CHAPTER 16
How I Use IBD to Find Potential Winning Stocks
Why We Created Investor’s Business Daily
For decades, professional money managers were the only ones who had access to the in-depth data that are critical to finding winning stocks. In effect, they had a monopoly on relevant investment information. That’s why I started Investor’s Business Daily in April 1984: to bring the needed information to all investors, small or large, new or experienced.
Known for its investing capabilities as far back as the early 1960s, William O’Neil + Co. built the first computerized daily stock market database in the United States to track and compare stock performance. Detailed tracking uncovered key insights into what produces stock market winners, particularly their characteristics before they make a major price move.
Much of this information is now available through Investor’s Business Daily, which offers everyone—professional and individual investors alike—a better opportunity to grow and profit from the detailed data. Because our primary concern is understanding and interpreting the national economy using our comprehensive database, Investor’s Business Daily is a vital information provider first and a newspaper second.
If you’re serious about becoming a more successful investor, it is positively within your grasp. If you can commit to studying the time-tested, historically proven strategies outlined in this book, being disciplined, and focusing on daily and weekly learning, you’re more than halfway there. IBD’s proprietary research tools are the other half of the equation. For many of you, this means familiarizing yourself with data, methods, and concepts very different from those you’re accustomed to hearing, seeing, and using.
For example, according to our historical study of all the greatest winning stocks, if you’d been relying on P/E ratios, you would have missed almost every major winner for decades. The information in IBD is based on the characteristics of the most successful companies of all time before their major price moves. Following these valid model examples of success has helped me and many others achieve success since the 1960s.
Investor’s Business Daily began in April 1984 with only 15,000 subscribers. In the years prior to our launch, the Wall Street Journal grew steadily to reach its peak of 2.1 million domestic circulation by our 1984 introduction date. Since that time, Investor’s Business Daily has increased its market share over many years. In key high-population areas such as southern California, Florida, and Long Island, New York, IBD has a larger than normal number of readers. While many of our readers were former Wall Street Journal subscribers, there is little current duplication of readership, since several surveys show that only 16% of IBD subscribers also take the Journal.
How Investor’s Business Daily Is Different
So what is it exactly that distinguishes IBD from other sources? Let’s take a closer look.
• IBD makes it easier to search for winning stocks. With more than 10,000 publicly traded stocks to choose from, IBD provides performance lists and proven proprietary fundamental and technical ratings and rankings that help you narrow your choices to only the very best opportunities.
• It offers quicker, easier, and more accurate and reliable ways to interpret the general market. The key elements of the day’s trading action are explained in IBD’s “The Big Picture” column to give you a sound perspective on the health of the overall market and improve your timing of buy and sell decisions. In tough markets like 2000–2003 and 2007–2009, this is critical information.
• It provides you with valuable investing education and support. IBD’s entire focus is on solid database research and extensive historical model building to serve as examples—facts, not personal opinions. There are a multitude of sources outlined in this chapter that can help you learn and understand how the market really works, based on years of historical precedent.
A New, Better Way to Find Winning Stocks
At Investor’s Business Daily, we’ve developed an entirely different way to search for winning stocks. That’s because after more than four decades of historical research, we know top stocks show definite signs of strength before they become exceptional winners. That confuses people who prefer a bargain—the low-priced, unknown stocks they hope will take off and surprise us all. As we’ve said, cheap stocks are cheap for a reason: they have deficiencies that don’t allow the stock to progress. For a stock to move higher, it needs earnings growth and strong sales, plus several other factors that demonstrate it’s emerging as a new leader. If you catch such a stock at the early stages, you will be able to capitalize on its enormous progress.
Remember, the greatest winners of all time, like Cisco Systems and Home Depot, began their biggest price moves after they’d gained leadership in earnings, sales growth, and the other factors described in this book. Some of the critical data you need to start your search can be found in the IBD stock tables.
The unique IBD ratings are a way to spot potential winners before they take off, so it’s important that you review these ratings daily. IBD’s stock tables are different from anything you’ll see anywhere else. Proprietary SmartSelect Corporate Ratings speak volumes about each stock’s performance and how a stock compares to all the others in our database. The elements in these ratings, which are numbered 1 through 6 in the accompanying chart, are explained in detail here.
The IBD SmartSelect® Corporate Ratings
The one line of information in the IBD SmartSelect Corporate Ratings is much more powerful and meaningful than anything you’ll find in standard price tables. These ratings, which have been proven to be the most predictive measurements of a stock’s possible future value, will narrow your search from over 10,000 stocks to the top investment prospects.
You’ll find these ratings are like a condensed statistical summary financial report that looks at the fundamental strength or weakness of a stock. They are also a well-rounded evaluation of each company’s general health. Most importantly, along with daily and/or weekly charts, these ratings will help you find better stocks. Let’s examine each element.
Earnings per Share Rating Indicates a Company’s Relative Earnings Growth Rate
Strong earnings growth is essential to a stock’s success and has the greatest impact on its future price performance. The first absolutely vital component of the SmartSelect ratings is the Earnings per Share (EPS) rating, which is labeled 1 in the chart.
The EPS rating calculates the growth and stability of each company’s earnings over the last three years, giving additional weight to the most recent few quarters. The result is compared with those of all other common stocks in the price tables and is rated on a scale from 1 to 99, with 99 being the best.
Example: An EPS rating of 90 means that a company’s bottom-line earnings results over the short and the long term are in the top 10% of the roughly 10,000 stocks being measured.
This one number gives you the relative earnings performance for publicly held companies and the possible prospects for their stocks. It’s an objective measure you can use to compare the audited results of one company to those of any other; for example, the earnings growth of IBM to that of Hewlett-Packard, Lockheed, Loews Companies, Wal-Mart, or Apple. Earnings estimates are not used in the calculation because they are personal opinions, which, as you know, might be wrong and do change.
Since earnings power and earnings growth are the most basic measures of a company’s success, the EPS rating is invaluable for separating the true leaders from the poorly managed, deficient, and lackluster companies in today’s tougher worldwide competition.
The EPS rating is also more meaningful than the widely followed Fortune 500 lists that rank corporations by company size. Size alone rarely guarantees innovation, growth, or profitability. Large companies that are between 50 and 100 years old may have a well-known brand image, but often they are losing market share to younger, more innovative companies that have created newer, better products. Consider the decline of some of our auto companies and their unions, Alcoa, Eastman Kodak, International Paper, Xerox, CBS, Gannett, and Citigroup.
Relative Price Strength Rating Shows Emerging Price Leaders
Since we’ve learned that the best stocks are superior price performers even before their major moves, you should look for stocks with price leadership. The Relative Price Strength (RS) rating shows you which stocks are the best price performers, measuring a stock’s performance over the previous 12 months. That performance is then compared with the performance of all other publicly traded companies and given a 1 to 99 rating, with 99 being best. Look at the column labeled 2 in the chart example.
Example: An RS rating of 85 means the stock’s price movement has outperformed 85% of all other common stocks in the last year. The greatest winning stocks since 1952 and even much earlier showed an average RS rating of 87 when they broke out of their first price consolidation areas (bases). In other words, the greatest stocks were already outperforming nearly 90%, or nine out of ten, of all other stocks in the market before they made their biggest price gains.
