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How to Become a

Wealthy Investor

Listen to the Stock Market and it Will Tell you What To Do

Sydney Tremayne

Second Edition
Published by Wealthy Investor LimitedHOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE  I

How to Become a

Wealthy Investor

Listen to the Stock Market and it Will Tell you What To Do

Sydney Tremayne

Second Edition

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE  II

Permission to distribute freely

Reproduction, duplication, or free redistribution of this book is permitted but only in its entirety. The entire book may be distributed without charge and without any changes, deletions or additions. You are not permitted to use any part of it in any other way without prior written consent from Wealthy Investor Limited.

Copyright: Wealthy Investor Limited, © 2010–2011

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE  III
LEGAL NOTICES

Note: Principals of Wealthy Investor Limited may actively trade their own stock recommendations. The following legal notices are required by the U.S. Securities and Exchange Commission (SEC):

How to Become a Wealthy Investor (this book) and Wealthy Investor Weekly is an impersonal service; therefore, no consideration is made towards your individual financial circumstances. All contents presented within these publications and wealthyinvestorweekly.com (henceforth referred to as "the Web site") is not to be regarded as investment advice. It is for general informational purposes only. Trading securities involves risk, so you must always use your own best judgment when trading securities.

We cannot guarantee profits of any kind, nor can we protect you from losses. You assume the entire cost and risk of any investment you choose to undertake. You are completely responsible for making any investment decisions. Wealthy Investor Limited, its owners, and representatives are not registered as securities broker-dealers with the U.S. Securities and Exchange Commission (S.E.C.).

Use of the Web site and other materials in no way constitutes a client/advisor relationship. All information we communicate to you either through our Web site or other forms of communication are purely for informational purposes. We recommend seeking individual investment advice before making any investment; you are assuming sole liability for your investments. Wealthy Investor Limited will in no way have discretionary or any other authority over your trading or investment accounts.

All information posted is believed to come from reliable sources. Wealthy Investor Limited does not warrant the accuracy, correctness, or completeness of stock price or other information available and therefore will not be liable for any loss incurred.

Due to the electronic nature of the Internet, the Wealthy Investor Limited Web site or its e-mail distribution services could fail at any time. Wealthy Investor Limited will not be responsible for unavailability of its Web site or for undelivered e-mails due to bandwidth problems, equipment failures, or acts of God. Wealthy Investor Limited does not warrant that the transmission of emails will be uninterrupted or error-free.

Wealthy Investor Limited, its owners, or its representatives may hold positions in the securities mentioned in its weekly advisories. However, in no way is Wealthy Investor Limited soliciting an offer to purchase or to sell securities mentioned.

There is no guarantee past performance will be indicative of future results. No assurances can be given that the trades posted by Wealthy Investor Limited will be profitable or will not be subject to losses. Always take time to do your own research.

The results listed in this book are based on historical data. They were not actually executed. Back testing results have certain inherent limitations.

Unlike an actual performance record, simulated trades do not represent actual trading. Also, the trades may not have been actually have been possible to execute. The results may have over or under compensated for the impact, if any, of certain market factors such as lack of liquidity, money flow, etc. Your results may have been better or worse than the results portrayed. No representation is made that any account will or is likely to achieve profits or losses similar to those shown.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE  IV

No independent party has audited the results shown in this book, nor has any independent party undertaken to confirm that it adheres to the assumptions or conditions specified in the methodology.

While the results presented at this book are based on certain assumptions that are believed to reflect actual trading conditions, these assumptions may not include all variables that can affect, or have affected in the past, the execution of trades indicated by Wealthy Investor Limited.

The hypothetical results in this book are based on the following assumptions:

1. The record does not include deductions for brokerage commissions, exchange fees, or slippage.

2. The simulation assumes that prices are not influenced by the trades of Wealthy Investor Limited, its owners, or its representatives, regardless of the number of trades executed. 3. The simulation assumes purchase and sale prices believed to be attainable. In actual trading, the prices attained may or may not be the same as the assumed order prices.

4. The hypothetical results do not take into account any tax implications arising from the sale or purchase of securities, which in actual trading have an impact on net gains and losses. Terms and Conditions

Reproduction, duplication, or free redistribution of this book is permitted but only in its entirety. The entire book may be distributed without charge and without any changes, deletions or additions. You are not permitted to use any part of it in any other way without prior written consent from Wealthy Investor Limited.

You agree that by yourself, or with others, you will not compete with Wealthy Investor Limited, or have any business interest in such enterprises that shall be engaged in competition, as proprietor, partner, employee, shareholder, principal, agent, consultant, director, officer, or in any capacity or manner whatsoever, anywhere unless as a stock broker. You also agree not to lend money to anyone for the purpose of creating a service that competes with Wealthy Investor Limited.

We sincerely hope you benefit from the use of our materials and increase your investment success.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE  V  
CONTENTS

Introduction: Making it on Your Own ............................... 1
1. First, a Warning............................................................. 9  
2. Fear, Greed and Getting the Timing Right............... 12  
3. Three Unique Tools ..................................................... 19  
4. Basics that must be included....................................... 28  
5. Stop orders and emotions............................................ 44  
6. Patience: More Than a Virtue.................................... 63  
7. Balancing Act, Investment Style................................. 66  

8. The Last Train Leaving the Platform Heads Downhill With Everyone Aboard ............................................... 68  

9. Putting All the Pieces Together .................................. 72  
10. Rules: Quick Summary ............................................... 80  

11. In my Opinion, the System is Simple; You May Not Agree, So Here's a Solution ........................................ 81   Annotated Charts, Warts and All...................................... 84   HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   1  

INTRODUCTION Making it On Your Own

In the summer of 1983, after the stock market had made a dramatic recovery following the then-worst recession since The Great Depression an otherwise stable man in his mid-50s told me he was quitting his job to play the stock market. He had put a sizeable chuck of cash into stocks in mid-1982 and made a bundle following his broker's tips. Easy. Too easy for his own good in fact.

He knew nothing about investing. He'd sent away for a welladvertised home study course. His brokers (I think he had about six with a number of different firms) told him what to do. His total involvement was to agree with them, count his winnings, and to dream of a life of ease and riches. Nothing to it!

Naïve? Most people would think so, particularly if they had any experience at all with the stock market. Yet his story is similar to that of thousands of new investors who flock to brokerage offices each time stocks head upward. (There are not so many around when they should be: when stock prices are low and headlines talk of economic hard times.) We'll get you over than problem with this book, as you will see.

The man was so excited if he had been a balloon he wouldn't have needed helium. He needed to be brought down to earth. Had his name been Virginia perhaps I wouldn't have had the heart to give him the real low-down on Santa Claus; since it wasn't, I thought he'd be better off with a real dose of reality. A number of chats later, which included an orchestrated glimpse of the pitfalls awaiting the unwary, he came to realize he'd been just plain lucky, as gamblers sometime are. He kept his job, was able to take some profits before the market's subsequent decline, and then had the capital (and a little more knowledge) to have a reasonable chance at future success.

"Five of seven of my brokers' recent offerings lost money and two broke even," he told me some weeks later. "I guess almost anyone could have made money when I did. Now, it's not so easy."

He learned at least one valuable lesson: The key to making money in the stock market is correct timing. Each time the market hits bottom, a proportion of rank beginners get lucky and buy. Some make spectacular gains and their stories spread. People are quick to boast of their winnings, reluctant to talk about losses.

This makes it all look so easy to some of the uninitiated – and therein lies the trap. "Uncle Joe's broker gave him a real winner. I'll give him a call to see what he's got for me."

Uncle Joe's broker will always have something. That in itself is a problem; there are times to step back from the market. And even at the best of times what Uncle Joe's broker offers you may not bear the slightest resemblance to the goodies Uncle Joe got. And if what you get doesn't live up to expectations? Who do you turn to next? We all have to stand on our own two feet.

Brokers and analysts, some of them excellent, have their uses. With few exceptions, they want happy clients. Happy clients mean more commissions in the future. Why then do the majority of stock investors lose money most of the time?
The most common belief is that the "professionals" have the important facts first and the little guy is left out in the cold. But if stock price movements are based solely on facts, why don't the professionals do better?

Dozens of studies have been carried out in the U.S during the past many decades involving records of hundreds of analysts, pension fund and mutual fund managers and thousands of their favorite stocks. A whopping 71% performed worse than the average for the Standard & Poor's basket of 500 stocks. Since those stocks at any given time include a number of duds commonsense should say to avoid, one might suppose these people should outperform the average.

And if the professionals have a tough time, what chance for you and me?

Surprisingly, we have a better chance. We can make decisions in minutes while institutional decisions often involve committees. Managers under pressure to perform often try to play it safe – which means going along with the pack, which is usually wrong.

Analysts, particularly those working for stock brokerage firms, must avoid upsetting the management of those companies on which they report for two reasons: to do otherwise risks cutting off their source of information and, perhaps more importantly, corporations seeking to issue more shares may not give the lucrative underwriting to a brokerage house that has been critical in the past.

The essential conclusions to be drawn from all this are:
• We must take charge of our own destiny. It's our money; we must not expect someone else to do all the work so we can reap all the benefits. This, among other things, means avoiding high-priced full-service brokers and using much cheaper discount brokers who do not necessarily offer advice that, in any case, you will not need once you start to follow the system laid down here.

• Since we cannot have all the facts all the time (and if we could, how could we put an accurate value on each fact?), we need to know how to use the tools that are instantly available to everyone in making decisions. This book will show you how to do that.
• We need a system to know when to buy and, perhaps more importantly, when to sell.
• We need to be able to assess risk and to apply that assessment so the "risk" of making money is greater than the risk of losing it.

You wouldn't expect to start a business without knowing something about it. You wouldn't hire managers to make all the decisions. You'd also make sure you were psychologically suited to the new business. The same rules apply to the stock market. If you're prepared to work at it, to make it your business, you should find this book helpful. If you want a chance of money without work, we will even do the work for you for a very low price.

We started this introduction by talking about a man in the early 1980s who thought he would quit his job to play the stock market. Believe me, he is quite typical. Maybe you recognize him in yourself or in a friend or relative.

Fast forward 20 years and we were just coming out of another stock market slump. Forward a few more years and we recorded an exceptional event, the first since The Great Depression: Investors on average lost money over an entire 12-year period.

That period is covered in this book and you will see it provided great profits.

More people now are dubious about the stock market. As always after a bear market, many have locked in their losses and left never to return.

Retirement savings, shepherded so carefully by so many, were decimated, plans changed, dreams abandoned, retirements were delayed if there was that option among the millions of lost jobs.

But it did not have to be like that! I don't know how many times I have to say it, but investing with a plan is the easiest way I know of to make a lot of money without working for it. Contrary to popular opinion, you do not need a lot of money to start. The odds are strong that money you waste daily without even thinking about it can soon be quite sufficient to begin with.

Ask yourself this very important question: Was it the stock market that was wrong? Did it do anything it had not done before? Or was it that so many players were not able to deal with it in a way that would have increased their wealth rather than decreasing it?

The stock market is not as complex as the average person is led to believe. Most of it needs no understanding because you should not be involved with establishing your own strategies unless you are a pro. For now, you need a basic winning strategy uncluttered by all the rest. How to Become a Wealthy Investoris that strategy.
If you have a few thousand dollars left in the piggybank after the recent debacle, please don't despair that there are fewer dollars now than there were before. I am going to show you – to prove to you – such an idiot-proof way to have stocks tell you when and how to invest in them. That's right: the stocks themselves will tell you.

In reality shares, when they are not merely computer entries as is the case with most today, are merely pieces of paper incapable of telling you anything. But knowing how to read instantly what people are doing with them and being prepared for what they may do next week can tell you everything you need to know to be right almost every time. It's like having a map for an area with only one street.

You don't need brains, six degrees, a magic wand – just the ability to read a trail, just like a hunter, but a lot easier.

Let's talk about something you already know: stocks sometimes rise and they sometimes fall. Surely even the most skeptical can agree with that. That simple and widely-known fact is the starting point for our journey. At the end of this book, after I have given you a handful of very simple rules you can follow with no further help, we will see the statistics for each stock and each trade carried out with the 30 stocks in the Dow Jones Industrial Average. The data goes back beyond 1970 for some stocks.

I urge you to prove the results for yourself. Follow the summary of rules shown in this book with each chart and know why certain things were done at particular times. Get comfortable with what you discover. You will have seen nothing like some of the system's elements anywhere else.

You be the judge of whether what you learn really works. Those 30 Dow stocks were chosen to provide a group of senior companies without any ability on my part to choose ones that produced better results than others. A computer program was written to make sure exactly the same rules were applied to every stock; no fudging.

Once the computer is switched on, there is no human intervention. The program reads markets all by itself.

I can't swear to you that if you follow the rules precisely you will get exactly the same result during the next 30 or 40 years. Times and circumstances change – they did during the past several decades, too. But doesn't it seem pretty obvious that if the deer come out of the woods in early spring to graze in a field they will do so again next year?

I will tell you in the smallest detail and as simply as possible everything you need to do. But I'm also going to tell you it will mean regular work, not hard, but perhaps tedious. I'm not going to fool you.

But I will also tell you how to get all the answers from my company for each of the S&P 500 stocks every week with no work; you will know exactly what to do and what not to do to be as successful as you can be.

We will do all the work for you for a pittance! If that doesn't interest you, nothing ever will.

Speculators, gamblers and many who consider themselves investors spend hours, weeks and months trying the figure out when is the best time to get into the market. They are almost always too late (or they suffered all the way through the previous crash). When the majority is sure the time is right, the best profits have long gone and the bull market is closer to dying than rising from the ground.

The average investor buys close to market tops and sells close to market bottoms (or they buy and hold with no changes along the way). How can anyone expect to make better than average returns that way?

This book will lead you without thinking, worrying or wondering to buy low and sell high. You will usually buy near the bottom and sell near the top. What do you think would happen to your returns, to your net worth, if you were able to buy low and sell high most of the time?

Think about this for a moment: What would change in your life? What would you do that you cannot do now? How would it feel not to have to worry about money again? I have been there and believe me it makes a huge difference.

You will see that what is written here is pure commonsense. You will know that what I teach works as advertised because you will be able to prove it and see it for yourself.

Not all will have the same experience or understanding as we start so forgive me for including some basics with the nuts and bolts.

Ready to get started? HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   9  

Chapter 1 First, a Warning

Until you prove this system foryourself you will notfind itbelievable

Completed Trades S&P 500 Dow 30
Number of trades 955 97
Profits trades 842 87
Losing trades 113 10
Average profit per share $13.12 $10.73

Average annual return on 49.08% 64.40% investment
Average length of investment 5.88 years 6.70 years

In fact, it has been an unbelievable journey that started more than 25 years ago when I wrote the Canadian best selling book, Take the Guessing out of Investing.That book and the program associated with it led to a career in the investment industry. The program averaged a fraction over 22%...but I always suspected it could do better.

In March 2009 I scratched out a plan on a scrap of paper torn from an exercise book. The intent was to simplify the old program, reduce the losses it had and increase profitability. Instead of trying to capture every hop, skip and jump of a stock I wanted a more patient approach that would reduce losses and commission expenses.

But you know how it is: you have what you think is a great idea and if only you added this...and this...and a little of that! Cooks know that does not always work. When the program was written to include all these extra little twists, results were a disappointing 11 or 12%.

(Eventually, the program designed on that scrap of paper was written by our excellent in-house programmer and chief technical officer. As expected, the average rate of return was around 30%.)

But before that program was ever written I got very frustrated. I threw out rules that for years I had understood were commonsense staples in the industry. Then late one night I just about fell over: the average annual return for the 30 stocks in the Dow Jones Industrial Average for some 40 years was then 56.46%.

I was ready to dance around the office...for all of two seconds! Then I realized that no sane person would believe this return and our business dreams came close to imitating the Hindenburg.

Our answer was to hire professionals to help us to show you that what we say here and on the website is absolutely true. There cannot be the slightest whiff of smell or our credibility (and our business) is gone in a flash. That's why every effort has been made to provide you with all the details of how we do what and why in this book.

Meanwhile, despite the returns, all was not rosy with the program. From time to time, it gave gut-wrenching drops of 50% or more.

We continued to tinker with it and, really by accident, found a way to eliminate most of those losses, cut out most of the gutwrenching drops along the way and – to make matters worse! – improve the average annual rate of return.

