producing alcohol around the clo wartime use. It also began mass productio 11 Weekly Chart penicillin at this time and by 1945 penicillin sales became the dominant source of reve 10 9.00 8.00 7.00 6.00 5.00 4.50 4.00 3.60 3.20 Vital clue: 3.00 2.80 Big earnings 2.60 turn-up 2.40 2.20 2.00 1.80 1.60 Buy 31-week doubl 1.50 bottom at 15.9 1.40 first bottom on 1.30 beginning of th 1.20 1.10 1.00 0.90 0.80 Note: 5 weeks up in-a-row all close at 0.70 peak for the week 0.60 12-week cup- 0.50 with-handle 0.45 0.38 Volume up from 3/2 Note: big increasing volume prior week on prior uptrend to the base Jun 1942 Sep 1942 Dec 1942 Mar 1943 Jun 1943 Sep 1943 Dec 1943 Mar 1944 Jun 1944 S Schenley Distilling increas

nment Dow Jones Ind. Price ock for 120 on of Sell: climax top 100 n enue. 80 70 Buy 60 Note: tight closing 50 weeks along low 40 Buy 10-week cup- 34 without-handle 30 26 le bottom, second Add: 2nd pullback to and below line as 22 90 drops below soon as stock crosses back above the 19 n 3rd week down at moving average line on volume increase 16 he base Add: after you have a profit 14 and stock has 1st pullback 12 to 10-week moving average 10 Volume up Volume up Volume increases 8 The Greatest Stock-Picking 25Secrets 7 4/3 10/ 7 6 © 2009 Investor’s Business Daily, Inc. 5 4. 0 Volume 40,000 14,000 6,000 2,000 Sep 1944 Dec 1944 Mar 1945 Jun 1945 Sep 1945 Dec 1945 Mar 1946 Jun 1946 Sep 1946 sed 1164% in 185 weeks.

Price = Condé Nast Publications–1944 First publisher of lifestyle mag 10*eps fashion magazine, Vogue. Dur Condé Nast benefitted as less 6.00 Weekly Chart off. Additionally, the governme magazines and books for the t 5.00 4.50 Market corrections create stock bases 4.00 3.60 Earnings acceleration 3.20 Buy 3.00 2.80 43-week cup-with-handle 2.60 2.40 2.20 2.00 1.80 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.45 0.40 0.36 0.32 0.30 0.28 0.26 0.24 0.22 Mar 1942 Jun 1942 Sep 1942 Dec 1942 Mar 1943 Jun 1943 Sep 1943 Dec 1943 Mar 1944 Condé Nast Publications incr

gazines such as their trend-setting Sell: climax top Price 26 A WINNING SYSTEM ring the 1940s paper shortage, 70 profitable publications were killed Dow Jones Ind. 60 ent paid for advertisement-free troops overseas during World War II. 50 Buy 40 Buy 34 30 18-week cup- 26 with-handle 22 y 12-week cup- 19 with-handle 16 14 Breakout 12 Volume Volume Volume volume Volume dry-up up dry-up 10 up © 2009 Investor’s Business Daily, Inc. 8 7 6 4. 5 3. 8 3. 2 2. 8 2. 4 Volume 3,200 1,600 800 400 Jun 1944 Sep 1944 Dec 1944 Mar 1945 Jun 1945 Sep 1945 Dec 1945 Mar 1946 Jun 1946 reased 514% in 101 weeks.