Even in poor markets, a Relative Price Strength rating that breaks below 70 can forewarn you of a possible problem situation. On the sell side, however, we have a ton of sell rules that can lead you to sell most stocks sooner and more effectively than relying on a deteriorating relative strength line that is calculated using the past 12 months’ price action. When you compare these fact-based performance ratings to the old, unscientific methods, which were typically based on faulty personal opinions, beliefs, academic theories, stories, promotions, egos, tips, and rumors, it becomes inarguable that IBD’s unique factual ratings can give you a more clearheaded edge up in the complex market.
You Need Both Strong EPS and Strong RS Ratings
The implications of both the Earnings per Share rating and the Relative Price Strength rating are considerable. So far, you’ve been able to determine the top leaders in earnings and relative price strength. The vast majority of superior stocks will rank 80 or higher on both the EPS and the RS ratings before their major moves. Since one of these is a fundamental measurement and the other is a marketplace valuation, insisting on both numbers being strong should, in positive markets, materially improve your selection process.
Of course, there’s no guarantee that a company’s terrific past or current record won’t suddenly turn sour in the future. That’s why you must always use a loss-cutting strategy, such as the sell rules discussed in Chapters 10 and 11. It’s also prudent and essential to check the stock’s daily or weekly chart to see if it’s in a proper base or if it’s extended in price too far above its most recent area of consolidation. (For a review of common chart patterns to watch for, refer back to Chapter 2.)
As previously discussed, models of the best-performing companies over the last century showed that earnings growth for the last three years and percent increase in earnings per share for the latest two or three quarters were the two most common fundamental characteristics.
Having hard data like these available to you naturally begs the question, why would you ever invest your hard-earned dollars in a sluggish stock that sports a 30 EPS rating or a 40 RS rating when there are literally thousands of companies with higher ratings, including hundreds with superlative numbers?
It’s not that companies with poor ratings can’t perform. It’s just that a greater percentage of them turn out to be disappointments. Even when a low-rated company has a decent price move, you’ll find that the better-rated stocks in the same industry have probably done much better.
In a way, the combination of the EPS rating and the RS rating is similar to A. C. Nielsen’s viewer ratings for TV shows. Who wants to continue sponsoring a TV show that gets poor ratings?
Now, pretend for a minute you’re the manager of the New York Yankees. It’s off-season, and you’re going to pick new players for next year’s team. Would you trade for, recruit, or sign only .200 hitters? Or would you select as many .300 hitters as possible? The .300 hitters cost you more money; their P/Es are higher, and they sell nearer to their price high. It’s true the .200 hitters are available at a cheaper price, but how many games will you win with nine players in your lineup averaging .200? When the bases are loaded in the ninth inning and the score is tied, who would you rather see step up to the plate: a .200 hitter or a .300 hitter? How often does an established .200 hitter blossom into a batting champion?
Selecting and managing a portfolio of stocks is no different from baseball when it comes to performance. To win consistently and finish first in your division, you need a roster of the very best players available—those with proven records of excellence. You won’t do as well in your investing if you insist on buying poorer performers and “cheaper stocks,” or those with some positive features but three or four little-noticed defects, in the hope of “discovering” a winner. Every little detail separates winners from losers. Hope never works in the market unless you start with a high-quality stock that’s begun to build steam. It’s the “steam” (earnings, sales, and price and volume strength) that is the key prerequisite for future growth. Don’t be fooled by bargain-basement thinking or buy stocks on the way down because they look cheap. Replace your hopes and fallible personal opinions with proven, measurable facts.
It’s also interesting to note that these practical, no-nonsense ratings have helped to wake up corporate board members and put pressure on management teams producing second-rate results. A consistently low IBD relative performance rating should be a serious wake-up call to any top management team or board of directors.
Strong Sales, Profit Margins, and Return on Equity Are a Big Clue
Cutting costs may boost a company’s earnings for a quarter or two, but powerful, sustained profit increases require healthy sales growth. It’s also important to buy companies that make the most of their sales growth. How much profit do they generate from each dollar of sales? How well do they use their capital? The Sales + Profit Margins + Return on Equity (SMR®) rating combines these important fundamental factors and is the fastest way to identify truly outstanding companies with real sales growth and profitability. These are factors that are widely followed by the better analysts and portfolio managers. The SMR rating is on an A to E scale, with A and B being the best. In most cases, you want to avoid stocks with an SMR rating of D or E. See the column labeled 3 on the chart on page 342.
Example: An SMR rating of A puts a stock in the top 20% of companies in terms of sales growth, profitability, and return on equity. During the brief rally that followed the Nasdaq’s bear market plunge from March to May 2000, SDL Inc. shot ahead as a leading performer. The maker of components for fiberoptic networks broke out to new highs just as the market confirmed a new uptrend, the most ideal situation for buying a stock. SDL Inc. ran up 112% in just eight weeks. Among its many strong qualities was an SMR rating of A.
For those who may not have always checked your stocks’ return on equity, it’s important. The table on page 347 of past leaders shows their ROEs.
Accumulation/Distribution–The Influence of Professional Trading on Stocks
Professional investors wield a huge amount of influence over a stock’s price. Thus, it’s essential that you buy the better stocks that mutual funds are buying and that you sell or avoid the ones they may be selling on a heavy basis. Trying to go against this monumental amount of trading will only hurt your results. A quick, efficient way to keep track of the end result of professional trading is to use IBD’s Accumulation/Distribution Rating (the column labeled 4 on the chart on page 342), which is based on daily price and volume changes. It tells you if your stock is under accumulation (professional buying) or distribution (professional selling). This thoroughly tested, complex, and proprietary formula is highly accurate and is not based on simple up/down volume calculations. Stocks are rated on an A to E scale, with each letter representing the following:
ROE of Past Leaders
A = heavy accumulation (buying) by institutions
B = moderate accumulation (buying) by institutions
C = equal (or neutral) amount of buying and selling by institutions
D = moderate distribution (selling) by institutions
E = heavy distribution (selling) by institutions
When a stock receives an A or B rating in Investor’s Business Daily, it means that the stock is being bought on balance. However, this does not guarantee that it will go up. The buying activity is being picked up, but maybe the funds are buying into a questionable position, and what they are doing could be wrong. In some cases, stocks rated as D should be avoided. I would not buy a stock with an E rating. Later, however, if and when the market improves, it could change. C-rated stocks may be OK.
You needn’t feel you’ve missed out on the trading action if you spot heavy buying or selling. Many funds take weeks or even months to complete their positions in a stock or rid themselves of those positions, which gives you time to capitalize on that action. However, be sure to check a daily or weekly stock chart to see if the stock is in the early, beginning stage of a move or if it is overextended in price and too risky or late to more safely buy.
Composite Rating: An Overview
The rating in the first column of the IBD stock tables is the SmartSelect Composite Rating, which combines all four SmartSelect ratings into a summary rating for quick review of overall performance. Look at the column labeled 5 (page 342). The SmartSelect Composite Rating formula is simple:
• Because of the impact of earnings and previous price performance on stock price, double weighting is given to both the Earnings per Share and the Relative Price Strength ratings. This weighting may change somewhat in the future as we continue to improve our ratings. Normal weight is given to the Industry Group Relative Strength, SMR, and Accumulation/Distribution ratings.