Losing trades with the addition of the final tool were cut to 10.31% for the 30 Dow Jones Industrials and 11.83% for the 500 stocks in the Standard & Poor Index. If you are a typical investor, you know how phenomenal that is.

The statistics at the start of this chapter are from February 11 2011.

Charts for all 97 Dow Jones trades are at the back of this book. They are annotated so you can see exactly what was done when and why. Spend some time with them to understand what is happening; that should give you some confidence to move ahead with the system yourself.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   12  

Chapter 2 Fear, Greed and Getting the Timing Right

There's a time to buy stocks and a time to sell them. Knowing which is which is vital to our financial health. Even General Electric or IBM, solid though they are, can cause losses of sickening proportions if our timing is wrong.

It is often said that people who try to time the market, who try to gain from market fluctuations, typically make less money than those who hunker down and hang on to their stocks regardless of what the market does.

Frankly, for most people, this counsel is correct. What those who quote it forget is that the majority of investors rely on emotion. They typically buy too late in a cycle and then sell too late. They have no disciplined approach.

Our objective, quite obviously, is to buy low and sell high. The recipe for success is in recognizing when 'low' really is low and when the latest in a series of highs is the end of the ride.

If we're too subjective in making our decisions, those demons – Greed and Fear – tend to raise their ugly little heads. Joined by their good old buddies, Ego and Impatience, they can create havoc with a bank balance.
Here's how they often work: Let's suppose that Blunder Corp. traded as high as $20 three months ago. It's a good, solid company with bright prospects but it is now trading at $15.

"Just $15?" Greed asks. It only has to go back up to $20 and we have made 33% profit. Surely it will do that and more."

"But," we, the guys with the money, ask, "how do we know it won't go down further?"

"Let's figure out how low it will go," Ego chimes in. "Wouldn't we be smart if we bought it at a price lower than all those other folk paid?"

"Yes," agrees Greed, "and we'd make even more money then when the price goes back up."

And some days later, with the price just a notch higher than the target set by Ego, Impatience says: "Hey, guys, the price doesn't look as if it's going to drop any more. Let's buy now before the thing squirts up on us. We don't want to miss the opportunity."

So pressured by the four demons, we let them make our investment decisions. Our role? Stand by with the check book. And sweat a little!

Farfetched? We'd never allow such a thing to happen to us, right? Be truthful! In thousands of homes and offices across the country variations of this skit are played every day of the trading week.

Objectivity is our only protection and each of us must apply it in our own individual ways. We ask the market to tell us in which direction it is most likely to move next; it tells the truth often enough to make the questioning worthwhile. The questions and answers are communicated through stock price trends.

These trends are set by a combination of fear, greed, reason, calculation, invention, corporate success or failure, luck, the wish of one person or group to acquire more shares or to dump them…there is such a vast array of factors, most in opposition to others, occurring in the same instant and in secrecy that it is quite impossible for you or me to figure out what will happen in the next second, let alone the next week.

But the market gives us pretty accurate instant clues if we will but listen.

It would be supremely convenient if, in a bull market, stocks went steadily and predictably up, and in a bear market they went steadily and predictably down. Real life ain't so convenient.

Anyone who has followed stocks knows they are damnable critters that wobble a lot, sometimes going down on good news, up on bad, often up on rumor, down on fact – even if the facts confirm the positive rumor.

For all that, they are not nearly as unpredictable as one might suppose. They tend to move in trends rather than in completely haphazard fashion. Spot those trends soon enough and the profits are good when we are right, the losses limited when we are wrong.

To work the How to Become a Wealthy Investorsystem, we need up-to-date weekly bar charts of stock prices over the past several years, a ruler, a sharp pencil, a bit of intuition, and an inviolable trading plan – oh, and the psychological attributes of a robot. We're back to that word 'discipline'. If you don't have it or if you are not willing to make a commitment to develop it, stay right away from what I am about to tell you. You are being given a virtually-guaranteed way to make a lot of money easily and with a good margin of safety. But it needs your robot-like contribution.

Don't try to 'improve' on the rules that took me 57 years to develop and improve for you. Just don't do it!

There are more than 1.5 million sources of charts on the Internet of varying quality and usefulness. Several are free. Many have far too much information that can simply serve to confuse you and lead you to experiment.

Re-read the previous two paragraphs! Then choose the simplest bar charts you can find. Make sure they are adjusted for splits, dividends and special cash payouts. And make as certain as you can that they are accurate. If you see stocks doubling in price and plunging back down the next week, anticipate data entry problems. Yahoo Finance and Google Finance both have long term charts.

There are many different ways to represent prices, their movements and trends. Our system uses simple bar charts in part because they determine more easily the breadth of a trend and they are easier for you to draw extensions. (Be ultra careful to get the spaces between the bars consistent when you add to these charts or you will get the wrong results.)

In a weekly bar chart (and that's what you want; not a daily or monthly one) the upright bar represents the price range from high to low of all trading in that week. To the right is a very short line representing the closing price for the week. There can also be a short bar to the left representing the opening price for that week.

Opening and closing prices represent one instant in time and for our purposes mean nothing, any more than would a trade at 10.43 a.m. on a Wednesday.

We want to measure what happens in successive weeks: are the weekly highs higher overall? Are the weekly lows lower? What is their overall trend and if the trend changes at what level will it confirm that change?

Do this well enough and we will be way ahead of the pack most of the time, actually setting targets for a specific buy or sell as much as a week in advance. What an advantage!

If we are using charts, how much fundamental knowledge do we need? Do we need a really detailed analysis of a company's balance sheet, or to know a company inside and out? In my opinion, the answer is usually no – which is good news for us poor mortals.

Some chart watchers don't want to know anything at all about the company, believing the stock's price fully reflects at any given time all there is to be known or assumed about it.

That's a bittoo radical for my blood. I want at least to know the company is healthy and profitable or likely to be soon. What I most want to know most is whether we are in a bull market, when some 75% of all shares will rise, or in a bear market when about 90% of shares will fall. I want the odds to be in my favor. But don't expect analysts and newspaper columnists to tell you the direction of the trend (six months after it is obvious); listen to the charts

How do we know when is the right time to buy or sell? How do we know when a stock is too low or too high? The simple answer is that we don't for sure. But – and this is fundamental to these trading methods – we can easily know with a great degree of probability when prices change direction. It is this change which tells us when to buy or to sell.

The only practical way to tell directional change in a timely fashion is with charts; we cannot effectively determine price changes merely by keeping numbers in our heads. And we would be too influenced by emotion that way.

Sometimes the end of a downward trend is determined by a price leveling off rather than moving up. At other times, acceleration in the rate of decline (or climb) can signal the nearby end of a trend.

Even more obvious in a falling market is the occasional mighty crash at the end with, at least temporarily, a sudden reversal. It does not always happen but you will certainly know it when it does.

A rising market often terminates with a frenzy of buying – and joining this mad rush (and listening to the gushing words in news commentaries) is one of the reasons some novice investors lose their shirts and wonder what on earth happened to them.

Charts of most stocks other than the most volatile usually show periods of several months' duration when prices fit neatly into channels, up, down or sideways. These channels can be pathways to profits if we keep within their bounds.

A parallel line of a specific minimum length touching the weekly high of a falling stock that places it the greatest distance from its accompanying trendline can eventually signal a buying point when prices cross above that line. The trendline and the parallel line are at extremes which provide the widest possible channel over a period.

It is not quite that easy, but almost.

A short term high is the second important indicator; just crossing the parallel line is not enough; that could lead to many false trades. We also need to pass through resistance.

The mirror image is true for stocks that have been rising. A trendline across prominent recent lows, when violated by subsequent prices, is often a strong indicator that, depending on certain other conditions, we should get out fast and enjoy our profits.

No single set of rules will produce ideal trend and parallel lines for all stocks. In that case, don't try to make them fit. There are some 500 stocks in the S&P 500 Index, more than enough to satisfy all but the largest mutual fund company. There will be times simply to avoid a particular company and you will learn about those in Wealthy Investor Weeklyif you subscribe.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   19  

Chapter 3 Three Unique Tools

There are three key tools to the system I have not seen anywhere else:

• Flexible trendlines
• Short term highs and lows
• Red Line Alerts

Let's deal first with flexible trendlines. Most systems use trendlines that measure a relatively short time span. And typically in a bull market they are allowed only to move more acutely upward when that is possible, never the opposite way.

Our system uses trendlines of 161 weeks, an unusual length. The potential danger is that in a bull market of less than three years (not too common) you may not reap maximum benefit. Testing has proved, however, that 161 weeks is the optimum length. The fact that you are typically compensated richly for a sickening ride down does nothing to lessen the anguish while a bear market eats into capital. The question you have to ask yourself is can you stand the heat in the kitchen?

(We developed another tool we'll talk about later that prevents fingers from being burned too badly even in a warm kitchen.)

There are no protective stop losses until trendlines are in place. That means you are at the mercy of whatever the market throws at you for 161 weeks beyond the cycle low (not beyond the date on which you buy).
We tested dozens of different computations, some of which had trailing stop losses. The program we settled on had fewer and smaller losses because it was given freer rein to play out to an appropriate conclusion. The price for this was enduring sharp ups and downs once in a while, particularly near tops and bottoms.

There is nothing new about trendlines but what is different about ours, apart from the length, is that they can move in either direction.They are simply there to measure trends and to warn when a trend is changing direction.

In most cases, a price crossing a trendline is a signal to sell (or to buy). Ours need a certain level of penetration before action is called for. But what happens if the penetration is not sufficient to trigger a buy or a sell?

Here's where our trendlines are different: we assume the line is not correctly following the trend and move it slightly away from the direction in which it was headed. Any sort of travel – to grandma's house or to the moon – requires thousands of minor course corrections. Just watch the steering wheel movement on any vehicle. So why shouldn't trendlines adjust?

Those minor course corrections tend to keep us headed toward even great profits.

Short term highs and lows
This is not a new tool; I developed it back in the mid-1980s for the forerunner to this system.

I'll talk here about short term highs; just imagine short term lows as being the mirror image.
A rise in a stock's price followed by a pullback graphically illustrates the tug-o'-war between buyers and sellers. On the way up, buyers are more aggressive than sellers. On the way down, sellers are more anxious than buyers are eager.

A short term high in our system is a high that is higher than at least the highs of the two previous and the two following weeks. Charts have dozens of them scattered about like measles! They are very weak signs of temporary resistance to higher prices.

To be sure that the crossing of a trendline is real, we want also to exceed the level of the closest high of a short term high that is above the level of the line. If you drew a horizontal line from the trendline in a particular week, which would be the first short term high to exceed it? A point just above that level is where we would buy.

If there is no viable short term high less than 5% above the line, a frequent occurrence, we use the line plus 5% as a buy target. The trendline is always drawn one week ahead so you have a target for the following week.

Short term lows are used to indicate where to sell once a trendline is penetrated.

Red Line Alerts
A strong and most-recent part of the system came about by accident: the Red Line Alert.

For all the things they can do, computers are simply gadgets filled with electronic bits and pieces. The have no intelligence. The only reason our computers "know" a line is rising or falling is through mathematics. Once correctly programmed, a computer can tell up from down, but not in the way you or I would; we can see,a computer has to calculate.

A computer cannot "see" where it has been, either, if the connection is broken. It's like following a wall with your fingers in absolute darkness. This is why on our charts you will see old trendlines or why there might be a line from a previous cycle low that appears to have nothing to do with a current investment. Lines often exist just so the computer does not get lost. Without lines to guide it, it would be blind.

During development of the program, I used to mutter none too gently about "dumb" trades, buys that were made too close to what was a presumed cycle high. You or I would look at a chart with our eyes and see we were close to the level of a recent high. Our computers could not do that; they can now! There's a "dumb trade filter".

When the system "bought" at a high level there was invariably a nasty drop in price soon after. That should be easy to imagine. Now imagine this: the computer "thinks" it has bought and it should be drawing an upward sloping trendline. (It can't wait 161 weeks; it would get lost, so non-active trendlines start to be drawn immediately there is an assumed buy. You will see these on the charts at the back of this book.)

Maybe this investment rises for a few weeks (and so it is colored blue). I said computers are dumb, not color-blind! Imagine this common chart pattern: an M, a double top. We are now headed up the upward slope of the second half of the M. Blue! Fine!

But then comes the final leg of the M and the line is no longer heading up but down below where it began. The non-color-blind computer, with a little programming help, switches the color of the line to red. We have a bull trendline that is headed the wrong way: down.

Once I had stopped muttering about "dumb" trades I realized that these red lines without fail eventually found the next cycle low. That was their only function. There were no stop loss levels set from them. The system, as far as stop losses are concerned, ignored them until 161 weeks after they turned a corner and started heading up in the direction they were supposed to be going.

And so was born Red Line Alert.

At first we thought we would have to rely on you to ignore buy signals that were too expensive. We told you where to find charts and how to simply see when something looked too high. The thought was that if you avoided these expensive positions a red line would ultimately be drawn and we would tell you in Wealthy Investor Weeklya short time after it had turned the corner – after it had found bottom.

There was a problem, of course. Isn't there always? How would we avoid short corrections in the downward slope that would fool the computer temporarily into thinking it had found the cycle low? Ah, wait 16 weeks (the first guess to be subject to rigorous testing). That should allow a correction to get over itself!

Well, it didn't make a lot of difference, but a delay of two weeks was more than 1% better than 16 weeks and better than all the other possibilities. Sometime a buy will be made too early, but the sum result was best with a delay of just two weeks.

But that left another problem: we had very careful statistics for the regular program; how could we keep track of what Red Line Alerts were doing? How could we know what expensive trades you would avoid?

The end of this story is that we have now managed to fold Red Line Alerts into the rest of the program. At the same time, we have shut out potential buys that seem too expensive. You no longer need to make that judgment unless you are making calculations manually.

The computer still "makes" the dumb trades but is prevented from telling you about them, just as it is prevented from telling you about short sales, which we never got to work very well. (So far!) The computer needs to "make" those trades so it does not get lost. Sometimes I think we should tie a bell around its neck!

To my knowledge, none of these tools are used anywhere else. But, also to my knowledge, these returns are not generated anywhere else without a great deal of risk and hard work.

As close as possible, this is set-it-and-forget-it investing.

Let's look at a couple of real life examples.

Figure 1: Bank of America, 1998–2002

Bank of America from 1998 to 2001 gives an excellent illustration of how Red Line Alert works. The cycle high of July 13 1998 at $27.98 was followed by a rapid plunge to $14.01. There was then an almost equally rapid rise that fooled the system. Had it not been suppressed, it would have recommended a buy on July 5 1999 at $24.64. The program, however, will not allow a buy within 16% of the cycle high.

Just as well, given what we can now see would have been the result. But because the price fell, the system drew a falling bull trendline (red) and this line eventually governs where an allowable buy will be made. Notice the two red pins above the end of that line. You would have been alerted to each of them in the weekly report, but for our statistics (since we cannot see into the future) we always use the first of multiple alerts.

The original red line on this chart, before automatic adjustment, rested on the short term low two weeks ahead of the first pin. The pin is where the trigger was for first buy order which would have been issued two weeks later.

The red line adjusts for each lower low. The second and lowest pin is two weeks after the absolute low of December 4.

Using the first alert, however, the system bought at market on the open the next trading day, October 30 2000, at $15.20.

If the original target (before Red Line Alert) had been used, profit over 8.32 years would have been $15.57 a share, an annualized rate of return of 7.60%. But with Red Line Alert the profit from Bank of America was $25.01 over 7.00 years, annualized at 23.52%.

Figure 2: American Express, 1987–1991

American Express gives a different example of Red Line Alert usefulness. The first buy at $4.66 (the blue pin) on July 25 1988 is legitimate according to all the system rules. It is 27.1875% below the previous cycle high of $6.40 on March 16 1987.

The stock rose quite nicely from there to $6.78 on October 9 1989 and a temporary (not active at that time) blue trendline would have been tracking the trend closely. But the 161 weeks needed to make the line active and to set stop loss protection from it would not take place until December 31 1990, 161 weeks after the second of the double lows at $3.35 on November 30 1987.

However, just before the red pin, the low on October 15 1990 was $3.12, lower than the previous cycle low the trendline started from. This entire decline had forced the temporary line lower and lower and as soon as is was below the starting level of $3.35 it became a red line.

Some people may not have bought at the time of the first signal (blue pin) but now have a second chance with a Red Line Alert. Just two weeks after the new cycle low, it called for a buy at market and, if carried out on the Monday opening, would have bought at $3.15.

The first investment lasted a lengthy 12.65 years but, by the time it was sold on March 19, 2001 at $28.01 it had an annualized return of 39.67%. Not shabby, but the Red Line Alert trade produced an annual 76.21% over 10.39 years.

The obvious question is, if you had bought the first time, could you buy again off the Red Line Alert? Yes, there is nothing to stop you but that would reduce your diversification and expose you to a slightly higher risk as a result.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   28  

Chapter 4 Basics that must be included

There are some basic investment strategies that you must include in your investing program:

• Proper diversification
• Approximate portfolio balancing
• Patience
• Stop orders

We'll deal with diversification first as it may be one of the most important elements.

Proper diversification is essential for your well-being as an investor. Proper diversification means choosing 10 to 20 stocks each from entirely different industries

Diversification is more important than most people recognize. Buy a single stock – as I did my first time – and it's like betting your entire bankroll on one roll of the dice.

You might win. That will tempt you to do it again…and again…until you lose it all and you have to explain to your irate spouse why there's no rent money – or food money – this month.

A man said to me a while back: "I've heard it said that stock diversification is a protective strategy but doesn't it guarantee you will have some not-so-hot investments among the winners?" That is exactly why, in my early days, I stuck with the best single stock I could find – often to find it was one of the worst!

Of course diversification means you will have some better and some worse choices than others. They can't all be the best, after all.

When I began investing I wondered why anyone would think diversification was a good strategy. Like most beginning investors, I wanted to find the very best opportunity there was. I didn't want to water it down with also-rans and divert scarce cash into something not likely to do as well.

Harsh experience soon taught me that nobody can pick just the most profitable shares and put all their money into them all the time.

Don't pay too much attention to selecting "the best" stocks. Just pick reasonable ones with a fairly reliable track record. Most people gasp with horror when I say that. After all, this is what most serious investors do: spend hours researching their next target.

It does not matter! To prove the point, on our website I started a portfolio with 12 stocks. Six were picked by an 11-yearold girl from a very poor Panamanian family, six by her 9-year-old brother. Neither have a clue what a stock is, never mind which might be the best ones. Oh, and neither speak English. They were given a single rule by an interpreter. That was all! They live in a cinder block house with no windows; survival, not riches, is their goal.

The rule: pick one only from each of the 12 major industrial groups printed on several sheets of paper. They were given different colored pens and the list you will see at the end of this chapter. That was it!

My belief is that results for the first while will be roughly the same as for the S&P 500 Index. But, using the rules in this book, they will miss most of the next bear market and get the best from the next bull market. Soon their results will be far better than those for the stock market. Follow their progress here. If Juliesy and Andy can do it, so can you...and that's the point of the portfolio.

But doesn't diversification lead to merely being average? Well, yes, the Dow Jones Industrial Average and the S&P 500 Index collectively are both averages.

Their returns have averaged between 10% and 11% since 1928, a time that has included two world wars, numerous regional wars (have we ever truly been without war somewhere on the planet since then?), natural disasters, recessions, assassinations, financial turmoil – you name it.

And yet stocks have managed to move ahead and provide between 10% and 11% on average including dividends throughout all that difficult time. Those numbers include bear markets and companies that simply went broke.

What if we could miss out most of the major downturns? What if we could do that with very few losses and low commission costs, too? Wouldn't that absolutely produce returns greater than the average? That's what How to Become a Wealthy Investordoes.

Let's start off with an explanation of proper diversification.

But first, a look at what proper diversification clearly is not. A man came into my office one day and wanted to buy a few thousand dollars worth of a common stock mutual fund. He showed me what he already owned: about 20 other common stock mutual funds all from the same country. He wanted a different one to further diversify.

"But that's not diversification," I complained.

"Yes it is; they all have different managers."

"But those managers all buy from the same pool of stock. There may be slight variations in what they each own, but that's not diversification."

He was more stubborn than me and I could not convince him so we parted company, him possibly thinking I was some kind of a jerk. I would not take his money for something that could not help him.

To be properly diversified, you need a number of stocks each from a different industry. If you have Schlumberger (an oilfield services company), Transocean (a contract oil and gas drilling company) and Ultra Petroleum (an oil and gas producer) among a list of 10 or 20 stocks, you are not fully diversified.

If oil goes into a tailspin, all three will get hammered at the same time.

I probably shocked a few people when I said it really doesn't matter what stocks you pick so long as you choose them from different industries.
Most investors spend the greatest percentage of their time asking questions and pouring over statistics just to find the best stocks to include in their portfolio. Sorry, guys, it's not worth the bother as Juliesy and Andy will prove. What is worth the bother is good portfolio management.

You don't believe when I say choice does not matter as much as many believe? A man in England set out a few years ago to prove his dog could do better than his stock broker. (I'm not sure whether he had a smart dog or a useless broker.) He spread the stock quotation pages from the newspaper on the floor and bought the stocks the dog "picked".

Don't ask!

The dog made a bundle and, of course, the tax man wanted his share of the proceeds. The man went to court and won because there was no provision in the British tax code to tax dogs. "But," the judge warned, "if anyone but the dog spends the money it will be taxable!"

So don't sweat the choices. Certainly don't look for tips from a newspaper (unless you have a smart dog!); most of those people are journalists, not stock gurus.

Don't listen to tips from your neighbor to satisfy his ego at your potential expense, or from anyone or anywhere else.

Do your own thing and feel more proud and more independent at the end of the day. You will not get hurt with what I'm going to show you.

Use the list a few pages hence of the various industrial groups and sub-groups together with the S&P 500 companies that comprise them. Don't pick more than one from each group or sub-group. I hope that helps.

People think they need professionals to tell them what to buy. No you do not! That's what professionals wantyou to think. You already know what to buy. Some people make much too much hard work out of stock investing. Truly, it is easy with a system.

Let's deal with a few things one at a time: What is your favorite brand at the grocery store? Do they sell a lot of that brand? Why? Is it the quality? The marketing? The cost? Add just one grocery item to your possible list. If you like two pick the best or go eeney meeney miney moe! Don't choose both.

What car do you drive? Why? What do your friends drive and why? Is it easy to service, safe, comfortable to drive, get good gas mileage? Is it a popular brand? Does the company make good profits or have to offer too many discounts to attract sales?

If you do house repairs or you are building an extension or even a new house, where do you like to buy your supplies? Why? Do they give you service above and beyond the competition? Do they seem to have plenty of customers? Is the staff polite and knowledgeable? Are their stores convenient and in busy locations?

The questions about things you buy are virtually the same whatever the category.

You probably don't buy steel girders, but it's not too difficult to ask around to see which company of those that make them is the most consistently profitable...if for some reason you think they are a good investment.
What are your hobbies, where do you buy your clothes or shoes for the kids, what health care or cosmetic products do you find to be the best?

A little thought will provide an almost-unlimited number of good, solid companies able to survive the next downturn and the downturns after that. Just think, for instance, how many downturns in the economy Kraft has lived and prospered through.

You see what I'm telling you? You can do it. You don't need some overpriced broker who doesn't know his … never mind!

You can do it and pity your friends who worry over their choices or have to run to others to hold their hand. You don't need it; you already know how to diversify properly – more in fact than most brokers.

If you're still unsure (and that's understandable) choose 10 to 20 companies, follow all the rules here, and invest on paper for a while. Slightly change the old Nike slogan: "You can do it!"

Okay, here's the list I promised:

Consumer Cyclical Footwear:

NIKE, Inc. (NKE)
Recreational Products:
Hasbro, Inc. (HAS)
Harley-Davidson, Inc. (HOG)
Mattel, Inc. (MAT)
Audio and Video Equipment:

Harman International Industries Inc./DE/ (HAR)

Furniture and Fixtures:
Leggett & Platt, Inc. (LEG)
Tires:

Consumer Cyclical The Goodyear Tire & Rubber Company (GT)

Auto and Truck Manufacturers: Ford Motor Company (F) PACCAR Inc (PCAR)

Auto and Truck Parts:
Genuine Parts Company (GPC)
Johnson Controls, Inc. (JCI)

Appliance and Tool:
W.W. Grainger, Inc. (GWW) Snap-on Incorporated (SNA)

Consumer Cyclical Stanley Black & Decker, Inc. (SWK)
Whirlpool Corporation (WHR)

Apparel/Accessories:
Polo Ralph Lauren
Corporation (RL)
V.F. Corporation (VFC)

Capital Goods Construction - Raw Materials:

Vulcan Materials Company (VMC)

Construction Services:
D.R. Horton, Inc. (DHI)

Fluor Corporation (NEW) (FLR)
Jacobs Engineering Group Inc. (JEC)
Lennar Corporation (LEN)

PulteGroup, Inc. (PHM)

Quanta Services, Inc. (PWR)

Misc. Capital Goods:
Cummins Inc. (CMI)
Dover Corporation (DOV) Flowserve Corporation (FLS) ITT Corporation (ITT)
Illinois Tool Works Inc. (ITW) Pall Corporation (PLL)

United Technologies
Corporation (UTX)
Aerospace and Defense:

The Boeing Company (BA) Rockwell Collins, Inc. (COL) FLIR Systems, Inc. (FLIR)

General Dynamics Corporation (GD)
Goodrich Corporation (GR) Honeywell International Inc. (HON)
L-3 Communications Holdings, Inc. (LLL)
Lockheed Martin Corporation (LMT)

Capital Goods Northrop Grumman
Corporation (NOC)
Raytheon Company (RTN)

Constr. - Supplies and Fixtures: Fortune Brands, Inc. (FO) Masco Corporation (MAS)

Constr. and Agric. Machinery: Caterpillar Inc. (CAT)
Deere & Company (DE) Fastenal Company (FAST)

Transportation

Airline:

Southwest Airlines Co. (LUV) Railroads:
CSX Corporation (CSX)
Norfolk Southern Corp.
(NSC)
Union Pacific Corporation (UNP) Air Courier:
FedEx Corporation (FDX)

United Parcel Service, Inc.

(UPS)

Misc. Transportation:
C.H. Robinson Worldwide, Inc. (CHRW)
Expeditors International of Washington (EXPD)

Utilities
Natural Gas Utilities:
El Paso Corporation (EP) Nicor Inc. (GAS)
ONEOK, Inc. (OKE)
Spectra Energy Corp. (SE) Sempra Energy (SRE)

Electric Utilities:
Ameren Corporation (AEE)

American Electric Power Company, Inc. (AEP)
The AES Corporation (AES)

Allegheny Energy, Inc. (AYE)

Utilities
Constellation Energy Group, Inc. (CEG)
CMS Energy Corporation
(CMS)
CenterPoint Energy, Inc. (CNP) Dominion Resources, Inc. (D) DTE Energy Company (DTE) Duke Energy Corporation
(DUK)
Consolidated Edison, Inc. (ED) Edison International (EIX)
Entergy Corporation (ETR) Exelon Corporation (EXC) FirstEnergy Corp. (FE)
NextEra Energy, Inc. (NEE) NiSource Inc. (NI)
NRG Energy, Inc. (NRG)
Northeast Utilities System (NU) PG&E Corporation (PCG)
Public Service Enterprise Group Inc. (PEG)
Progress Energy, Inc. (PGN) Pinnacle West Capital
Corporation (PNW)
Pepco Holdings, Inc. (POM) PPL Corporation (PPL)
SCANA Corporation (SCG) The Southern Company (SO) TECO Energy, Inc. (TE)
Integrys Energy Group, Inc. (TEG) Wisconsin Energy Corporation (WEC)
Xcel Energy Inc. (XEL)

Technology

Computer Peripherals:

Lexmark International, Inc. (LXK) Communications Equipment:
Cisco Systems, Inc. (CSCO)
Harris Corporation (HRS)

JDS Uniphase Corporation (JDSU)

Technology
Juniper Networks, Inc. (JNPR) Motorola, Inc. (MOT)
QUALCOMM, Inc. (QCOM) Rockwell Automation (ROK) Tellabs, Inc. (TLAB)

Semiconductors:
Analog Devices, Inc. (ADI) Altera Corporation (ALTR) Applied Materials, Inc.

(AMAT)
Advanced Micro Devices, Inc. (AMD)
Broadcom Corporation
(BRCM)
First Solar, Inc. (FSLR)

Intel Corporation (INTC) KLA-Tencor Corporation (KLAC)
Linear Technology
Corporation (LLTC)
LSI Corporation (LSI)
Microchip Technology Inc. (MCHP)
Micron Technology, Inc. (MU) National Semiconductor
Corporation (NSM)
NVIDIA Corporation (NVDA) Novellus Systems, Inc. (NVLS) QLogic Corporation (QLGC) Teradyne, Inc. (TER)
Texas Instruments Incorporated (TXN)
MEMC Electronic Materials, Inc. (WFR)
Xilinx, Inc. (XLNX)

Electronic Instr. and Controls: Agilent Technologies Inc. (A)

Amphenol Corporation
(APH)
Eaton Corporation (ETN)

Jabil Circuit, Inc. (JBL)

Molex Incorporated (MOLX) Software and Programming:

Technology
Adobe Systems Incorporated (ADBE)
Autodesk, Inc. (ADSK)
BMC Software, Inc. (BMC) CA, Inc. (CA)
Compuware Corporation (CPWR)
Cognizant Technology
Solutions Corp. (CTSH) Citrix Systems, Inc. (CTXS) Electronic Arts Inc. (ERTS) Intuit Inc. (INTU)
McAfee, Inc. (MFE)
Microsoft Corporation (MSFT) Novell, Inc. (NOVL)
Oracle Corporation (ORCL) Red Hat, Inc. (RHT)
SAIC, Inc. (SAI)
Symantec Corporation
(SYMC)
Verisign, Inc. (VRSN)

Computer Services:
Akamai Technologies, Inc. (AKAM)
Cerner Corporation (CERN) salesforce.com, inc. (CRM) Computer Sciences
Corporation (CSC)
The Dun & Bradstreet
Corporation (DNB)
Fiserv, Inc. (FISV)
Google Inc. (GOOG)
International Business
Machines Corp. (IBM)
Teradata Corporation (TDC) Total System Services, Inc. (TSS)
Yahoo! Inc. (YHOO)

Office Equipment:
Pitney Bowes Inc. (PBI)
Xerox Corporation (XRX)

Computer Hardware:

Technology
Apple Inc. (AAPL)
Dell Inc. (DELL)
Hewlett-Packard Company (HPQ)

Computer Storage Devices: EMC Corporation (EMC) NetApp Inc. (NTAP)
SanDisk Corporation (SNDK) Western Digital Corp. (WDC)

Scientific and Technical Instr.: Danaher Corporation (DHR) Emerson Electric Co. (EMR) Roper Industries, Inc. (ROP) Waters Corporation (WAT)

Financial
Insurance (Prop. and Casualty): ACE Limited (ACE)
American International Group, Inc. (AIG)
Assurant, Inc. (AIZ)

The Allstate Corporation
(ALL)
Berkshire Hathaway Inc. (BRK-B)

The Chubb Corporation (CB) Cincinnati Financial Corporation (CINF)
Hartford Financial Services (HIG)
Loews Corporation (L)
The Progressive Corporation (PGR)
The Travelers Companies, Inc. (TRV)
XL Capital Ltd. (XL)

S&Ls/Savings Banks:
Capital One Financial Corp. (COF)
Hudson City Bancorp, Inc. (HCBK)
Northern Trust Corporation (NTRS)
People's United Financial, Inc. (PBCT)

Financial
Consumer Financial Services: American Express Company

(AXP)
Discover Financial Services (DFS)
Fidelity National Information Services (FIS)
General Electric Company (GE)
MasterCard Incorporated (MA)

SLM Corporation (SLM)

Visa Inc. (V)

Investment Services:
Ameriprise Financial, Inc. (AMP) Franklin Resources, Inc. (BEN) CME Group Inc. (CME)

E*TRADE FINANCIAL CORP (ETFC)
Federated Investors, Inc. (FII) Goldman Sachs Group, Inc. (GS)
IntercontinentalExchange, Inc. (ICE)
Invesco Ltd. (IVZ)
Janus Capital Group Inc. (JNS) Legg Mason, Inc. (LM)

Morgan Stanley (MS)
NASDAQ OMX Group, Inc. (NDAQ)
NYSE Euronext (NYX)
The Charles Schwab
Corporation (SCHW)
T. Rowe Price Group, Inc. (TROW)