• The percent off the stock’s 52-week high is also used in the SmartSelect Composite Rating.
• The results are then compared to the entire database, and a 1 to 99 rating (with 99 being best) summarizes the five most predictive measurements we’ve just discussed.
For some stocks, the SmartSelect Composite Rating may be higher than the four individual SmartSelect ratings. This is because the formula is weighted and includes the stock’s percent off its 52-week high.
When you review the stock tables, this simple rating gives you an enormous time-saving edge. Work your way down the columns and look for SmartSelect Composite Ratings of 80 or better to spot the potential strong opportunities when you are in an uptrending general market.
The next step is to review all four individual SmartSelect ratings: EPS, RS, SMR and Accumulation/Distribution. With a quick scan of the stock tables, you’re now that much closer to being sure you are selecting better stocks.
Volume Percent Change Tracks the Big Money Flow
Another important measurement IBD created is Volume Percent Change (see the column labeled 6 on page 342). Most newspapers and information providers on TV and the Web provide only a stock’s trading volume for the day, which doesn’t tell the entire, meaningful story. Based on the volume information they provide, how would you know whether the volume for all the stocks in your portfolio and those you’re considering for purchase is normal, abnormally low, or abnormally high?
In order to know this, you’d have to keep in your head or on paper what the average daily volume is for each stock under review. Instead, you can rely on IBD to keep track of this key measure of supply and demand for you. IBD was the first to provide investors with a Volume Percent Change measure that monitors what the normal daily trading level for every stock has been over the most recent 50 trading days. It pays to always have the most relevant facts, not just a bunch of numbers.
Stocks trade at many different volume levels, and any major change in volume can give you extremely significant clues. One stock may trade an average of 10,000 shares a day, while another trades 200,000 shares a day, and still another trades 5 million shares a day. The key is not how many shares were traded, but whether a particular day’s volume activity is or is not unusually above or below average. For example, if a stock with an average trading volume of 10,000 shares suddenly trades 70,000 shares, while its price jumps one point, the stock has increased in price on a 600% increase in volume—generally a positive sign as long as other market and fundamental measurements are constructive.
If this happens, the Volume Percent Change column will show a +600%, which quickly alerts you to possible emerging professional interest in the stock. (In this case, the stock is trading 600% above its normal volume, and if the price is up substantially all of a sudden; this can be a major tip-off.) Volume Percent Change is like having a computer in your pocket to carefully monitor the changing supply and demand for every single stock. Where else can you get such preeminently critical data?
Almost all daily newspapers have cut out essential information in their stock tables. This includes the Wall Street Journal, which no longer even shows a stock’s trading volume in its daily stock tables.
Volume Percent Change is one of the main reasons so many specialists on the floor of the New York Stock Exchange, professional portfolio managers, top-producing stockbrokers, and savvy individual investors use and refer to IBD’s stock tables. There is no better way to track the flow of money into and out of companies, if you know how to utilize these data. If price is all you look at when you check your stocks, you’re like a piano player who plays with only one hand, uses only one finger, has never heard of a chord or foot pedal, or doesn’t read sheet music, so he never knows when to speed up, get loud, or get softer.
Investor’s Business Daily is more than a newspaper. It’s also a gigantic radar set that monitors every variable that’s important to the successful investor. And it lays all the information out for you daily, both in print and electronically, with the version that’s available on the Internet.
The electronic version lets you have the information sooner—within hours after the market closes. Investors who like to prepare for the next trading day find this especially convenient. Others prefer a paper they can carry with them, make notes on, and use as a valuable guidebook.
How to Use Investor’s Business Daily
Whether she uses the print or the electronic version (or both), each reader probably has a different way of reading the paper. My preference is to start with the front page and then proceed page by page to the end.
Front Page Comes First
The first feature I check on the front page is the short, quick market summaries at the top, above the paper’s nameplate. These show price and volume changes for the S&P 500 index, the Dow Jones Industrials, and the Nasdaq, plus brief, two-line comments on market highlights. Brief notes on fixed income, currency, and commodities are also shown.
For example, the comment under NYSE volume reads, “Volume above average, up from previous day.” In 40 seconds I look at these briefs to make sure I didn’t miss anything important from the day’s action.
“IBD’s Top 10” Stories
The second thing I read on page 1 is “IBD’s Top 10,” a quick, time-saving way to stay informed. In briefs of only seven to nine lines each, the ten most important new stories are summarized. Today, for example, the number two story tells how same-store sales were down last month at most retail chains, but Wal-Mart’s were not only up but better than expected. In the number three spot is “Senate Nears Vote On Stimulus,” an update on Congress’s efforts to come up with an economic recovery plan.
The Big Picture
The third feature I always check on page A1 is the “The Big Picture” column at the bottom. It’s a fairly short but excellent summary of market action and key developments. Inside the column is “Market Pulse,” a valuable box that notes leaders that were up in volume for the day and those that were down. The pulse also lets you know whether the market’s in an uptrend or a declining phase.
“The Big Picture” column is one of IBD’s most highly read features. Dedicated readers have repeatedly told us it has helped them immeasurably in dissecting the general market. In fact, more than a thousand have given testimonials on how it has helped them raise cash when the market began getting difficult or determine when it was starting a major uptrend.
Top Stories
Finally, I glance at the headlines on the main two front-page stories. I’m a headline reader: if a story is on a subject I want to know about, I read it; if not, I skip it and go to the next page.
The top stories will often show charts or tables. The one I’m looking at has a table of 15 retailers. It shows sales changes for the month plus samestore results and estimates for the future. This quickly tells me three companies in the field are doing excellently, but many others aren’t.
To The Point
Page 2 saves a busy executive or investor time. Titled “To The Point,” it provides some 50 business briefs, arranged by industry sector, and short summaries on the nation, the world, and the economy. I can quickly scan each headline and read the briefs I’m interested in. There’s also a column called “Trends and Innovations” that I always try to read to learn about the new things that keep being invented in today’s society.
In the middle is a feature that’s particularly valuable to the investor: a half-dozen short stories about companies that reported earnings after the close and how the market reacted in after-hours trading. This is a fast way to make sure you didn’t miss anything after the market close.
Leaders & Success
“Leaders & Success” on page A3 is a unique feature that’s been in the paper since we started. I always read “Wisdom to Live By”—the short two- or three-line quotes from famous people at the top of the page.
Many people find inspiration on this page. It’s about people who have been immensely successful: what they did and how they did it, what they believed in and how they overcame the problems they faced along the way.
10 Secrets To Success
Another element on the page is called IBD’s “10 Secrets To Success.” A lot of parents teach this to their kids by having them read these little short stories. The 10 secrets start with “How You Think Is Everything: Always Be Positive. Think Success, Not Failure. Beware of a Negative Environment.” The second is “Decide upon Your True Dreams and Goals: Write Down Your Specific Goals and Develop a Plan to Reach Them.” The third is “Take Action: Goals Are Nothing without Action. Don’t Be Afraid to Get Started. Just Do It.” The fourth is “Never Stop Learning: Go Back to School or Read Books. Get Training and Acquire Skills.” And so on, until you get to the last one, which is “Be Honest and Dependable; Take Responsibility: Otherwise, Nos. 1–9 Won’t Matter.”