Insurance (Life):
Genworth Financial, Inc. (GNW)

Lincoln National Corporation (LNC)
MetLife, Inc. (MET)

Prudential Financial, Inc. (PRU) Torchmark Corporation (TMK) Insurance (Accident and Health): Aetna Inc. (AET)

Financial
AFLAC Incorporated (AFL) CIGNA Corporation (CI)
Coventry Health Care, Inc. (CVH)
Humana Inc. (HUM)

Principal Financial Group, Inc. (PFG)
UnitedHealth Group Inc. (UNH)

Unum Group (UNM)

WellPoint, Inc. (WLP)

Regional Banks:
BB&T Corporation (BBT)

The Bank of New York Mellon Corporation (BK)
Comerica Incorporated (CMA) First Horizon National
Corporation (FHN)
Fifth Third Bancorp (FITB)
Huntington Bancshares
Incorporated (HBAN)
JPMorgan Chase & Co. (JPM) KeyCorp (KEY)

Marshall & Ilsley Corporation (MI) M&T Bank Corporation (MTB) PNC Financial Services (PNC) Regions Financial Corporation (RF)
SunTrust Banks, Inc. (STI)

Wells Fargo & Company
(WFC)
Zions Bancorporation (ZION)

Insurance (Miscellaneous):
Aon Corporation (AON)

Marsh & McLennan

Companies, Inc. (MMC)

Money Center Banks:
Bank of America Corporation (BAC)
Citigroup Inc. (C)
State Street Corporation
(STT)
U.S. Bancorp (USB)

Casinos and Gaming:
International Game Technology (IGT)
Wynn Resorts, Limited
(WYNN)

Retail (Catalog and Mail Order): Amazon.com, Inc. (AMZN) eBay Inc. (EBAY)

Rental and Leasing:
Ryder System, Inc. (R)
Motion Pictures:

Discovery Communications Inc. (DISCA)

Retail (Technology):
Best Buy Co., Inc. (BBY)
GameStop Corp. (GME)
RadioShack Corporation (RSH)

Real Estate Operations:
Apartment Investment and Management Co. (AIV)
AvalonBay Communities, Inc. (AVB)
Boston Properties, Inc. (BXP) CB Richard Ellis Group, Inc. (CBG)
Equity Residential (EQR)
Health Care REIT, Inc. (HCN) HCP, Inc. (HCP)
Host Hotels & Resorts, Inc. (HST)
Kimco Realty Corporation (KIM) Plum Creek Timber Co. Inc. (PCL)
ProLogis (PLD)
Public Storage (PSA)
Simon Property Group, Inc (SPG) Vornado Realty Trust (VNO) Ventas, Inc. (VTR)

Printing Services:
Eastman Kodak Company (EK)

R.R. Donnelley & Sons

Company (RRD)

Retail (Specialty):
AutoNation, Inc. (AN)
AutoZone, Inc. (AZO)

Bed Bath & Beyond Inc.
(BBBY)
Big Lots, Inc. (BIG)
Costco Wholesale
Corporation (COST)
Family Dollar Stores, Inc. (FDO)

CarMax, Inc (KMX)
Office Depot, Inc. (ODP)

O'Reilly Automotive, Inc.
(ORLY)
Tiffany & Co. (TIF)

Recreational Activities:
Carnival Corporation (CCL) Retail (Home Improvement): The Home Depot, Inc. (HD)

Lowe's Companies, Inc.
(LOW)
Sherwin-Williams Company (SHW)

Business Services:
Automatic Data Processing (ADP)
Equifax Inc. (EFX)
Iron Mountain Incorporated (IRM)
Moody's Corporation (MCO) Monster Worldwide, Inc.
(MWW)
Paychex, Inc. (PAYX)
priceline.com Incorporated (PCLN)
Robert Half International Inc. (RHI)
The Western Union Company (WU)

Schools:
Apollo Group, Inc. (APOL) DeVry Inc. (DV)

The Washington Post Company (WPO)

Waste Management Services: Republic Services, Inc. (RSG) Stericycle, Inc. (SRCL)
Waste Management, Inc. (WM)

Retail (Department and

Discount):

J.C. Penney Company, Inc. (JCP) Kohl's Corporation (KSS)
Macy's, Inc. (M)

Sears Holdings Corporation (SHLD)
Target Corporation (TGT)

The TJX Companies, Inc. (TJX) Wal-Mart Stores, Inc. (WMT)

Restaurants:
Darden Restaurants, Inc. (DRI)

McDonald's Corporation
(MCD)
Starbucks Corporation (SBUX)

Yum! Brands, Inc. (YUM)
Retail (Apparel):

Abercrombie & Fitch Co.
(ANF)
Coach, Inc. (COH)

The Gap Inc. (GPS)
Nordstrom, Inc. (JWN)
Limited Brands, Inc. (LTD) Ross Stores, Inc. (ROST)
Urban Outfitters, Inc. (URBN)

Broadcasting and Cable TV: CBS Corporation (CBS)
Comcast Corporation (CMCSA) The Walt Disney Company (DIS)
DIRECTV (DTV)

Scripps Networks Interactive, Inc. (SNI)
Time Warner Cable Inc. (TWC)

Time Warner Inc. (TWX) Viacom, Inc. (VIA-B)

Communications Services:
American Tower Corporation (AMT)
CenturyTel, Inc. (CTL)
Frontier Communications Corp (FTR)
Leucadia National Corp. (LUK) MetroPCS Communications, Inc. (PCS)
Qwest Communications
International Inc. (Q)
Sprint Nextel Corporation (S) AT&T Inc. (T)
Verizon Communications Inc. (VZ)
Windstream Corporation (WIN)

Retail (Grocery):
The Kroger Co. (KR)
SUPERVALU INC. (SVU) Safeway Inc. (SWY)
SYSCO Corporation (SYY)

Whole Foods Market, Inc. (WFMI)

Printing and Publishing:
Gannett Co., Inc. (GCI)
Meredith Corporation (MDP)

The McGraw-Hill Companies, Inc. (MHP)
News Corporation (NWSA) The New York Times
Company (NYT)

Advertising:
Interpublic Group of
Companies, Inc. (IPG)
Omnicom Group Inc. (OMC)

Hotels and Motels:
Starwood Hotels & Resorts Worldwide, Inc (HOT)
Marriott International, Inc. (MAR)
Wyndham Worldwide
Corporation (WYN)

Personal Services:
Cintas Corporation (CTAS) Expedia, Inc. (EXPE)
H&R Block, Inc. (HRB)

Services
Retail (Drugs):
CVS Caremark Corporation

(CVS)
Medco Health Solutions Inc. (MHS)
Walgreen Company (WAG)

Conglomerates Conglomerates:
3M Company (MMM)
Textron Inc. (TXT)
Tyco International Ltd. (TYC)

Healthcare
Healthcare Facilities:
Quest Diagnostics Incorporated (DGX)
DaVita Inc. (DVA)
Express Scripts, Inc. (ESRX)

Laboratory Corp. of America Holdings (LH)
Tenet Healthcare Corporation (THC)

Major Drugs:
Abbott Laboratories (ABT)

Bristol Myers Squibb Co.
(BMY)
Johnson & Johnson (JNJ)

Eli Lilly & Co. (LLY)
Merck & Co., Inc. (MRK)
Pfizer Inc. (PFE)

Biotechnology and Drugs:
AmerisourceBergen Corp. (ABC)
Allergan, Inc. (AGN)
Amgen, Inc. (AMGN)
Biogen Idec Inc. (BIIB)
Cardinal Health, Inc. (CAH) Celgene Corporation (CELG) Cephalon, Inc. (CEPH)
Forest Laboratories, Inc. (FRX) Genzyme Corporation
(GENZ)

Healthcare
Gilead Sciences, Inc. (GILD) Hospira, Inc. (HSP)
King Pharmaceuticals, Inc. (KG) Life Technologies Corp. (LIFE) McKesson Corporation (MCK) Mylan Inc. (MYL)
Watson Pharmaceuticals, Inc. (WPI)

Medical Equipment and Supplies: Baxter International Inc. (BAX) C.R. Bard, Inc. (BCR)

Becton, Dickinson and Co. (BDX)
Boston Scientific Corporation (BSX)
CareFusion Corporation (CFN)

Intuitive Surgical, Inc. (ISRG) Medtronic, Inc. (MDT)

Patterson Companies, Inc. (PDCO)
PerkinElmer, Inc. (PKI)

St. Jude Medical, Inc. (STJ) Stryker Corporation (SYK)

Thermo Fisher Scientific Inc. (TMO)
Varian Medical Systems, Inc. (VAR)
DENTSPLY International Inc. (XRAY)
Zimmer Holdings, Inc. (ZMH)

Consumer/Non-Cyclical Beverages (Alcoholic):

Brown-Forman Corporation (BFB)
Constellation Brands, Inc.
(STZ)
Molson Coors Brewing Company (TAP)

Personal and Household Prods.: Avon Products, Inc. (AVP)

Colgate-Palmolive Company (CL)
The Clorox Company (CLX)

Consumer/Non-Cyclical Ecolab Inc. (ECL)
The Estee Lauder Companies Inc. (EL)
Corning Incorporated (GLW) Kimberly-Clark Corporation (KMB)

Newell Rubbermaid Inc.
(NWL)
The Procter & Gamble Company (PG)

Food Processing:
Archer Daniels Midland
Company (ADM)
ConAgra Foods, Inc. (CAG) Campbell Soup Company (CPB) Dean Foods Company (DF) General Mills, Inc. (GIS)
H.J. Heinz Company (HNZ) Hormel Foods Corporation (HRL)
The Hershey Company (HSY) Kellogg Company (K)
Kraft Foods Inc. (KFT)
Mead Johnson Nutrition CO (MJN)
McCormick & Company,
Incorporated (MKC)
The J.M. Smucker Company (SJM)
Sara Lee Corp. (SLE)
Tyson Foods, Inc. (TSN)

Tobacco:
Lorillard Inc. (LO)
Altria Group, Inc. (MO)

Philip Morris International Inc. (PM)
Reynolds American, Inc. (RAI)

Beverages (Nonalcoholic):
Coca-Cola Enterprises Inc. (CCE)
Dr Pepper Snapple Group Inc. (DPS)
The Coca-Cola Company
(KO)

Consumer/Non-Cyclical PepsiCo, Inc. (PEP)

Office Supplies:

Staples, Inc. (SPLS)

Energy

Coal:

Peabody Energy Corporation (BTU)
CONSOL Energy Inc. (CNX)

Massey Energy Company (MEE) Oil Well Services and
Equipment:

Baker Hughes Incorporated (BHI) Cameron International
Corporation (CAM)
Diamond Offshore Drilling, Inc. (DO)
FMC Technologies, Inc. (FTI) Halliburton Company (HAL) Helmerich & Payne, Inc. (HP) Nabors Industries Ltd. (NBR) National-Oilwell Varco, Inc. (NOV)
Rowan Companies, Inc. (RDC) Schlumberger Limited. (SLB)

Oil and Gas - Integrated:
ConocoPhillips (COP)
Chevron Corporation (CVX) Hess Corp. (HES)

Marathon Oil Corporation (MRO)
Exxon Mobil Corporation (XOM)

Oil and Gas Operations:
Apache Corporation (APA)

Anadarko Petroleum
Corporation (APC)
Chesapeake Energy
Corporation (CHK)
Cabot Oil & Gas Corporation (COG)
Denbury Resources Inc.
(DNR)

Energy
Devon Energy Corporation (DVN)
EOG Resources, Inc. (EOG) EQT Corporation (EQT)
Murphy Oil Corporation
(MUR)
Noble Energy, Inc. (NBL)
Occidental Petroleum
Corporation (OXY)
Pioneer Natural Resources (PXD)
QEP Resources, Inc. Common Stock (QEP)
Range Resources Corp. (RRC) Sunoco, Inc. (SUN)
Southwestern Energy Company (SWN)
Tesoro Corporation (TSO) Valero Energy Corporation (VLO)
Williams Companies, Inc.
(WMB)

Basic Materials Chemical Manufacturing:

Air Products & Chemicals, Inc. (APD)
Airgas, Inc. (ARG)

CF Industries Holdings, Inc. (CF) E.I. du Pont de Nemours & Company (DD)
FMC Corporation (FMC) International Flavors &
Fragrances Inc. (IFF)
Monsanto Company (MON) PPG Industries, Inc. (PPG) Praxair, Inc. (PX)
Sigma-Aldrich Corporation (SIAL)
Gold and Silver:
Freeport-McMoRan Copper & Gold Inc. (FCX)
Newmont Mining Corporation (NEM)

Metal Mining:

Basic Materials
Alcoa Inc. (AA)
Cliffs Natural Resources Inc

(CLF)
Titanium Metals Corporation (TIE)

Misc. Fabricated Products:
Allegheny Technologies
Incorporated (ATI)
Precision Castparts Corp.
(PCP)
Parker-Hannifin Corporation (PH)

Forestry and Wood Products: Weyerhaeuser Company (WY)
Iron and Steel:

AK Steel Holding Corporation (AKS)
Nucor Corporation (NUE) United States Steel Corporation (X)
Containers and Packaging:
Avery Dennison Corporation (AVY)
Ball Corporation (BLL)

Bemis Company, Inc. (BMS) MeadWestvaco Corp. (MWV) Owens-Illinois, Inc. (OI)
Pactiv Corporation (PTV)
Sealed Air Corp. (SEE)

Paper and Paper Products:
International Paper Company (IP)
Chemicals - Plastics and Rubber:

The Dow Chemical Company (DOW)
Eastman Chemical Company (EMN)

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   44  

Chapter 5 Stop orders and emotions

In the previous chapter, after diversification, I mentioned other important elements to your investing success. In no particular order, they were:

• Approximate portfolio balancing
• Patience
• Stop orders

Let's devote this chapter to stop orders, what they are, and why they are so vital to your success.

One of the more difficult things about buying or selling shares is to know when to do so. This is most often done by guessing or by gut feeling, yours or someone else's, and is often a time of great stress. Too often, it is a blind action based on hope or fear.

Selling, perhaps surprisingly, is more difficult than buying for most people. One of the first things we need to recognize is that all losses are real; just because we continue to hang onto stocks that have gone down in value doesn't make the loss any less real.

I can't count how many times people have said to me when holding stocks worth pennies on the dollar: "Oh it's only a paper loss."
The inference is that the stocks are still worth what they cost and that the difference between cost and what the market is willing to pay now is a mere bookkeeping entry so long as the stocks continue to be held.

Nonsense! A stock is worth today no more and no less than someone is willing to pay for it right now. It's real money, not Monopoly play stuff. Stocks, just like checks, can be cashed.

Ten dollars in the cookie jar and $10 from stocks buys exactly the same amount of groceries. There is no such thing as a "paper" profit or loss; the term is a psychological crutch that can be hazardous to your financial health.

You've heard the expression time is money; even if you wait through a major dip and the stock comes back up to break even, you have still lost money. Just sitting in a dull old T-bill, the money you have patiently been waiting to return would have earned something. Time is money: if an investment is not working for you the way it should, get rid of it!

Money is rarely made with any consistency in the stock market by being stupendously right: it's made – and kept – by not being fatally wrong. Once we accept the fact that we're not gods, that some of our sure-fire winners will turn sour, we can devise strategies for cutting bait quickly when we have to.

A useful device is the stop loss order, an order specifically designed to prevent losing too much or giving back too much of the profit we have made. This tool, surprisingly, is not used by the majority of small investors and I believe that's the reason many of them own portfolios in which remain stocks that are now virtually worthless.

Most how-to books have little to say on the subject of stop losses and most brokers who have no hands-on commodities experience (where they must be used all the time) usually fail to recommend them.

A reader of one of my newspaper columns was told by his broker not to use stop losses. "You risk being sold out (of a losing position) and having the price go right back up." That's quite true and it is the reason perhaps that stop loss orders are not a universal technique.

The reader should have asked: "And what do I risk if it falls further?"

There is no such thing as a guarantee of success for any action related to the stock market. Our task is to find strategies that work more often than they fail; let others occupy themselves with exceptions which will always exist.

My reader sent me a list of 10 stocks he then owned. He had invested $46,500 and had already lost $18,000. He wrote that most stocks had been recommended by his broker.

Had he merely applied a 10% trailing stop loss (and I do not recommend something so untailored to specific situations) to each of the stocks when he bought them, his total loss would have been $850 instead of $18,000. (And if he had used the techniques described in this book he would have had a considerable profit.)

Let's look at a better way to operate than with a simple trailing stop loss order. But first, what on earth is a stop loss order? And what is a trailing stop loss?

A stop loss (often referred to simply as a stop) is a type of order logged with your broker ahead of time that becomes an order to sell "at market" (for whatever the broker can get) if the stock's price falls to the level of the stop loss order.

Let's suppose a stop is set at $19.75 for the next week. That does not mean you will receive $19.75 for your shares if they fall to that level. If the next bid is at, say $19.74, this is the price you would get. But if you have put a 10-cent limit on your stop loss (not something I advise), it could not be sold for less than $19.65.

Stop loss orders are quite rudimentary tactics. Far more useful is the trailing stop loss. They have the added advantage of preserving as much as possible the profit that has accumulated in a winning position, protecting us against giving back too much of our hard-won gains.

A trailing stop is one that is moved up in a rising market as successive highs are achieved by your stock.

A trailing stop is a one-way proposition; in a bull market it can be moved up but never down. So long as the stock's price continues to rise the trailing stop will rise with it locking in increasingly greater profit.
When, as it eventually must, the stock price starts to fall the level of the stop loss remains stationary. If the stock's price falls far enough the stock will ultimately be sold. No decisions, no anxiety attacks, no wondering whether or not the drop is temporary. Clean and simple! It's done! Next?

The easiest way to manage stop loss orders is to actually place your order at the start of the new week. (Do this even if they are unchanged; most brokerages will not hold stop orders open for more than one week.)

Setting stops takes pressure off you and prevents you from getting last-minute jitters during a price plunge and thinking, "Oh, I'm sure this is just temporary and the price will rise again." Your decision was already made in calmer, more-reasoned times.

In one of the earlier versions of our program, we applied stops when a stock had risen 25%. Then we used a 25% trailing stop. It seemed reasonable; in theory, we could lose nothing. But thorough testing showed that applied this way these stops reduced profitability by about onethird. Instead, our program waits until a trendline has been drawn and then sets a stop loss just below the level of that line. In a sense, it is a trailing stop but trailing the trend, not the stock price itself.

Sometimes, to allow the stock to settle on a new and higher trend, a stop loss can be so far removed from actual prices as to be virtually worthless. But results show that usually the trendline will accelerate eventually and the stop becomes more realistic and useful. When the share price is unrealistically far removed from where your stop should be there is no absolute need to enter a stop with your broker.

My preference is to enter the order whenever the current price is within 20% and could be triggered by a catastrophic event. Just remember to change it the following week when the stop loss level will likely be at a different price.

Setting the selling (or buying) level is then done in the cold light of day with zero emotional involvement. Do you think these decisions might be of better quality, probably leading to more wealth? Can you see how the degree of worry or pressure would be reduced?

Now let's discuss how Wealthy Investor uses stop orders by combining them with trendlines to make trendlines and stop orders "living accomplices" in gaining wealth.

There's a saying among investors that "the trend is your friend". How to Become a Wealthy Investor follows trends and changes horses when the trend changes.

But how do you do that? Let's look at it this way: If you wanted to draw a straight line you would use a ruler. The logarithmic mean of a stock's directional trend over decades is typically also a reasonably straight line but we know they also meander a lot within that general trend, sometimes violently.

We also know that trends, although following the same general direction, often change their angle of climb or descent. Such change would require a curved ruler to make an accurate measurement, but how can we find one with the right degree of curve – especially since every stock and every curve is different?

The answer is to use trendlines and lines parallel to them. Imagine them as parallel curbstones on either side of a street, the street itself being the trend.

(Look at a typical old curbstone; they are rectangular blocks of stone, usually granite, each of a certain length. Ignore the concrete ones that are formed in any desired shape today. Laid end on end, these granite curbstones can quite happily follow bends. Trendlines being straight on a logarithmic chart can do exactly the same thing: follow changes in trend direction depending on the length of the trendline.)

We will talk more about trends and trendlines later. For now, let's just state two things: a trendline in a rising market is below prominent weekly lows along the path; it will touch at least two of the most prominent of these weekly lows. A trendline for a falling market is above the more prominent weekly highs.

Those trendlines and their parallels are there for a single purpose: to get us in and out of trades when the general trend gives an indication of changing.

Before I go on to explain more about various types of stop loss orders, let's just add one more thing about trends and the lines we use to determine their typical variance and direction.
A trend needs to establish itself before trendlines can be drawn. We cannot wake up one morning and decide: "Oh, the trend will change today so I will draw some lines on a piece of paper for it to follow." Remember this crucial point: We need the market to tell us the direction is it taking and will most likely follow for an unknown period. We must not try (futilely) There are already too many forecasters in the world creating losses for many of the investors who follow them.

Markets, either rising or falling, follow channels not straight lines. They flow typically between two parallels. Sometimes those parallel lines are reasonably close together; for other stocks they may be far apart. But even with the measurement between those two lines showing us the typical extent of fluctuations in price, they are not perfect limits, like strong concrete walls.

They are resistance points but that does not mean stock prices cannot cross them. Eventually, they will cross and the trend will be broken.

If we used the trendlines themselves as buy and sell points (as many systems do), we would be buying and selling far too frequently as stocks zigzag between the two lines. Stock trading is an art, not a science. Sometimes, stocks will blip across a line without triggering a trade in our system. Assume these blips are false breakouts and use them to correct the position of the line. That is an unusual treatment for trendlines probably making the How to Become a Wealthy Investor system unique in this regard. Trendlines cannot usually reduce their angle of climb; ours do under certain circumstances.
The stop loss order in a rising market is placed just outside the lower line. It demands either a short term low be exceeded as well as the trendline or, in the absence of a useful short term low, that the line be exceeded by 5%.

If the stop is too close to the line, you risk having an otherwise excellent trade cut short by a temporary blip in price; if it is too far below the line, you give up too much profit.

There is also something called a stop buy that many brokers don't fully understand. I had to teach entire brokerage staffs in two different national firms the logic behind them. They are for initiating a trade in a rising market at a price above the current one.

Some brokers have merely shaken their heads when I explain the principle. "Why wouldn't you just buy the stock now at the current level instead of waiting until it rises?" they ask, looking at me as if I am totally mad. I hope you will understand when I explain.

It is one of the key points in your success. You want prices to give some reasonable evidence there are more buyers than sellers around.

In the 1980s I developed a system similar in some ways to this one (the subject of a now-out-of-print best seller, Take the Guessing out of Investing). The system was profitable with average returns, if I remember correctly, in excess of 22% after full-service commissions. (Discount brokerage was in its infancy.)
But frankly it was far too convoluted and busy. It attempted to profit from every twitch stocks took. There were a lot of losing trades and high commission costs, too. Some clients enjoy a lot of activity and, I suppose, excitement.

The current system has stripped out most of the finetuned stuff and allows the market more breathing room, as it were. The result in most cases is one or occasionally two trades per stock for a bull market.

The greatest numbers of losses with the older system were caused at market bottoms.

How to Become a Wealthy Investor does not worry about every little twitch. It seeks to get into the market reasonably close to the bottom and initially uses no stop losses. For some people, including my early advisors, this is a radical approach, but extensive computer testing has proved that even with a stop loss allowing as much as a 25% loss the chances of being whipsawed or of missing an excellent investment altogether is too high and overall profit is actually considerably reduced.

Let me explain the reasoning. As an extreme, if a healthy individual stock is already down 50%, do you really expect it to fall a further 50%? Ten percent maybe, which it must soon make up, but a further 50% or anywhere close? Not too likely. You would probably lose more money protecting against this possibility than simply ignoring it. In fact, we proved you would during testing.
Some people who have held stocks throughout most of a downturn apparently think the danger of a further precipitous fall actually exists; that's when they get out…in panic at the bottom. If they ever return, it will not be until prices are high enough once more to give them renewed confidence.

They have it backwards.

How to Become a Wealthy Investor does not immediately apply protective stop loss orders to a long position (a buy) at the end of a bear market.

Let prices bounce around at the bottom for a while if that's what they want to do. Let them fall even, if you have picked solid companies. There's a lot of investor uncertainty here. That's why markets are often so choppy at the bottom.

Just be in place when they start to take off at the beginning of the bull market. This slower pace of trading saves a lot of wear, tear and commissions – even at discount brokerage fees.

Stop losses are not used until a trendline is in place. Then they are placed just outside the trendline. Unfortunately, you will suffer through rough patches that occur before a valid trendline is in place. Again, test results show it is worth the uncertainty.

Is this an appropriate approach to long term investing? Just look at the test results and then consider that the S&P 500 Index was at the same level in October 2010 as it was in July 1968, more than 12 years earlier. We think you will agree the figures speak for themselves.

We will talk more about trendlines later because stop loss orders and trendlines go hand in hand like bread and butter.

But, for the moment, it may help your understanding to know that trendlines cannot be put in place until 161 weeks after the market bottom when at least the beginnings of a trend can be detected and measured. This strange number is the result of many thousands of tests to find the optimum delay.

When a trendline is in place, the stop loss follows upward week by week just outside the trendline, always locking in increasing profit and protecting against the eventual trend reversal that must happen. Unlike a trailing stop, there is no fixed relationship between the price of the stock and the stop loss.

When the time comes to take your profit, you're not assailed by an anxiety attack; the decision to sell at a particular point was made earlier and without emotion. You made a business decision in a reasoned manner – the way that decisions in the stock market must be made if you are to be a consistent winner.

Stop losses cannot protect us against unexpected calamitous news. If trading is suspended, the company announces receivers have walked in and the stock subsequently resumes trading down $5, nothing is going to spare us a beating (unless you have a limit on your stop, then you might hold the shares through to bankruptcy).

But how often does that happen with the type of stocks we should even be considering as investment vehicles?

There is another very real hazard: stops should not be used to trade large numbers of shares in thinly-traded companies. By sticking with companies that make up the S&P 500 index you will avoid this problem.

Wealthy Investor Weekly sticks to the S&P 500 stocks but you might decide to explore other markets manually with this system.

There is a shortage of published material outlining a sensible strategy for stop losses. When they are mentioned at all, they get passing reference as a useful tool, but detailed rules for their application are usually missing. Investors are often told to determine the amount of money they are prepared to lose and to set stop losses accordingly.

What an idiotic idea! That has nothing to do with the stock you hold and its normal behavior. Why not throw darts and pick a number?

In bygone years, before working it out for myself, I asked a number of brokers what they thought was an appropriate gap between a stock's high and its trailing stop loss.

When I got more than a shrug, the consensus seemed to be "about 10%". But analysis of just a handful of charts quickly showed that 10% is insufficient room to allow for some fluctuations, particularly shortly after a stock enters a meaningful upward channel following a significant downtrend – and this is where the big and quick profits are made.

(There are reasons for this quick rise. Short sellers, anticipating the end of a bear market, scramble to unwind their positions by buying. Less timid members of the public see this as a buy signal and add to the buying volume. Professionals and day traders are also buying at this level – and getting ready to sell quickly. Prices rocket higher – for a while, until all the short sales are unwound.)

A stop that's too close at this point would often get us out of the market on a temporary downward blip after the initial buying binge dries up and just when we should be hanging in.

We need a more flexible set of rules that maximize profits by creating fewer trades and commissions and fewer short-term losses. The rules must also allow the stock to move more freely until it truly is time to leave the party.

Sometimes, when combined with a trendline, a stop loss can be 25% or more away from the stock's price. At other times it can be less than half of one percent away from the price.

The result of using stop losses in the manner you learn here is that we have true money management, not some sloppy pin the tail on the donkey hit or miss action. Inviolable management rules are one significant key to success.

No longer do we have to guess, to worry over a falling stock or to worry about where the top may be for a stock that is rising. The market will tell us all we need to know. When it's appropriate for us to sell, we'll usually be gone…but no system is perfect.

Apart from letting losses grow too large, another reason unseasoned investors tend to lose money is that they settle for lower profits than the stock is prepared to offer, particularly if they have taken recent losses.

Winning, as any significant or sudden winner will attest, is not as easy on the nerves as the uninitiated may assume. When a stock's price turns positive, especially after a bumpy ride, the temptation is to get out and head for the hills as soon as there's a small profit.

Reduced profit and unfettered losses give a one-two blow to aspirations of success. An appropriate stop loss strategy will normally do much to overcome both of these problems.

A commodities trader who spends his days with charts and stout-hearted clients who can win or lose thousands of dollars in mere minutes, clients for whom stop losses are essential if they are to survive financially, had this to say about the strategy I use:

"Just the fact that you use stops is useful. Most investors don't, and they get hurt because of that. If stops are used and you have only average success in picking stocks that go up you'll make money." Laughing, he added: "Your only problem will be deciding whether you want a condominium in Florida or a villa in the south of France!"

In my more innocent days, a seasoned trader once told me: "Forget about making profits, concentrate on limiting losses."

Forget about making profits? Why else, I wondered, was I in the market?

"Ride herd on the losses," he said, "and the profits will take care of themselves. Concentrate too much on making a profit and you'll get into too many speculative situations. Manage the losses or you'll soon have no capital left for the good opportunities."

That simple piece of advice bought me an ocean-front home in a location I could not otherwise have afforded. It also bought a spanking new sailboat that, when I wasn't out sailing, bobbed peacefully at its mooring just off my property.

It brought peace of mind as an investor and, because of the way some of the profits were spent, peace on a personal level.

But finding the methods for achieving all this, in my opinion, was harder than it should have been. All too often, the advice readily available to the novice is long on generalities but short on specifics.
There's something almost immoral about an enterprise that lures with visions of wealth and then obscures the path. It's easy to learn how to open a brokerage account; stock tips are as numerous as raindrops in a
thunderstorm.

Books have titles promising riches to their readers. Such titles sell books. Many are eager to tell Mr. Innocent Victim the basics of the game, but how to win at that game is another matter. I suspect many "advisors" with a fresh MBA simply don't know.

Mr. I. Victim is largely left to himself to discover even the simplest techniques. Result: too many people have the frustrating and painful experience of one of my financial column readers who asked me to comment on his holdings.

Despite two small profits which brought a questionable rate of gain considering how long he held the stocks, he had a loss of $4,355 excluding commissions on a small portfolio. A simple 10% trailing stop loss applied to all his trades, with no other fancy footwork, would have reduced his total loss to about the price of a regular coffee: $2.50!

No technique can undo poor timing or turn dogs into thoroughbred stallions. Nor was any battle ever won without good defensive strategy. Almost all my trades, winners and losers, are determined by stop loss or stop buy orders.
Stops, as I have already mentioned, can also be used to buy, not merely to sell. They save us a lot of headscratching and guesses.

Let's suppose a stock is trading at $5 and we think it is a pretty good bet at that price. It used to be $10. The natural instinct is to go in and buy it. But the very fact that trades are taking place at $5 means the sellers' views are opposed to our own; if a stock can be bought for $5, someone must be selling it at that price.

Suppose the sellers are right. The stock might drift to $3 – or to nothing. How do we apply caution to our actions, assuring ourselves of the best possible chance of success if we buy?

One way is to look at recent price performance, searching for the lowest price above the current market that would convince us that the stock had changed direction in a positive sense. That level might be anywhere above $5.

We want to travel with the natural direction, not fight it, so we decide not to buy the stock until it has proved it has changed direction to the way we wish to head.

Of course, How to Become a Wealthy Investor also has a system for setting a "reasonable price".

If we buy with a normal buy order at a price above the current market level we'd be filled immediately by a most anxious and relieved seller. To avoid this, we tell our broker to "buy on a stop", often called a stop buy order, at the price we've determined.
If the stock continues to drop or to remain at the current level no purchase is made and we've kept ourselves out of a poor investment.

But if our earlier judgment was correct (that the stock is about to move up) someone will eventually trade at the level of our stop and our order will be entered "at the market" (protected by whatever price limitation, if any, we may have set on the order.)

The odds are that we have now bought a stock that is on its way up and we have paid a reasonable price for it. The extra few pennies we paid are the cost of insurance and for peaceful sleep.