Below the list, one of the 10 secrets is discussed in detail each day. Parents find this is something their children don’t get in school, and they use it to help them learn the basic principles of how to succeed in life.
Rounding out the “Leaders & Success” page are two profiles of outstanding people, past and present, and how they succeeded.
Internet & Technology
The next page focuses on “Internet & Technology.” Some investors don’t spend much time here. But if tech stocks are leading the market, you want to read this section to be on top of the discussions. We have a bureau in Silicon Valley staffed by experienced reporters who’ve been with us many years. The page they put together is designed not only for investors but for anyone in the tech industry—computer programmers, engineers, systems people, and others.
We have a subscriber who works at a big outfit the government uses to research how inventions might be applicable to defense efforts. One of the firm’s top researchers has found that our writers get their facts straighter and understand the technologies better than those on most of the business magazines. We also have CEOs of computer software companies that subscribe to IBD.
Your Weekly Review
There is a feature in the first section called “Your Weekly Review.” It includes a table of 35 stocks showing strong weekly gains and a chart on each one. It also includes a story on some of the companies. In a recent story, Paul Whitfield tells how the stocks of Netflix, Edwards Life Sciences, Matrix Initiative, and McDonald’s are all acting in a superior way accompanied by interesting news.
Inside Real Estate
The next page I turn to is “Inside Real Estate.” I don’t normally read this, but somebody who is interested in the real estate market certainly should.
The New America
Next is “The New America” page, devoted to young, entrepreneurial companies. One company gets extensive treatment each day. At the top of the page, we sometimes have short briefs under the heading “AfterMarket.” The one I’m looking at is headlined “Neutral Tandem Soars on Q4 Results.” It notes that “telecom gear maker Neutral Tandem gapped up 11% in more than seven times average volume” and then quotes what analysts are saying. When these tidbits of unusual activity catch my attention, I’ll check them out on my computer and view a chart to see how the stock really looks.
You never know how many ideas you’re going to pick up from reading IBD. But in each issue, there will be several you’ll want to check out. It takes no time at all to go to your PC, punch in the symbol that appears in the paper right alongside the first mention of the company’s name, and check into the history of the stock, its earnings, and a few other key basics. Some of the best portfolio managers in the country quickly check out stocks this way to decide which companies they want to focus on or get more information about. It’s a good way to add to your watch list.
Mutual Funds & ETFs
On the first page of the “Mutual Funds & ETFs” section, there are two information boxes I usually check. They zero in on growth funds with excellent records. The boxes show these funds’ largest holdings in the latest quarter, along with their top new buys and sells. New buys may be of interest. We also show how the funds have performed relative to the market in each of the last five years. After you’ve taken the paper for a while, you’ll know which are the better funds. One way you can judge is by noting their top positions. If the fund has three or four of the better leaders, I know the managers really know what they’re doing.
I don’t normally look at our mutual fund tables, but I will frequently check one or two fund families that I know are outstanding to get a feel of how they’re doing. We cover far more funds and include more data in our tables than most daily publications. Many papers have sharply cut the number of funds they follow. Besides current activity, we include the four-week percentage change and a 36-month performance ranking for each fund. We also include the phone number for each fund family.
A couple of tables in the fund section are unique. One shows how big-cap growth funds are doing compared with small-cap growth funds. The other compares growth funds to value funds. This is important for you to know in any market: Are growth stocks leading, or are value stocks? Are big caps leading, or are small caps? Here you have the answers at a glance. In the edition I have, growth is leading.
Leading Fund Sectors
You also need to know the broad, overall sectors that are in demand. So, on Fridays we have two tables showing the top industry and sector funds. On other days, different fund types are displayed. If you’re interested in what industries are doing well, you can see here that gold has been doing well in the last 4-week, 8-week, 12-week, and 16-week periods. The medical field shows well in the longer, 39-week table.
Issues & Insights
At the back of the first section, you’ll find our editorial pages, titled “Issues & Insights.” We have an outstanding staff of a half-dozen highly experienced writers turning out up to six editorials a day. I do not write these. Wes Mann, our distinguished and talented editor, who has been with IBD from the beginning, is in charge of this key area and is assisted in the important role it plays for IBD readers and the nation by Terry Jones, who has also been with IBD since its start-up 25 years ago. Terry came to us from BusinessWeek. I’ll normally read two or three of the editorials after checking the headlines and summary paragraphs to see if I’m interested in the subject.
We also have columns from guest writers plus syndicated columnists “On the Left” and “On the Right,” so you get different points of view. On the right, I always respect the work of Thomas Sowell and Victor Davis Hanson. Both are older, experienced observers with great insight. Sowell, from Stanford’s Hoover Institute, is in my view the best, most accurate economist and historian in America. He has a book out entitled Applied Economics: Thinking beyond Stage One, one of 42 books he has written. From Washington, we run columns by conservative Charles Krauthammer and liberal David Ignatius, who is well informed on international issues.
But the first thing I look at each day in “Issues & Insights” is the cartoon. We have the best editorial cartoonist in the nation, Michael Ramirez. He won a Pulitzer Prize for Investor’s Business Daily in 2008—the second time he had received this prestigious award.
IBD also has an extensive public polling operation, conducting monthly surveys on economic confidence, presidential leadership, and major national issues year-round and daily tracking polls in election years. In 2008, for the second presidential election in a row, the IBD/TIPP poll not only came closest to the final margin between Barack Obama and John McCain, but was right on the money. These feats, tantamount to hitting a bullet with a bullet, have earned the IBD/TIPP poll, conducted by TechnoMetrica Market Intelligence, the honor of being America’s most accurate.
Making Money
In the “Making Money” section, starting on page B1, we try to cover the relevant facts, skills, and rules you need if you are to be a successful investor. We view Investor’s Business Daily as an educational medium. We don’t tell people what to buy. We don’t recommend stocks or tout “10 stocks that are going to go up tomorrow.” We just explain time-tested rules based on models of successful stocks in all of past history and provide sound techniques and methods for managing your portfolio wisely.
We also give classes and several levels of paid workshops, from beginning to very advanced, on investing; in addition, we have a chart school, have several books out, including this fourth edition of the one you’re reading, and offer a home study course. We view our mission as being to teach anyone who wants to learn how to become a better investor and protect himself so he doesn’t get hurt in bear markets.
NYSE + Nasdaq Stocks On The Move
The first thing I read on page B1 is the “NYSE + Nasdaq Stocks On The Move” tables—a feature that’s in no other publication. We have a massive computer database that each day screens for those stocks that had the greatest increase in trading volume over and above their average daily volume in the last three months. This isolates the true demand for securities you would not otherwise notice. On these lists, you’ll find many new, innovative companies with names you may not know. But if they appear frequently, you’d better find out what they’re doing or making. They could be the next Microsoft or Apple.
In this current issue, Visa is on the NYSE list. It was up 4.6 points on a volume increase to 239% more than normal for the credit card company. Visa just reported earnings during a bearish period. There were also a few medical stocks on the lists.
In addition to price and volume change, the tables show the same company variables IBD shows in its main stock tables. For example, IBD shows the Earnings per Share rank of Visa as 99, meaning its earnings growth rate in the last three years and in recent quarters puts it in the top 1% of all companies in our database. This doesn’t mean the stock’s going to go up. But it certainly means it has characteristics worth checking if you’re hunting for entrepreneurial stocks that might outperform in a future better market.