Many investors buy stocks that have been falling on the basis that "surely it has fallen far enough and now will start to go up." More often than not, they are wrong. The best profits are made by buying stock that has just started to rise (good timing) and by protecting capital as fiercely as a female bear with cubs.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   63  

Chapter 6 Patience: More Than a Virtue

The system you are learning here might be called ponderous! But you wouldn't expect a racehorse to last very long pulling a plow. The big guy that does that is ponderous; he would not win races.

This is a system for long-term investors bent on accumulating money for retirement as safely and surely as possible while at the same time making sure there is enough for retirement.

Recent years have been tough on savers. In this past decade alone, we had two recessions, the second the most savage since The Great Depression. In fact there are so many similarities it is being called The Great Recession. At one stage in 2010, the market had not gained a cent in 12½ years...and that was before factoring in inflation.

If you are looking to make a quick buck, this is the wrong place. The current length of the average completed S&P 500 trade is 5.88 years. Add to that the period you will be out of the market, sitting out a downturn, while your savings are tucked away safely in a low-yielding money market fund and you're probably looking at something not far short of 6.5 years to completely turn your money over.
But if you are looking to make an excellent return with a good measure of safety you will have to look elsewhere for excitement.

For your protection do not consider an investment horizon of less than 10 years and do not consider investing in fewer than three stocks each in entirely different industries, and preferably in 10 to 20.

Three stocks? Only if you do not have enough money to invest in at least 10. Three clearly means less diversification than 10. Let's say you have only $6,000 saved patiently in mutual funds. Divide this amount into three equal portions. Put $2,000 into your first available choice. Keep the other $4,000 aside until you find two more opportunities in different industries. As you continue to save and to start taking profits, work your way toward a larger number of stocks until you reach at least 10.

(If you use a discount broker, it doesn't matter if $2,000 buys an odd number of shares, such as 57. In most cases, the brokerage fee is the same as it would be for 100 or 1,000 shares.)

Because the system follows market trends most buy or sell orders come in clumps while at other times there will be none. At these inactive times, the system is doing its best to keep you out of trouble. Remember, it's not just about making money but about keeping what you have, and the system is very careful about that. In early 2011, for example, there were almost no new positions being taken; the bull market was already two years old. That did not mean there were no further profits to be made, just that the easiest profits had already been accumulated.

This is not a system requiring you to be at your computer every day. You will work hard every weekend if you follow the system manually. But if you subscribe to Wealthy Investor Weekly, you will need a few minutes each weekend to review your open positions or new possibilities and then to contact your online broker with new orders or protective stop loss orders. That's it!

Patience, planning and persistence are the keys to success. Have a plan, the patience to let it work, and the persistence to follow it even when, temporarily, it lets you down. If we are to master the market we must first learn to master ourselves.

Chapter 7 Balancing Act, Investment Style

The last of the basic spices to be added to the recipe needs just a small pinch. That's why this chapter is so short. But without it you could ruin the meal.

It is a common failing among investors to have favorites. Do this and you wreck your diversification plan and risk large losses. Stocks do not know you own them; don't get attached to them or overly excited over one versus the others. One stock is just one part of your investment business, no better or worse than any other in terms of opportunity.

Ideally, and as closely as practical, you should have the same amount of money invested in each company. If you are starting with $20,000 and 10 stocks, put $2,000 into each. As your profits increase and you sell one or more positions, try to make sure your investment in each new company is roughly equal, in the case of a 10-stock portfolio, to one tenth of total value.

There will be times when you have money that is not invested. Put cash into a money market fund until you see another opportunity you like. Compare money market returns because they can vary widely. Money in a money market fund can be withdrawn quickly for your next stock investment. Some discount brokers will automatically sweep cash into a money market fund for you.

But remember to include this money in the total value of your portfolio. If you have bought eight stocks of a planned 10-stock portfolio you can quickly calculate how much cash is needed for your ninth stock investment.

On the other hand, let's assume you once had 10 stocks and all were sold at the end of a bull market. Assume you made a tidy profit, all now sitting in a money market fund. You might decide at the beginning of the next bull market you wanted to spread your investment across 12 stocks. That, too, is easy to do; just divide what is in the money market fund by 12 and restrict the initial value of each single investment accordingly.

As nearly as is possible, keep individual investments to roughly the same amount of money when the investment is made. Don't do the usual rebalancing trick of selling some shares in one to buy more in a laggard. That is a different type of investment strategy and has no place here.

Chapter 8 The Last Train Leaving the Platform Heads Downhill With Everyone Aboard

With the system outlined in this book it is unlikely you need to be warned not to follow the crowd. More likely you will be weeks ahead of it and wondering (until you get more comfortable with the idea) if you are headed in the wrong direction since your friends are headed the other way.

Forget that fear: you'll be headed in the right direction the vast majority of the time.

Some people just can't resist the attraction of a good crowd. Ever noticed how the majority of campers crowd into one small space leaving the peace of the wilderness to a tiny handful of the quieter types?

An important part of your stock market education – stock market 101 if you will – is to avoid crowds as much as possible.

We've talked a lot about strategy and a little about the psychology of investing. In this chapter it's time to speak about what typically drives fear and greed, two investor foes we talked about earlier.

Humans are very much affected by the outward appearances of other people. Yawn in a room filled with others and soon those who observe you will also yawn. Scratch a tickle and see what happens with others. One person stands to give applause and soon the entire auditorium is standing. That's just how we are.

The same is true of retail investors – but next time you have the urge to follow the crowd just remind yourself of the fate of lemmings. (A few head the opposite way and survive to produce a new crop; you will be one of the few.)

Enthusiasm is highly infectious; so is pessimism. When everyone else is excited about the stock market's future it is easy to get caught up in the optimism. It is much more difficult to be the only pessimist; it's all too easy to doubt your view when the rest of the world thinks you wrong.

That's why I'm taking an entire chapter right now, short though it is, to prepare you for what will come and to support you daring to be different.

Other steps in your stock market education have shown relatively safe and sure ways to earn greater comfort and perhaps luxury in your retirement. It will not happen overnight; most worthwhile things do not. But along the way you will live through market tops and market bottoms.

We were enjoying a market top in the summer of 2007, though most people at the time didn't realize it was a top. Next? Most people took a while and a lot of reassurance - long after the easiest money had already been made – to recognize the bottom in March of 2009. Red Line Alerts are set up to buy two weeks after a presumed cycle low is reached.

If you look at charts of previous market highs and lows you will frequently see at least one extremely sharp rise, often almost vertical, just before market tops and a dramatic off-the-cliff fall at many market bottoms. These are typically accompanied by significant increases in the volume of shares changing hands.

At market tops, hungry buyers are like piranhas, snapping up everything in sight. At market bottoms there's a mad scramble for the exits, something professionals watch for every time as they snap up bargains not seen for some time. The professionals gain at the expense of those who are fearful.

Retail buyers, those like you and me but without a valid plan, are very slow to start buying again. Many never will, hoping the little they can save from their earnings can by itself produce sufficient income to pay for their future dreams – a most unlikely circumstance.

You'd think people would learn, but the same mistakes are repeated over and over again. If only investors had to pass Stock Market 101 before putting their money at risk! Each time, it's almost as if there is a fresh generation of innocents being led to the slaughter.

The long-term successful investor, as I hope you will be, should not be swayed by general market psychology. But it can be difficult to remain on course while everyone around you is either drooling with greed or paralyzed with fear. These are highly infectious emotions.

When those times come once more – as they will – just remember this stock market 101 lesson: stand aside from the swarming hordes and your stock market experience will improve tremendously.

If your charts tell you to buy when everyone else is bolting for the exit, rejoice. You're getting in at approximately the right time and at prices not seen in months or even in years. It's the New Year's Day sale!

At the other end, get out when the charts tell you to. They "know" far more than you ever will. Will you grab the last penny left on the table? Probably not, but who cares if you have the lion's share of the winnings? Leave something for the other guy or there will be no buyers for your shares.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   72  

Chapter 9 Putting All the Pieces Together

All right, we've seen the pieces – but that's like trying to tell the time from parts of a watch that have yet to be assembled. Let's see how all the bits work together.

We'll go through a full market cycle from bear to bull and back to bear. Then we'll look at what would have happened over the past 40 years with each of the 30 stocks currently included in the Dow Jones Industrial Average. (Some do not have data going back 40 years.)

To begin our journey, assume we have been in a bear market for a few months. At some point we know the bear will end, but a few months. At some point we know the bear will end, but week parallel line for the bear market and a short-term high. Thirty-nine weeks is the minimumlength of this line. It will continue to grow until the stock is bought.

Prices need to exceed the parallel line and the high of a short-term high (see description below). The latter indicates a temporary resistance level, however fleeting. But there could be dozens of short-term highs in a falling market, so which one is used?

We need the lowest short-term high that, if a horizontal line was drawn touching the

Figure 3: Short term high projected forward (dashed line) until it crosses the trendline

top, would exceed the level of the trendline at next week's projected level.
By exceeding both of these points, not only have we seen the trend broken but we have also gone beyond a recent level of resistance to rising prices.

While not infallible, exceeding the resistance gives some measure of protection against false breakouts.

What happens if a buy is not made?

There can be two reasons for a buy not being made after a breakout above the downward trendline:

1. There is no nearby short term high that meets the rules. If stock prices continue to rise in the absence of a viable short term high, buy at a level 5% above the trendline.

2. Prices pop above the trendline and then back below it without passing a short term high or exceeding the line by 5%. In that case, the trendline is adjusted upward and uses the
breakout high as Point 2.

Figure 4: Bear trendline before (purple) and after (blue) several upward adjustments for false breakouts.

But what happens if all these conditions are met but the recommended buy price is close to the recent cycle high? In that case, if you are following the program manually, ignore the recommendation. Wealthy Investor Weeklywill ignore a potential recommendation within 16% of the previously-recognized market high and subscribers will never see it. The program then waits for a Red Line Alert.

Red Line Alert

When there is an apparent buy recommendation you think to be to pricey, start a line from the point a bull trendline would start. If you were right, the stock will eventually fall. Keep changing the angle of the line downward. It will eventually reach the cycle low (usually when everyone else thinks the end of the world is coming). As soon as you are sure the bottom has been reached, buy...at market, not even on a stop.

Wealthy Investor Weekly subscribers have no decisions to make. Buy recommendations considered too high are ignored by the computer other than to keep itself on track. Subscribers are alerted to buy just two weeks after a presumed cycle low has been detected.

There can be successively lower Red Line Alerts. Our statistics assume, if we do not already have an open position, that the first alert is used. You have choices. You cannot invest in 500 stocks so you may choose the wait until one has a second or even a third alert and invest only in those.

Figure 5: Three successively lower Red Line Alerts
Long position

Once you buy, many advisers would tell you to apply a stop loss immediately to protect against prices falling too far. This system does no such thing for one very simple reason: market extremes are volatile. There is a lot of fear and uncertainty at market bottoms (and a lot of greed at tops). Investors working without a cut and dried system, and that's most, want to feel certain the bottom really has been seen.

Figure 6: Volatility at market bottoms is clearly visible quite often.

A stop loss at this time will result in far more losses due to whipsawing than it will save. Here's what we know for sure at this time: we have bought at a low price relative to prices at the beginning of the bear market.

So what if the price falls another 10% or 20% one in five times (not that it necessarily will)? In a good company that additional drop should come back quite quickly; meanwhile other stocks in our portfolio will likely compensate in the short term. This is partly why diversification among a number of stocks in different industries is vital.
Corrections, temporary reversals of trend, are perfectly normal. The market takes a breather once in a while. Look at what happened and the concern it caused starting in May, 2010 when some commentators suggested a double-dip recession was in the works. We do not want to be knocked out before a realistic and measurable trend has been established. The way to ensure that is not to use stop loss orders in the early months.

In fact, serious testing proved they should not be used until there is a measurable trend.

Trendlines

The system is extravagant in terms of trendline length to allow a more reliable trend to be measured and to avoid early volatility. Many analysts would be shocked but it's hard to argue with results.

Testing proved the ideal length is 161 weeks even though that means a stock might occasionally suffer through an entire bear market. This 161 week period was tested in one-week increments and showed the best overall profit with 500 stocks over 40 years.

The trendline is drawn 161 weeks after the absolute cycle low (regardless of when the buy was made) and

Figure 7: Temporary downturns in bull markets are a frequent occurrence

begins on that cycle low.

It needs at least two points on which to rest. To find that second point, imagine anchoring a ruler on the cycle low and then swinging the free end up until it touches the first of the lows along the way.

Figure 8: The two support points of a trendline

Sometimes the cycle low and the low of the following week will be the same. In that case, the trendline will be horizontal and useless for setting a practical stop loss. The line will change the following week to a more acceptable level.

That week, 161 weeks will exist beyond what had been the second point. That point becomes the new Point 1 and the line swings upward to find a new Point 2.

This process continues until there is the
appropriate number of weeks beyond that new Point 2. If the line can

Figure 9: 161 weeks after a Point 2 a new, more acute trendline is put into effect.

move at a more acute angle it does so, repeating the process as often as it can.

There is only one way in which a trendline can move to a lesser angle. If there is a false breakout, defined as one that does not trigger liquidation of the long position, the "blip" becomes a new Point 2. Look at this as a correction of the trend now that we have additional information.

This method of adding flexibility to trendlines is not found in any other program to our knowledge.

By the successive changes in Points 1 and 2 and the corrections caused by false breakouts, you can see the line has flexibility not only in direction but also in length since a new line cannot be drawn until after 161 weeks following a Point 2.

Figure 10: Bear trendlines can adjust just like ones in bull markets.

This is of major importance to the system in that it allows the market to tell us what to do.

Once a trendline is in position, our stop loss is set below the level of the line and the closest short term low or the level of the line plus 5% whichever is closest to the line. As the line rises week by week, so does the stop loss order. Just remember you are forecasting one week ahead with the trendline.

Wrong-way trendlines

There can be a circumstance in a bull market in which there is a pause wrongly identified initially as a bear market. Initially, a downward-sloping line is drawn but false breakouts – those too small to result in a buy – can push the line up until it is rising, not falling. In reality, it is a false trendline.

Sell Buy

Figure 11: A false bear trendline (red) rises instead of falling.

This is possible because of the brevity of bear market trendlines. Often, trading will be relatively flat. In reality, the market is taking a break but in so doing triggers the sale of an existing long position.

The rules for buying of a false bear line are different. It needs to be penetrated by just 1% and its price relative to the assumed cycle high is not taken into account.

What is a short-term high (or low)?

A short term high is a weekly high that is higher than that of at least the previous two weeks and also higher than the highs for

Figure 12: The short-term high is clearly visible here.

at least the following two weeks.

It is a minor 'bump' in the chart and indicates very weak resistance to prices rising above it. The bulls failed at this level before. Prices rising above this level would indicate buyers finally won a small skirmish with sellers.

Although minor in terms of resistance, this is an important aspect of this system and of the market telling us what we should do. Combined with a downward trendline it gives us a target above which to go long.

Next?

After a legitimate bear, the cycle begins again. We simply try to follow the major trends and avoid the hiccups.

Chapter 10 Rules: Quick Summary

• Trendline in a rising market: 161 weeks
• Trendline in a falling market: 39 weeks
• Trendline initial support points: Point 1 at the cycle low (or

high for a falling market). To find Point 2, swing a ruler from Point 1 in the direction of the market until it hits the first prominent low (in a rising market) or high (in a falling market).

• False trendlines: See detailed comments in previous chapter. Markets are rarely as orderly as we might like and the rules for dealing with disorderly markets are quite complicated and detailed. A false bear trendline typically is seen during a sideways correction. The buy target is just 1% above the line. No short term high is needed.
• A short term high works in conjunction with a falling trendline to indicate when to take a long position. Entry point is just above the short term high or 5% above the line, whichever is closest. A short term high is represented by the high of one week that is higher than the highs of at least the preceding two weeks and the following two weeks. The high must be above next week's level for the extended trendline.
• Stop losses for a long position:

o No stop loss is used until a trendline is in position. This sometimes results in a long position being held throughout an entire bear market.

o When a trendline is in place, stop losses will be set from it and no other type of stop loss will be in effect.
o With a normal trendline, a stop loss is placed 5% below the trendline, rounded down, to accommodate false breakouts.

Chapter 11 In my Opinion, the System is Simple; You May Not Agree, So Here's a Solution

What has been described in How to Become a Wealthy Investor is straightforward and easy. It is also as safe as it can be made, but that does not guarantee there will not be occasional losses. No system can avoid them entirely. Testing has revealed an average of roughly one loss in every nine or 10 trades. That does not mean you will get the same results.