We boldface those names on this list that have Earnings per Share and Relative Strength ratings of 80 or higher, meaning they’re in the top 20% of all stocks based on those measurements. The stocks with stronger records are the ones you want to investigate.
Below the list of stocks that advanced for the day is a list of stocks that were down in price. They too are ranked by percentage increase in volume. You can judge the market environment and how well our new government is doing by how many stocks are on the upside versus how many are on the downside. In the example shown, the table has eight NYSE stocks on the upside versus 36 on the downside, meaning there were more stocks that day with greater-than-normal volume that dropped in price than that increased in price. This zeroes in on the daily supply and demand for leading securities. It was a bearish day.
NYSE + Nasdaq Stocks on the Move
I’ve found this computer screen to be valuable. For it to fail to pick up a new big leader is almost impossible. But you’ve got to do your own homework to understand some of these names you might not know. IBD also tries to cover these companies in our various columns.
How’s The Market?
Page B2 is titled “How’s The Market?” It is loaded with absolutely crucial data. We present the four key general market indexes—the NYSE composite, Nasdaq, S&P 500, and Dow Jones Industrials—in large, easy-to-read charts. We stack them one on top of the other so you can compare them and see which indexes are stronger and if one index diverges from the others at some point. At this time, we note that while all the indexes were in a negative trend in January, the Nasdaq was down only 2%, less than the others, implying it is the leader at this stage in a difficult market.
We also have relative strength lines, moving average lines, and a line just below the NYSE Composite chart that displays the New York Stock Exchange advance-decline line, which let’s you quickly see day by day over the last six months if more stocks on the NYSE were advancing or declining. There’s even an Accumulation/Distribution measure showing which of the major indexes has the largest amount of accumulation. At this reading, the Nasdaq had a “B–,” meaning it has recently enjoyed stronger accumulation than the others.
B2 is a page I look at every day, and you should too. I want to carefully check the recent price and critical volume activity of the leading indexes on a day-by-day basis to see if they’re still in an uptrend and under accumulation or if they’re shifting into a new downtrend and behaving in a highly negative way. Don’t neglect the daily volume; it’s the key that can tell you if something is going wrong. If you study and learn to interpret the general market indexes correctly, which can take some time, you will learn how to avoid most of the serious declines because the increased distribution always shows up in the early stages, before the more damaging part of a decline evolves. This can preserve a good bit more of your money and is something it’s definitely worth striving to perfect, no matter how much time it may take you. How much time, after all, did you spend earning the money you now hope to invest? So is it worth your time to learn how to skillfully preserve and protect it?
If you learn to read the market and apply IBD’s general market rules, there’s no excuse for finding that you are down 30%, 40%, or 50% or more in any bear market. I know most public investors and maybe some readers of the paper were possibly hurt in the market correction of 2008. But IBD supplied the rules and information. If readers did their homework and read the “The Big Picture” column, they should have seen that IBD’s method picked up the adverse activity in the earlier stages of the emerging bear market decline that developed in late 2000 and 2008.
You Can and Must Learn to Spot the Following
October 3, 2007, was the first distribution day on the Nasdaq, October 11 was the second, October 15 and 16 were the third and fourth, and October 19 was the fifth. If you saw and read this correctly, you would have sold something. On October 24 you had a sixth distribution day, and you should have cut back further. By November 1, you had seven crucial warnings. This is how all important market corrections and bear markets begin. If you missed this and were totally unaware of what was happening, go back and study all the market-top charts in Chapter 9 until they make sense to you and you understand what you must look for in the future. Many investors have discovered they need to take charge, get serious, and learn the basics of sound, successful investing. You can do far better in the future.
IBD Mutual Fund Index
There is another unique feature on page B2 you can’t find in other daily publications—the “IBD Mutual Fund Index,” where we pick two dozen leading growth funds and show their composite performance in a graphic display. I use this as a supplementary index because it is in a way a giant advance-decline line of some of the better funds with a combined 1,000 to 2,000 or more stocks owned among the 24 funds. When I’ve seen a classic, well-formed cup-with-handle pattern in this index, preceded by a strong prior uptrend to the pattern, the index and the market have almost always moved up.
IBD’s 197 Industry Sub-Group Rankings
On this jam-packed page, we also have IBD’s “197 Industry Sub-Group Rankings.” This list shows a composite rating for each sub-group and each sub-group’s change from the previous day, plus where the group ranked three and six weeks and seven months ago. The top 20 and bottom 20 sub-groups are circled because they represent the best- and worst-performing industries.
By now, you should know I am not going to own anything in the bottom 20 because we’ve proven over many years that these industries are going to be having a lot of trouble. On the other hand, we know that most of the leading areas of a positive market will show up in the top 20.
The reason we have 197 subgroups is that within every sector, there are segments that can perform quite differently. Medical genetics is our third-ranking group. Seven months ago it was fifty-seventh.
All told, we have 10 tables that measure industries from different points of view. Two small boxes on page B2 that I also check each day give you another perspective on which industries are leading. One shows the “Top 10 Fidelity Industry Funds Since Jan. 1.”
The second small box shows the groups with the highest percentage of stocks at new highs. With several different ways to look at market sectors, you can hardly miss the one or two sectors that turn out to be the real leaders in each new bull market.
Next to those boxes, there’s a list displaying indexes of 28 different market sectors and how each performed for the day.
IBD Industry Themes
On page B3, we have another way of keeping track of industries—a daily column called “IBD Industry Themes.” In every market, there are certain leading themes. Investors may be buying medical stocks, for example, or technology stocks. So what are the themes in the current market?
We also have a column on New York and Nasdaq stocks and one for the long-term investor. Another three columns (on page B5) include “The Base Reader,” which analyzes various chart patterns, “The Income Investor,” and “International Leaders,” covering the foreign markets. I don’t read all these columns. But I do read the headlines, and if a quick glance tells me a column is talking about some situation I’m interested in, I’ll read it.
2,500 Leading Stocks (NYSE + Nasdaq Research Tables)
A powerhouse element we’ve added recently is the way we organize and display our one-of-a-kind stock tables. We call them “Research Tables” because we have a boatload of data on each company. IBD follows up to 2,500 stocks, combining New York and Nasdaq stocks in one table, whereas some of our competitors carry only 1,000 stocks and have nothing close to the critical ratings and data we provide for each company.
Right off the bat, you’ll see that our “2,500 Leading Stocks” tables starting on page B3 are organized in order of the strongest of 33 broad economic sectors. Almost everyone else’s tables are organized alphabetically. For decades, Americans used the stock tables in their local newspaper or in one of our financial competitors just to look up where their stocks closed yesterday: “Was my General Motors up, or was it down?” While it’s nice to be able to check how your stock did, these days you can get quotes anywhere on the Web. What we’re doing is making the tables an advanced research lab to help you discover the next big leading stock you’ll want to invest in. Here’s what we’re able to do with how we display the tables.
This particular issue confirms what we saw in other tables: that the “Medical” sector is number one. Then we show every one of the stocks in the medical field, listed alphabetically. Each has a composite rating, which goes from 0 to 99, with 99 being the very best. This is an overall rating that considers key individual ratings. (Of course, this current rating could decline if our government succeeds in its attempt to rewrite all the rules and decide how it wants to run our entire medical system.)
If you spot a stock that looks interesting, we have given you the stock symbol, and you can go to Investors.com and check out the chart or other vital facts and figures, using a handy checklist to flesh out what you’ve uncovered in the tables.
As I scan the tables, I look for stocks that are boldfaced. Here, too, we boldface anything that’s up one point or more or is making a new high in price. I’m mainly interested in keeping track of price movements so I don’t miss anything that might turn out to be a huge new leader. The boldfaced stocks can be scanned very quickly, and if you’re using charts, you may already be aware of the patterns of some of the ideas you notice in the tables. For example, if you go through a number of charts every week, looking for sound patterns with strong fundamentals, and you scan the boldfaced stocks in the tables daily, you’ll see a bolded stock whose chart you were impressed with start to move up.
When I spot unusual activity by high-ranked stocks, I tend to write down the symbol at the top of the B1 page. When I get through scanning the tables, I may have eight or ten symbols that I’ll check out because they look interesting based on their price activity and high ratings. You can go right to Investors.com or Daily Graphs Online and evaluate the chart to see if the stock is acting right or acting poorly.
So rather than using the tables just to find out how my stocks did yesterday, I’m using them to screen for potential ideas that might become super leaders at some point in the future. For any serious investor, this is almost a necessity if you are going to improve your performance.
“You Can Do It Too”
At the top of page B4, we have something called “You Can Do It Too.” These are short quotes by investors who have written to tell us they’ve done well and what their main observations were. I realize there are a number of people who probably aren’t so successful or who haven’t done their homework, didn’t follow rules, or didn’t have any system. Many of these quotes, however, are inspiring.
It’s interesting that more than 1,000 people have written to tell us that they’ve finally figured out how to put it all together to achieve outstanding results. I say “finally” because it takes some time and effort to get truly superior results. There are no free lunches in the stock market. But once you understand and apply yourself, you could in time become financially independent. Would that be a worthy goal for you to strive for and achieve?
“Stocks in the News”
A section that I also check every day is what I call the “mini-charts” in the “NYSE Stocks in the News” and “Nasdaq Stocks in the News” sections. We used to show 20 or more charts in this screen, but we’ve now limited it to 10 because we’ve refined and improved the sorting mechanism. And what we’ve learned is that, once you’re in any future bull market, these two lists will materially outperform the S&P 500 and any new names on the charts will be well worth your checking.
If you’re in a bear market, don’t expect these lists to work. Three out of every four stocks will be going down in such an environment, and growth situations can have significant corrections. But if you know you’re in an uptrending market, and this is confirmed by the “The Big Picture” column, these mini-charts—each of which is packed with 20 key statistics—can be a source of high-probability new ideas. They won’t all work. But when you’re in a positive market, you follow up on the ideas that work. Sooner or later, if you’re patient, a market will develop into a strong bull market. And when that happens, these are definitely screens you want to check out thoroughly. If you do your homework, you then have a better chance of materially improving your performance.
Over time, I’ve found that the first six or seven sectors in our stock tables will contain most of the new leaders. I’ve also found that just because some of the sectors in the back half haven’t been leaders recently doesn’t mean that some of them won’t later possibly become turnarounds. Lower-ranked and poor-performing sectors in this issue are Computer—Hardware, Savings & Loans, Apparel, Machinery, Media, Steel, Real Estate, and Semiconductors.
These rankings can shift over a period of weeks or months. But it pays to know what’s leading now and which names within each sector have the best fundamental and market-action variables. That’s where you want to concentrate your research.
These tables may take a little time to get used to. But after a few weeks, you’ll know where your stocks are listed. To make it easier, we also have a table that lists all of IBD’s 197 subindustries and tells you which of the 33 broad sectors each subindustry belongs to.
One thing that most of us fail to do, but that I would highly encourage you to do, is read the box (usually on page B7) that explains the various ratings and measures and how they’re computed and used. By doing this, you will understand how best to utilize these advanced, very sophisticated tables that could hold the key to dramatic success or improvement in your future.
Below the how-to-read box is a short list of “do’s and don’ts”—in other words, what you should be doing to avoid the classic errors people sometimes make when they’re investing without doing their due diligence.
IBD Timesaver Table
The “IBD Timesaver Table” on the same page is a feature many busy people like to use because it picks up all the high-ranking stocks that were up or down in price in a short table that includes volume and some other rankings. I always check this and take particular note of the “Stocks Down” list. I want to be aware of the stocks that have been hit hard because this could affect others in the same industry. If a stock shows up repeatedly on this list, it could be that it has topped and is headed for more trouble.
I’ve mentioned that we have 10 different ways you can zero in on the leading groups. We also have little sector charts under the heading “Leading Market Indexes.” Each has a daily price and volume chart. Hi-tech, Junior Growth, Leisure, and Consumer Sectors now top the list.
Alongside, we have the “New Highs” list. This list has also been reorganized. We weren’t interested in just showing which stocks made new highs and which made new lows. We list them in order of the industry sectors that had the largest number of stocks making new price highs. When you get into a strong bull market and find that, say, the medical sector continues to lead, it will probably be among the top one, two, or three sectors with the most stocks making new highs.
When high technology was leading in the bull market of the 1990s, the computer sector was number one for a year and a half. Stocks like Cisco and Dell were constantly on the new-high list. If you knew what you were looking for, and you understood the significance of a stock’s displaying new highs in a bull market, maybe you too could have participated when these stocks were going up 10 times or more. There’s a lot you can learn by studying past markets. We are historians.
In other words, it’s hard not to notice the real action and the real leaders in the market. They are as obvious as the elephant that jumps into the bathtub and splatters water all over the place. When a whole sector is moving, the sheer volume and broad-based activity cannot be hidden. We saw this in the energy sector from 2004 to 2007, when virtually all oil and gas stocks were moving up dramatically.
At some point, all sectors change. And when they do, the 10 different ways we have to pick up leaders and laggards will point you in a direction where you can say, “Those stocks are no longer leading the way they did before.” If you just go on emotions and your attachment to a stock, you can get into a lot of trouble. You need precise measurements to tell you if this sector or that security is really behaving properly.
One last thing: earnings are what drive a stock, and the rate of earnings improvement is more important than the P/E ratio. So, you want to make sure you check the “Company Earnings Reports” that come out at certain times during a quarter. You can discover a company that’s suddenly showing much better earnings than in the past.
It helps to be up on stocks that come through with better-than-expected earnings—what the Street refers to as “earnings surprises.” What we have learned to watch for are stocks whose earnings estimates are constantly being raised and that show an acceleration in their percentage rate of increase in earnings quarter by quarter. As mentioned earlier, the bigger the earnings increase, the better. And we don’t fall into the trap of eliminating any stock just because its P/E ratio looks high.
To wrap up the paper, we cover more futures and options than most publications. There’s a column on the bond market, several interest-rate charts and tables, and no fewer than 36 charts on commodities futures.
“Investor’s Corner” and IBD 100
Among other IBD features, “Investor’s Corner” is a popular daily educational column for anyone who wants to learn more about investing. And every Monday we show the IBD 100, with charts on 100 high-ranked potential prospects.