Average annual return on investment per profitable trade for the S&P 500 to February 11 2011 was 53.08%. The average for a losing trade was -6.02%.

The system is so simple I expect you have 'got' most of it in one very short reading.

But it has a failing: It takes painstaking and monotonous work every single week. Charts have to be extended and even the slightest difference in spacing between one week and the next will eventually throw off calculations.

In the Dark Ages of the 1980s, I used to subscribe to monthly printed chart books, photocopy charts with large magnification and spend a very long day adding to some 500 charts in the U.S and Canada. Not only were those charts expensive in the first place, but what was the cost of my time? That was before a somewhat clunky computer program was written, using up four programmers in three years...at least one of whom had a nervous breakdown.

Today, there are free charts on the Internet. Yahoo is one place where they can be found although it has occasional errors. But you still have to magnify charts and make visual calculations to determine exactly where stop loss orders or buy orders should be placed. There is plenty of charting software but none I know of that can do what this system calls for – or in plain vanilla manner get its results.

Some people will derive pleasure from the challenge of working with their own charts and may even regard it as a hobby – in which case this book is all you need along with the charts.

But the majority of people, I believe, are much like me: they would rather spend their time doing something else (and so would their spouse: " Are you going to mow the lawn this weekend or doI have to do everything around here?").

If you are one of these people, we have an absolute no-brainer solution for you. Every Saturday you can receive by email all the answers you need regarding buying, selling and protective stop losses in one neat, simple, no-fluff newsletter for all S&P 500 stocks.

You won't believe the price. Check it out at http://wealthyinvestorweekly.com.

Instead of wrestling with charts you need only to look at the list of precise and clear instructions in Wealthy Investor Weeklyas they relate to your stocks. Phone or use the Internet to contact your discount broker, make any adjustments to the stop loss orders for stocks you hold and look to see if there are others that interest you. That's all there is to it.

You've read the book; there's no magic. It's straightforward and it works. If you spend some time with the charts, their notes and the summary of rules you knowit works. What you do with it now is up to you – but it will not make you money if you don't use it!

Turn to the annotated charts now to see exactly how the rules have been applied to each. Take your time; it will be the most worthwhile thing you could do right now. You will see exactly how and why every move was made with the current Dow Jones stocks as far back as 1967.

Doing this will build your confidence and your ability to make more money over time than perhaps you have ever done before.

Maybe the recession has not trashed your eventual retirement dreams after all.

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   84  

APPENDIX Annotated Charts, Warts and All

Over the next 197 pages we will show you charts of the stocks presently in the Dow Jones 30 how the system behaves: the trendlines it draws, what adjustments it makes, and where to buy and sell.
April  17,  1978,  bought  at  $1.05  
May  4,  1981,  marked  161  

weeks  since  this  line  began.   aIer  exceeding  a  bear  trend  line  
and  the  short  term  high  of  $1.04  
created  March  20.

The  line  was  adjusted  to  a   October  22,  1979,  was  
the  original  Point  2  for  
this  trend  line  81  
weeks  aIer  its  start.  
lesser  angle  July  13,  1981  and   again  on  several  subsequent   weeks  when  the  price   penetrated  the  line  but  did  not   trigger  a  sale.
October  12,  1981,  sold  at  $1.37   when  the  line  was  penetrated  by   5%  and  there  was  no  viable  short   term  low  before  that  level.  Profit  33   cents  a  share;  annualized  return:   9.18%.
March  29,  1982,  bought   at  $1.52  aIer  exceeding   bear  line  and  short  
term  high  of  $1.51.

May  6,  1985,  original  

Point  2  for  trend  line.

August  12,  1985,  line  is  161  weeks   old  and  would  have  been  drawn  at   July  12,  1982,  161-week   this  Ume.  No  stop  losses  have  existed   line  able  to  accelerate.

unUl  now  other  than  some  fairly  

useless  ones  off  the  original  line.

November  5,  1990,  is   the  original  Point  2  for   the  new  line.

October  19,  1987,  exisUng  trend  line   adjusted.  It  has  now  been  running   for  275  weeks.  161  weeks  aIer  the   next  week  a  new  trend  line  is  drawn. January  31,  1994:  False  breakout   reposiUons  line  aIer  87  weeks  turning  it   into  a  false  bear  trend  line  (one  that   rises  instead  of  falling).  This  typically   indicates  that  what  was  taken  to  be  a   bear  market  was  merely  a  pause  in  a   conUnuing  bull  market.
February  7:  Different  rules  come  into   play  with  a  false  bear  line.  We  buy  on   a  stop  1%  above  the  line,  in  this  case   at  $7.38.

February  1,  1993,  

June  1,  1992  was  the  Point  2  for  bear  line. anchor  point  for  an  
original  39-week  bear  
trend  line.

April  5,  1993:  AIer  addiUonal  

adjustments  along  the  way,  the  trend  line  
was  eventually  exceeded  by  5%  (in  
absence  of  a  viable  short-term  low)  and  
the  posiUon  was  sold  at  $5.38  for  a  profit  
of  $3.87  and  an  annualized  rate  of  gain  of  
23.17%.

A  potenUal  buy  January  4  1999  at  $15.96   was  ignored  as  being  too  high  relaUve  to   the  then-perceived  cycle  high.  In  fact,  it   would  have  made  $7.68  a  share,  an   annual  rate  of  gain  of  13.64%  over  3.53   years.  The  system  errs  as  much  as  

August  24,  1998:  PosiUon  is  sold  at  $12.27   possible  on  the  side  of  cauUon. exceeding  the  line  the  line  by  5%  in  absence  
of  a  viable  short  term  low.  Price  did  not  meet  
normal  sell  criteria  but  a  short  sell  target  was  
surpassed  and  took  precedence,  even  though  
we  use  potenUal  short  sales  only  to  know  
when  to  make  the  next  buy.  Profit:  $4.91;  
annualized  rate  of  gain:  14.64%.
Had  we  taken  part  in  the  January  
1999  trade  we  would  have  had  a  
very  uncomfortable  ride.

Alcoa Inc. 2003-2007

April  7,  2003:  the  price  crossed  the  
bear  trendline  and  exceeded  a  short  
term  high  to  buy  at  $18.70.

Alcoa Inc. 2008–present

The  trendline  was  broken  by  more   than  5%.  Sold  at  $24.78  for  a  profit   of  $6.09  a  share;  6.01%  annualized   over  5.42  years.
SUMMARY:  There  were  four   profitable  completed  trades   and  no  losers  for  an  average   annual  rate  of  return  of  23.17%.

There  is  a  current  open  posiUon  
bought  $10.91  less  than  three  
months  aIer  the  stock's  absolute  
low.  There  was  a  gain  of  close  to  $7  
by  early  February  2011.
July  31,  1978:  Bear  trend  line  
anchored  on  this  point.

May  21,  1979:  Bear  trend  line  and  
April  16  high  of  $0.92  exceeded.  
Bought  at  $0.93

October  12,  1987:  This  line  is  eventually   exceeded  by  5%  in  lieu  of  a  viable  short   term  low  and  the  holding  is  sold  for   $4.99.  Profit  per  share:  $4.07;   annualized  rate  of  gain:  52.34%.

August  9,  1982:  Point  2  for  the  original  bull  trend  line   eventually  becomes  the  starUng  point  for  the  subsequent   161-week  trend  line.
Bought  July  25  1988  at  $4.66   when  price  crossed  both  the   bear  trendline  and  a  short   term  high.
Since  this  is  the  first  Ume  you  have  seen  it,  I  had  beber  tell  you  what   the  red  line  and  the  red  pin  is  about.  When  prices  fall  below  the   previous  or  the  assumed  cycle  low  the  provisional  (not  yet  acUve)   bull  trendline  starts  to  slope  down  instead  of  up.  Eventually,  the  red   line  will  always  find  the  next  cycle  low  and  will  issue  a  buy  signal   two  weeks  later.  However,  it  will  do  so  only  if  there  is  no  legiUmate   posiUon  in  place,  one  that  when  bought  was  at  least  16%  below  the   previous  cycle  high.  See  the  descripUon  of  Red  Line  Alerts  in  Chapter   3.  In  some  cases,  there  can  be  a  series  of  ever-lower  red  pins   providing  more  opportuniUes,  but  our  staUsUcs  count  only  the  first   (least  advantageous)  of  these  pins.
A  series  of  increasingly  acute  trendlines   follow  AXP  once  it  has  sebled  down. Another  buy  is  made  December   24  2001  at  $27.58.

This  trade  finally  ended  March  19  2001  aIer  the  trendline  
was  exceeded  by  5%  in  the  absence  of  a  viable  short  term  
low.  The  trade  lasted  more  than  12  years,  gained  $23.36  a  
share  and  showed  an  annualized  rate  of  return  of  39.67%.  If  
the  Red  Line  Alert  posiUon  had  not  been  ignored,  it  would  
have  lasted  10.39  years  and  had  an  average  annual  rate  of  
return  of  76.21%.
This  posiUon  has  another  good  run  but  volaUlity  
accompanied  by  numerous  false  breakouts  keeps  the  
channel  wider  than  we  would  prefer.  It  means  giving  up  
some  potenUal  profit.

American Express Company 2008–present

We  exit  before  the  calamitous   plunge  of  2008  at  $43.75,  a  profit   of  $16.18  per  share  and  an  
annualized  rate  of  return  of  9.72%   over  6.04  years.

A  buy  was  made  July  13  2009   at  $26.76  aIer  crossing  the   bear  trendline  and  exceeding   the  $26.69  short  term  high  of   June  8.  The  posiUon  is  
currently  ahead  about  $20  a   share.

SUMMARY:  There  were  three   profitable  trades  and  no  losing  trades   showing  an  annual  rate  of  return  of   33.91%  not  including  the  open  trade. A  solid  and  well-defined  bear  market  began  July  31  1967.   The  trendline  was  greatly  aided  by  adjustments  for  several   false  breakouts.  It  eventually  led  to  a  buy  at  $0.40  January  5   1970,  but  the  market  kept  falling  for  another  six  months.

There  are  several  red  pins  here.  Each   would  have  issued  a  Red  Line  Alert  but   the  only  one  we  count  in  our  staUsUcs  is   the  iniUal  one.  We  do  not  count  any  Red   Line  Alert  buy  in  our  staUsUcs  if  a  buy  has   already  been  made  according  to  normal   rules,  as  was  the  case  here.

Glubons  for  punishment,  we  bought  back  in  
at  $0.25  June  10  1974  when  the  price  
exceeded  the  bear  trendline  and  a  short  term  
high.  The  earlier  sale  and  the  subsequent  buy  
at  a  higher  price  just  proves  that  stop  losses  
can  occasionally  work  against  us!

The  first  half  of  the  1970s  was  not  kind  to  Boeing.  
It  resulted  in  a  loss  when  the  trendline  was  
penetrated  by  more  than  5%  on  November  26  
1973  and  the  stock  was  sold  at  just  $0.19,  a  loss  of  
$0.20  and  an  annualized  rate  of  loss  of  13.06%  in  
3.89  years.
We  bought  back  on  October  19  1981   at  $2.09  when  the  bear  trendline  and   a  short  term  high  were  exceeded.

VolaUlity  created  a  wide  channel  that  
worked  against  us  when  the  trendline  was   crossed  June  1  1981  and  we  sold  early  for   $2.38  to  make  way  for  a  pending  (ignored)   short  sale.  However,  that  was  sUll  a  profit   of  $2.14  a  share  and  an  annualized  rate  of   return  of  122.84%  for  each  of  6.98  years. Again,  the  Red  Line  Alerts  were  
ignored  in  our  staUsUcs  because  of  the  
earlier  (and  legiUmate)  buy.  (The  first  
alert  January  4  1982  would  have  
produced  an  annualized  rate  of  return  
of  71.55%.)

AIer  a  nice  run,  the  posiUon  was  sold   at  $7.60  when  the  trendline  was   crossed  by  more  than  5%  in  absence   of  a  valid  short  term  low.  The   investment  gained  $5.53  a  share,   annualized  at  54.27%  over  4.89  years. The  system  ignored  the  iniUal  buy  
recommendaUon  as  too  close  to  the  
previous  cycle  high.  That  avoided  
the  nasty  jolt  in  October  1987.  The  
first  Red  Line  Alert  was  issued  two  
weeks  aIer  the  cycle  low,  resulUng  
in  a  buy  at  $5.22.  The  market  went  
straight  up  from  there.

AIer  reaching  what  turned  out  to  be  a  cycle   high  in  1990  Boeing  crabbed  sideways   throughout  1991  unUl  the  price  broke  through   the  bull  trendline  on  December  2.  The  posiUon   was  sold  for  $14.79,  an  annualized  rate  of  gain   of  44.94%.
Less  than  two  months  later,  the  
system  was  ready  to  buy  back  
in...and  that  would  have  been  a  
mistake.  Fortunately,  the  potenUal  
buy  at  $18.80  January  20  1992  was  
within  16%  of  the  cycle  high  and  
ignored  by  the  system.

The  first  Red  Line  Alert  took  over  
and  September  28  2002  bought  
at  $12.80.
The  buy  April  12  1999  at  $32.93  was  
legiUmate  in  that  it  was  more  than  16%  
below  the  cycle  high.  Because  of  this,  the  
Red  Line  Alert  was  ignored  by  the  system,  
though  it  hindsight  shows  it  would  have  
been  a  beber  buy.

The  trendline  was  penetrated  by  more  
than  5%  July  20  1998  and  we  sold  at  
$33.68,  a  gain  of  $20.89  a  share,  28.11%  
annualized  over  6.5  years.
The  second  Red  Line  Alert  would  have  been  even   beber!

Boeing  finally  took  off.  (Sorry,  couldn't  resist  that!)

The Boeing Company 2007–present

We  bought  again  on  April  27  
2009  for  $37.72  less  than  two  
months  aIer  the  S&P  low.  The  
price  had  virtually  doubled  by  
early  February  2011.

We  sold  just  before  the  worst  

SUMMARY:  There  were  five  

of  the  recession  January  7  2008   profitable  investments  and  one  loser  for  $79.25,  a  gain  of  $43.33  a   in  the  period.  Not  including  the  share,  an  annual  rate  of  gain  of   nicely  profitable  open  trade,  the  16.10%  over  8.74  years. average  annual  return  on  investment   was  42.20%.  The  average  length  of   each  trade  was  5.73  years.  Total  Ume   you  could  have  been  invested   elsewhere  was  3.62  years. August  24,  1987:  StarUng   point  of  bear  trend  line

May  30,  1988:  Bought  at  $2.55  
when  the  bear  line  and  the  
February  29  short  term  high  of  
$2.54  were  both  exceeded.

December  31,  1990:  AIer  an  exhilaraUng   ride  up  and  roller-coaster  plunge  down,   a  161-week  trend  line  is  drawn.  The  low   of  October  29,  1990,  eventually  becomes   the  starUng  point  for  the  next  trend  line.

September  19,  1994:  AIer  several  trend   line  adjustments  in  February  and  March,   the  posiUon  is  finally  liquidated  at  $6.77   aIer  exceeding  the  trend  line  by  5%.   Profit:  $4.23;  annualized  rate  of  return:   26.39%.
The  buy  indicated  for  May  8  1995  was  ignored   by  the  system  as  being  too  close  to  the   previous  presumed  market  high.  The  system  is   cauUous  but  with  hindsight  it  is  not  always   clever!  The  annualized  rate  of  return  over  3.30   years  would  have  been  50.03%
July  5  1999:  another  ignored  buy  for  the   same  reason:  $24.64  was  too  pricey  for  the   system.

August  24,  1998:  The  trend  
line  is  exceeded  by  5%  before  
a  viable  short  term  low  is  
found  and  we  sell  for  $20.46.  
Profit:  $12.74;  annualized  

rate  of  gain:  50.03%. A  Red  Line  Alert  came  into  play  October   30  2000  with  a  buy  at  $15.20. An  unevenlul  ride  made  possible  by  
trend  line  adjustments  mostly  in  
2005.

Bank of America Corporation 2007–present

If  the  Uming  was  good  before,  it  was   terrible  this  Ume.  The  buy  at  $36.88   September  15  2008  just  qualified  under  the   rules.  It  was  more  than  $20  down  early  in   February  2011  though  either  of  the  ignored   Red  Line  Alerts  would  have  been  in  the   money.