How to Use the Award-winning New Investors.com
Investors.com is the online companion to Investor’s Business Daily’s print edition. Like the newspaper, it helps you quickly and confidently apply the investing strategy outlined in this book. Whether you have just a few minutes each day or you’re investing full-time, you can develop an effective routine that fits your schedule using the tools and features found on Investors.com.
We discussed the ways Investor’s Business Daily starts the research process with an efficient assessment of the market, industry groups, and stocks. Here are some additional ways to dig deeper in your research with IBD’s specially designed screening tools and charts.
If you’re reading this book to hone your investing skills, going through these tools in the following manner will help you develop an easy daily system for reviewing the market, top industries, and, finally, the top stocks.
The IBD Stock Research Tool on the home page of Investors.com is structured to let you do just that from one central location. As you can see from the graphic on this tool, you can use it to follow “Market Direction” and to “Find,” “Evaluate,” and “Track” leading stocks. Following this approach will help you find the best stocks, will let you know the right time to buy and sell, and could materially improve your results.
The key is to take some time to become familiar with the investing tools and features on Investors.com. The CAN SLIM chapters in this book will help you understand the rationale for IBD’s investing tools, which are programmed to search for companies with the performance characteristics typical of emerging stock market winners.
Market Direction
As discussed, three out of four stocks usually follow the overall market trend, whether it’s up or down. That’s why it’s critical for you to learn to follow, not fight, the market. Within the “Market Direction” tab, you’ll find links to features that will help you do just that.
Start by taking another look at the “The Big Picture” and “Market Pulse” to see what stage the market is currently in. You can also click on the “Indexes” link to view the latest charts for each of the major indexes. The charts are updated throughout the trading day with a 20-minute delay.
For timely analysis of the market action as it happens, read the “Markets Update,” featuring intraday reports. You’ll find concise insights that put the day’s events into perspective, plus highlights of leading stocks making a big move.
IBD TV: “Market Wrap” Regularly watching the IBD “Market Wrap” video is a good way to stay on top of the market and improve your analytical skills. Available hours after the close each trading day, this short video uses charts to visually show you how the market and leading stocks are acting, and what trends and potential buy points to look out for.
Find Stocks
Once you’ve reviewed the current market conditions, use the “Find Stocks” tab to look for new investing ideas. Here you’ll find a wide range of idea-generating screens in addition to those in the IBD print edition.
“Stocks on the Move™”–Learn What the Institutions May Be Buying and Selling as It Happens This is the online version of the IBD print edition feature. As we’ve mentioned earlier, just looking at typical most-active lists won’t give you the whole picture. You need to know about the emerging institutional trades that are beginning to show promise.
These stocks will appear on this radar screen, which is updated continuously throughout the trading day. You can quickly spot the stocks that institutions may be moving into—or out of—in a major way as it happens. Remember that institutional buyers who are taking a position in a stock usually buy in huge quantities, which may create major volume in the stock.
Nearly every winning stock will show this type of activity at the onset of its price advance. You don’t want to miss this screen if you are searching for emerging leaders. Remember that not all the stocks shown on this list will be winners. It’s important to check further to make sure the stock’s chart looks sound and the ratings show leadership potential. This is a good way to spot the breakout of a stock as it is happening or shortly thereafter.
Intraday Volume Percent Change—Another Way to Spot Possible Winners A key element of the online version of “Stocks on the Move” is the intraday volume percent change. As we’ve seen, a stock needs support from institutional buying to propel it further. Volume percentage changes on an intraday basis will tell you—as it is happening—if a stock is trading above or below its average daily volume of the last 50 trading days. That’s a sign of institutional buying (or selling) and a key component of “Stocks on the Move.” You can also get the intraday volume percent change for any stock you’re looking at on the “Stock Quotes” page of Investors.com.
“Screen Center” Click on the “Screen Center” link to pull up the latest “Screen of the Day.” Each day, there’s a different list that sorts the entire stock database looking for potentially superior stocks based on important performance criteria.
To access additional stock lists, click on “Screen Center” in the drop-down menu within the “Stock Research” tab on the Investors.com home page. You’ll find more possible ideas from lists including “CAN SLIM Select,” “IBD 100,” “Sector Leaders,” “Tech Leaders,” and “Long-Term Investor.” This is a quick way to find leaders and the better possible ideas in different categories. You can then check weekly or daily charts on these potential ideas plus earnings and sales data to pick the best ones to add to your watch list.
Most Active—NYSE and Nasdaq This daily column (also found in the print edition) highlights breakouts and basing patterns in the best institutional-quality stocks experiencing unusually heavy trading volume. You’ll also find a discussion of potential buy points that indicate the best time to make initial and secondary purchases. This column will also flag potentially negative action as stocks reach their peaks.
Evaluate Stocks
Next, let’s look at how you can evaluate any stocks you already own or are thinking of buying. There are many questions that should first be answered:
• Is this the right stock to own? Or are there better ones in its group?
• Is the stock in a leading industry group or a laggard one?
• If you own the stock, have you held it too long?
• If the stock looks fundamentally strong and you want to invest in it, is it too soon or too late?
• Are we in a bull market or a bear market?
These are just a few questions that need to be answered before you make your move. Two IBD investing tools—“IBD Stock Checkup®” and “IBD Charts”—will help you sort through the stock-picking puzzle.
“IBD Stock Checkup®”“IBD Stock Checkup” evaluates and compares more than 6,000 publicly traded companies and assigns a composite rating and a pass, neutral, or fail grade to put your ideas in the proper perspective. It’s essentially a statistical summary report made up of several components, including
• Composite Rating
• Performance Within Group
• Group Leaders
• IBD Stock Checklist—with a pass, neutral, or fail grade
• Red Light, Green Light
For the composite rating and most of the components listed in “IBD Stock Checkup,” you’ll see a green (pass), yellow (neutral), or red (fail) icon. This is a quick and easy way to see if your stock passes muster in that particular category based on time-tested CAN SLIM criteria.
Composite Rating As we discussed earlier, the composite rating is a quick way to know whether you should move ahead or not. With the color-coded icons within the “IBD Stock Checklist” (see page 375), it’s like a traffic light that tells you whether to go (green), slow down (yellow), or stop (red) in your research, and it will guide you toward only the very best companies.
Performance Within Group—Buy the Best Stocks in the Top Groups In the “Performance Within Group” section, you can see how the stock specifically performs against the rest of the stocks in its industry group. The rankings are based on IBD SmartSelect ratings. This will help you determine if you’re making the right choices. It’s easy to be swayed by news or TV tips, but this should give you a major edge by forcing you to stick to the facts.
Group Leaders—Pointing You Toward Real Potential Leadership No matter what you’ve bought or are thinking about buying, this screen shows you where the real leadership is. These are the stocks exhibiting the type of performance that might propel them further in an uptrending general market. You can click on each of the SmartSelect ratings to see which stocks in the group rank highest for that individual rating.
“IBD Stock Checklist” Is Your Stock Pass, Neutral, or Fail? The “IBD Stock Checklist” gives you a thorough review of the fundamental and technical strength of each stock, along with a pass, neutral, or fail grade for each category. For example, at the very top of the stock checklist, you’ll see a green, yellow, or red icon next to the composite rating. This will help steer you toward the true market leaders—and away from the laggards.
In the “General Market and Industry Group” section, you’ll also get a pass, neutral, or fail grade for the general market and for the relevant industry group. Do not buy stocks when the general market flashes a red signal.
IBD Charts Show You the Right Time to Buy or Sell You never want to buy any highly rated stock in IBD’s tables without first checking a chart, and it pays to regularly review both daily and weekly charts on any stocks you own. This is a vital step that will help you spot emerging trends and track a stock’s movement so you know the exact time to buy or sell. IBD charts are designed to make it easier and faster for both new and experienced chart readers to get the real picture. You can obtain these daily and weekly charts that are free on Investors.com.
For those who are intimidated by charts, think of a stock chart as a “picture worth a thousand words.” It will tell you some vital things about the progress (or lack of progress) of any company. In time, you will find your review is quite automatic. Daily charts can also help you spot possible future winners. IBD daily charts include the following:
• Up days in price in blue; down days in red
• Continually updated price and volume data
• EPS and RS ratings
• Relative Price Strength line
• 50- and 200-day moving averages of price
Refer again to Chapter 2 to learn to recognize chart patterns. You may also want to consult the “IBD University” section of Investors.com for a course on chart analysis. Also remember that the majority of stocks tend to follow the overall trend of the market, so be sure to check current market conditions, as discussed earlier, to confirm that your overall timing is correct.
Weekly Charts—Tip-Off to Institutional Trading IBD weekly charts will help you gauge institutional buying. Since mutual funds typically take days, if not weeks (and sometimes longer), to build (or unload) their positions, any heavy volume on the chart may tell you if they’re possibly moving into or out of a stock in a major way.
Weekly charts include the same information that appears on the daily charts, with the addition of shares outstanding. These charts span nearly two years of price and volume movements.
To capture the biggest gains, it’s important that you use both daily and weekly charts, since they offer different views on a stock. You will get more exact timing indications from the dailies and the big picture from the weeklies.
Track Stocks
Once you’ve evaluated and purchased a stock, it’s crucial that you track its performance. “Buy and hold” is a dangerous strategy, as all stocks—even those of well-known, established companies—can be volatile and risky. To be a successful investor over the long haul, you need to keep all your losses small and to know when to sell and take your profits. Chapters 10 and 11 discuss how you can do that with time-tested sell rules. The “My Stock Lists” feature on Investors.com will help you stay organized so you can apply them effectively.
“My Stock Lists” With “My Stock Lists,” you can create up to five lists with up to 50 stocks on each list. To stay organized and save time, you can create different lists for different purposes. For example, you could create a “My Portfolio” list for the stocks you own, a list of “Stocks in Bases” for leading stocks that are currently forming a base, and a “Near a Buy Point” list for stocks that are approaching a proper buy point. It’s important that you review and manage your lists regularly, adding and deleting stocks as needed.
To help you track the performance of your stocks, the “My Biggest Price Movers” feature automatically alerts you to the stocks on your lists that are making the biggest price moves, up or down.
“My Stock Lists” also gives you one-click access to “IBD Stock Checkup,” IBD charts, and IBD archives for each stock. Use IBD archives to read what IBD has written about the companies you’re watching; it can provide valuable insight into the story behind the stock. Use “IBD Stock Checkup” and IBD charts to continually evaluate both the stocks you own and those you’re watching.
• “My Routine”: Create Your Own Custom Investing Routine
“My Routine” gives you one-click access to your favorite tools and features from virtually any page on Investors.com. It’s a convenient, time-saving way to go through your investing “to do” list quickly.
Here’s a sample routine you could set up to follow market direction and find, evaluate, and track your stocks.
1. “The Big Picture”
2. “Screen Center”
3. “Stock Checkup”
4. IBD Charts
5. “My Stock Lists”
eIBD—The Online Version of the Newspaper
We just talked about the unique elements of Investor’s Business Daily. The paperless online version, eIBD, allows you to get that same information in IBD—and more—just hours after the market. So that advantage gives you a critical head-start on tomorrow’s market. Here’s how it works:
Say you’re reading an article on the latest Apple innovation. Just put your cursor over the AAPL ticker symbol in the article, and instantly you get a window showing Apple’s mini chart, a stock quote, and IBD’s Stock Checkup Rating—all in one place. So it’s a chance to size up a stock very quickly.
From there, you have one-click access to the research on Investors.com if you want to look further into a stock.
And the Intelligent Search feature helps to find any articles or data on stocks you’re following—so if you type AAPL, it’ll direct you to all the places we talk about Apple.
Equally handy is that this electronic version of the paper can be saved to your desktop or mobile device, printed, translated to another language or listened to via audio. The choice is up to you.
Continuing Education—The Key to Investing Success
“IBD University” For most investors, not a day goes by without questions. The “IBD University” section of Investors.com provides a complete stock investment course to help you improve your knowledge and skill. It outlines every aspect of buying and selling stocks, along with chart reading and many other important topics. The lessons are free, and you can take them at your own pace anywhere you have an Internet connection.
IBD TV: Daily Stock Analysis The “Daily Stock Analysis” video reviews the technical and fundamental strength of a current leading stock. Watching this every day will give you new investing ideas—and help you improve your own chart-reading and analytical skills. You can also read the “Daily Stock Analysis” column for a summary of key points discussed in the video.
“Investor’s Corner”—Find Answers to Your Questions You can search the archives of the “Investor’s Corner” column to quickly find detailed answers to beginning, intermediate, and advanced questions on a wide range of investing topics.
“IBDextra!” Monthly Newsletter The “IBDextra!” newsletter provides exclusive videos, articles, and stock lists to help you follow current market conditions, improve your investing skills, and get the most out of IBD’s features and tools. The newsletter is free when you register on Investors.com.
• IBD TV: Watch Your Results Improve
IBD TV offers a unique way to reinforce and master the strategies outlined in this book.
The IBD Market Wrap and Daily Stock Analysis videos show you, on a daily basis, how to apply CAN SLIM in the current market conditions. We also produce special video and audio analysis as needed to help you navigate major market events, such as the financial crisis in 2008.
The key is to tune in regularly. Make IBD TV a part of your routine and you’ll see your investing skills and confidence improve significantly. For the latest videos, visit www.investors.com/IBDtv.
Tap into the IBD Community
Since we started publication in 1984, IBD has helped countless people achieve financial success. It has created a vibrant community of investors who proactively share their ideas and knowledge, both online and offline. Here are two ways you can get involved in and benefit from the IBD community.
IBD Meetups
Each month, like-minded investors meet to share stock ideas and benefit from members’ knowledge and experiences. Through discussing your individual investing strengths and trading mistakes, IBD Meetup gives you an opportunity to hone your CAN SLIM investing skills with the support of others, and ultimately, learn how to make more money. IBD’s Meetup program is the largest investing Meetup organization in the world.
Look for officially sponsored IBD Meetup groups in your city by visiting www.investors.com/Meetup. No other newspaper, magazine or online service provides such a comprehensive educational opportunity.
IBD Forums
IBD Forums is the official online message board for IBD and CAN SLIM investors. On IBD Forums, you can post, read, and reply to messages on a wide variety of investing and other related topics. You can register for free on Investors.com.