Almost  perfect  Uming  at  the  start   of  the  recession,  the  trendline   was  penetrated  by  more  than  5%   and  the  posiUon  was  sold  at   $40.20.  That  was  a  profit  of  

$25.01  per  share,  an  annualized   SUMMARY:  BAC  had  two  profitable   rate  of  return  of  23.52%  over  7.0  completed  trades  and  no  losses,  years.

although  an  open  posiUon  is  losing   money  at  Ume  of  wriUng.  Average   annual  rate  of  return  is  24.95%.  The   average  length  of  each  trade  was  6.65   years.  Your  money  was  free  to  be   invested  in  something  else  for  a  total   of  6.11  years  during  the  period. November  1  1982:  Bear  line  and  short  term  
high  of  $2.79  established  October  11  are  
both  exceeded,  resulUng  in  a  buy  at  $2.80.  
The  provisional  (not  yet  acUve)  bull  
trendline  eventually  heads  downward  in  
preparaUon  for  a  Red  Line  Alert.  

The  buy  is  clearly  legiUmate  and  so  the   Red  Line  Alert  will  be  ignored  by  the   system.  (This  does  not  mean  you  have  to   ignore  it;  it  will  be  posted  in  the  weekly   report.)
A  succession  of  adjusted  trend  lines  
gets  us  through  this  period  and  
through  a  sideways  correcUon.

June  25,  1990:  PosiUon  sold  at  the  start  of  a  bear  
market  for  $4.28  when  the  trend  line  is  
penetrated  by  5%.  Profit  was  $1.49,  not  bad  for  a  
$2.80  investment  but  with  this  trade  lasUng  
almost  eight  years  the  annual  rate  of  return  was  
just  6.96%

February  10,  1992:  Buy  at  $4.11  aIer   exceeding  trend  line  and  the  most-
recent  viable  short  term  high.

August  24,  1998:  This  trend  line  performed  well  with   few  adjustments.  PosiUon  sold  for  $16.92  aIer  
crossing  trend  line  and  short  term  low  of  $16.97  set   August  3.  Profit  per  share:  $12.81;  annualized  rate  of   return:  47.86%.
The  potenUal  buy  off  the  bear  trendline  is  
less  than  16%  below  the  cycle  high  and  is  
therefore  ignored.  As  we  can  now  see,  the  
rule  saved  us  from  a  pile  of  trouble.  NoUce,  
too,  what  appears  to  be  a  very  clear  M  top,  
even  though  the  highs  were  exceeded  a  few  
months  later.

The  first  of  the  red  pins  offers  
a  buy  at  $13.74  February  21  
2000.  There  are  sUll  several  
months  of  decline  leI  to  go  
but  we  avoided  a  chunk  of  it.
An  allowable  buy  had  to  be   no  higher  than  $61.76,  so   this  proposed  buy  on  April   16  2007  was  ignored.

This  turned  out  to  be  an  excellent  
investment  and  we  sold  at  what  looks  like   the  first  leg  of  an  M  double  top  October   16,  2006  for  $55.75.  This  was  a  gain  of   $42.02  a  share  and  an  average  annual  rate   of  return  of  46.01%  for  each  of  the  6.65   years.

Caterpillar Inc. 2008–present

SUMMARY:  Not  counUng  the  current  open   posiUon,  there  were  three  trades,  all   profitable  for  an  average  annual  rate  of   return  of  33.61%.  The  average  trade  lasted   6.94  years.  (Without  Red  Line  Alerts,  there   would  sUll  have  been  three  profitable   trades  but  the  combined  rate  of  return   would  have  been  26.80%.)

Saved  by  the  rules!  We  avoided  much  of  The  Great  
Recession.  We  bought  from  the  first  Red  Line  Alert  
November  3  2008  at  $35.30.  Even  though  this  was  a  lible   early,  noUce  how  the  second  alert  was  two  weeks  aIer  the   cycle  low.  This  trade  is  sUll  open  and  the  early  February  
2011  price  was  just  shy  of  $100.
The  proposed  buy  of  December   19  1994  was  too  pricey  for  the   system  and  ignored.

Unlike  our  earliest  days,  the  system  is  now  completely   automated.  All  it  knows  is  that  is  has  some  data  for  a   parUcular  stock  and  just  from  that  it  decides  what  to   do.  This  would  have  been  a  nice  trade  (with  an   annualized  rate  of  return  of  199.19%  over  3.28  years)   but  the  iniUal  "trade"  is  always  ignored  to  make  sure   our  results  cannot  be  tainted  in  any  way.
And  that  cost  us  another  great  
opportunity.  SomeUmes  safety  
provisions  don't  help  at  all!

The  Red  Line  Alert  was  ignored  
given  that  the  earlier  buy  met  
all  the  rules.

Bought  at  $16.34  crossing  the  downtrend  
line  in  the  absence  of  a  viable  short  term  
high.
The  potenUal  buy  of  November  6   2006  was  suppressed  by  the  rules   and  would  not  appear  in  the  weekly   newsleber.  
SUMMARY:  There  was  a  single   profitable  completed  trade  over   4.75  years  that  resulted  in  an   average  annual  rate  of  return  of  just   2.57%.  Diversify,  diversify,  diversify!

Sold  at  $18.32  July  10  2006  for  a  profit  of  just   $1.99  over  4.75  years.  The  annualized  rate  of   return:  a  lible  beber  than  a  bank  savings   account  at  2.57%.  Even  fabulous  programs  can   someUmes  get  everything  wrong!  That  is  why   proper  diversificaUon  is  so  important  and   stressed  in  the  book.  The  Red  Line  Alert  would   have  gained  an  average  of  20.87%  over  3.72   years.
The  system  bought  at  $16.68  on  the   first  Red  Line  Alert  November  3  2008   aIer  most  of  the  bear  market  was   over.  That  posiUon  was  ahead  more   than  $7  a  share  in  February  2011. Buy  November  4  1974  at  $0.97  
when  bear  trendline  and  short  
term  high  are  exceeded.

Sold  January  9  1978  at  $1.51  when  
trendline  exceeded  by  5%.  Annualized  
rate  of  return  17.78%  over  3.18  years.  
Hindsight  shows  the  trade  ended  with  
a  sideways  correcUon  (when  the  
market  takes  a  breather  from  rising  
prices  by  staying  at  roughly  the  same  
level  without  falling).

A  legiUmate  buy  was  made  October  11   1982  at  $2.79  when  both  the  downward   trendline  and  a  short  term  high  were   exceeded.
Subsequent  potenUal  buy  of  August  14   1978  at  $1.93  was  ignored;  it  was   almost  as  high  as  the  then-presumed   market  high.
We  avoided  the  October  1987  plunge  and  
went  on  to  fresh  highs…

...only  to  stumble  on  what  was  
another  sideways  correcUon.  We  sold  
at  $9.03  when  the  trendline  was  
penetrated  by  5%.  Profit  was  $6.25  
per  share  over  9.1  years,  an  
annualized  rate  of  return  of  24.65%.
With  the  buy  of  February  1  1993  at  $10.42  you  see  a   false  bear  trendline  (one  that  rises  instead  of  falling)   at  work.  The  line  had  started  off  normally,  falling  and   colored  blue.  False  breakouts  forced  the  line  higher   unUl  it  was  rising.  Its  purpose,  where  possible,  is  to   detect  sideways  correcUons  and  to  resume  a  posiUon   as  soon  as  the  correcUon  appears  to  be  over.  The  false   bear  trendline  needs  to  be  crossed  by  just  1%. We  made  steady  progress  
unUl  January  25  1999  when  
the  trendline  was  penetrated  
by  5%  and  we  sold  at  $25.64,  
a  gain  of  $15.23  a  share  over  
5.98  years  and  an  annual  rate  
of  return  of  24.46%.

Six  months  later,  on  
March  29  1999  another  
false  bear  line  gets  us  
back  in  at  $31.11.  At  first,  
that  looked  like  an  awful  
idea…
…but…

Chevron Corporation 2007–present

June  1  2009:  Buy  at  
$67.85.  We  sUll  hold  
this  posiUon  at  $97.11  
early  in  February  2011.

SUMMARY:  Excluding  the  open  posiUon,  

...although  we  suffered  the  first  half  of  
the  recession  we  came  out  October  6,  
2008  at  $72.44  with  a  profit  of  $41.34  
over  9.52  years,  an  annualized  rate  of  
gain  of  13.96%.  The  duraUon  would  have  
been  reduced  to  8.58  years  if  we  had  
used  the  first  of  the  Red  Line  Alerts.  The  
gain  would  then  have  been  $46.17,  
annualized  at  20.47%.
there  were  four  profitable  trades  and  no   losers  for  an  average  annual  rate  of   return  of  20.21%.  Average  profit  per   share  was  $15.84.  The  average  length  of   each  trade  was  6.95  years  and  during   that  Ume  you  could  have  been  invested   elsewhere  for  a  total  of  6.13  years. Bought  at  $1.25  crossing  above  
the  downward  trendline  and  a  
short  term  high.

August  12  1974:  $0.62  profit  sounds  
like  chump  change,  but  it  was  an  
average  of  11.71%  over  4.22  years  
when  we  sold  for  $1.86.  (All  prices  in  
these  charts  are  adjusted  for  stock  
splits.)

We  bought  back  in  on  April  7  
1975  for  $1.40  and  more  than  
three  years  later  had  made  no  
headway.
March  24  1980:  When  we  broke  
through  the  trendline  we  had  
sUll  virtually  made  nothing.  We  
sold  for  $1.59,  a  profit  of  $0.19  
over  4.96  years,  and  annualized  
return  of  2.77%.

The  potenUal  investment  at  $2.23  on  
July  7  1980  was  ignored.  With  
hindsight  this  is  one  we  should  not  
have  ignored!
Absolutely  not!

What  can  we  say  but  “Isn’t  hindsight  wonderful”

Talk  about  pain!

February  7  2000:  The  embarrassment   is  finally  over.  The  trendline  is  crossed   by  5%  and  the  stock  we  could  have   had  at  $2.23  is  sold  for  $39.64,  a   profit  of  $37.42  over  an  incredible   19.59  years.  That  would  have  been  an   annual  rate  of  gain  of  85.91%. Not  embarrassed  enough,  we  buy  
back  in  at  $32.15  on  December  4  
2000.  Since  the  buy  is  legiUmate,  the  
Red  Line  Alert  at  $26.19  is  ignored.

Another  skimpy  lible  profit  
when  we  sell  October  6  2008  for   $33.57,  a  profit  of  $1.43  in  7.84  
years  annualized  to  4.02%.

E.I. du Pont de Nemours & Company 2009–present

July  20  2009:  At  last  it  looks  as  if   we  might  make  some  money  off   this  beast!  We  buy  at  $28.46   crossing  the  downward   trendline  and  by  February  7   2011  the  close  was  $53.33. SUMMARY:  We  averaged  a  dismal  5.02%  per  year  during  the   17.02  years  we  held  this  stock.  Fortunately  (in  one  sense)  there   were  21.35  years  in  which  our  money  could  have  been  working   elsewhere.  Did  we  menUon  diversificaUon?

January  13  1975:  Bought  crossing  
trendline  at  $0.45.
The  Uming  of  the  trendline  acUvaUon  
was  unfortunate;  we  caught  the  tail  end  
of  a  bear  market  and  sold  at  $0.53  
January  23  1978,  a  profit  of  $0.08  and  
an  average  annual  return  over  3.03  
years  of  6.18%.

With  hardly  enough  Ume  to  catch  
our  breath,  we  bought  again  May  15  
1978  at  $0.65  when  the  downward  
trendline  and  a  short  term  high  
were  passed.  AIer  a  while,  the  way  
ahead  looks  reasonable...
...but  it  isn't  really.  Yes,  there's  another   profit  but  it's  a  skimpy  $0.17  over  5.48   years.  That's  an  annualized  rate  of   return  of  4.81%,  marginally  beber  than   a  bank  deposit.

We  suffered  and  were  stung  by  the   October  1987  crash,  but  sUll  sold  at   $2.93  for  an  annualized  rate  of  gain   of  59.09%  over  3.6  years.  It  is   surprising  how  much  difference  a   few  weeks  and  $0.10  can  make:  the   Red  Line  Alert  would  have  averaged  

77.51%  for  each  of  3.26  years.

Undaunted,  we  try  again  March  12  
1984,  buying  at  $0.94.The  Red  Line  
Alert  four  months  later  is  ignored  
due  to  the  exisUng  posiUon.  It  
would  have  bought  for  $0.10  less.

On  September  5  1988  we're  back  
with  a  buy  at  $4.51  aIer  exceeding  
the  downward  trendline  and  a  short  
term  high.
Life  seemed  to  be  going  smoothly  unUl  
we  were  caught  by  what  we  can  now  see  
was  a  sneaky  lible  correcUon.  We  sold  
April  15  1994  for  $11.44,  a  gain  of  $6.94  a  
share  or  an  average  of  27.46%  over  5.62  
years.

Pity  we  can't  see  the  future  and   then  change  the  rules!  The   potenUal  buy  at  $12.96  on   December  19  1994  was  too  close   to  the  presumed  cycle  high  and   had  to  be  ignored.
If  missing  that  one  wasn't  foolish   enough,  we  buy  again  at  $28.77   on  January  3  2000  and  celebrate   for  all  of  six  months.

That  ignored  opportunity  would  have   The  Red  Line  Alerts  are  ignored  gained  us  18.46%  over  each  of  3.74  years.because  of  the  exisUng  trade.

AIer  riding  the  bucking  bronco  from  2000  
to  2003,  Disney  sebles  down...

The Walt Disney Company 2008–present

July  20  2009  we  are  back   again  at  $25.41.  This  posiUon   is  sUll  open  and  at  February  7   2011  closed  at  $40.94.

SUMMARY:  There  were  five   completed  trades  and  no  losers   (by  a  whisker).  Average  annual   ...and  drops  through  the   trendline  January  7  2008  to   avoid  the  worst  of  the  bear   market.  However,  it  took   8.01  years  to  earn  $0.73,  an   annualized  rate  of  return  of  

rate  of  return  was  19.57%.  

0.32%.
Length  of  the  average  trade  was   5.15  years,  we  were  invested  for   a  total  of  25.74  years  and  had   cash  available  for  investment   elsewhere  for  7.24  years. From  1967  unUl  now  two  nicely  
profitable  trades  were  ignored  as  
being  too  expensive.  Then,  on  
December  21  1998  we  get  this  
one!  A  false  bear  trendline  is  
penetrated  and  we  buy  at  $23.74.

We  sell  at  $21.63  aIer   exceeding  the  trendline  by  5%.   The  loss  is  $2.09  over  3.45   years  for  an  average  of  2.56%.

Ah!  That's  beber!  The  price  exceeds  the   trendline  December  10  2007  by  5%  and   we  sell  close  to  the  market  top  at  $31.97,   a  profit  per  share  of  $11.50,  an  average   return  of  11.87%  per  year  for  4.73  years.

Now  what?  We  buy  again  
March  17  2003  at  $20.48  aIer  
exceeding  the  bear  trendline  
and  a  short  term  high.

General Electric Company 2008–Present

We  finally  seem  to  be  geung  it  
right.  PaUence  pays  off  in  this  
business.  We  avoid  The  Great  
Recession  and  buy  GE  again  July  
27  2009  for  $12.56.  This  
posiUon  is  sUll  open  and  closed  
on  February  7  2011  at  $20.87.

SUMMARY:  Despite  a  rocky  start   with  two  missed  opportuniUes,   we  eked  out  two  profitable   trades  and  one  loser.  Average   annual  rate  of  return  was  a  poor   4.66%.  The  average  length  of   each  trade  was  4.09  years. May  20,  1985:  The  bear  
trend  line  started  from  
this  point.

When  a  short  term  high  is  more  
than  7%  away,  we  buy  crossing  the  
trendline,  in  this  case  at  $0.29.
Are  we  having  fun  yet?  Now  you  see  
why  you  should  diversify  -  unless  you  
think  you  can  pull  trades  like  this  out  
of  the  box  any  Ume  you  feel  like  it.

It  is  trades  like  this  that  make  up  for  some  
of  the  poor  ones.

But  then  comes  May  14  2001  when  we  cross  the  
downward  trendline  and  exceed  a  short  term  
high.  We  buy  at  $44.41  and  endure  most  of  the  
first  bear  market  of  the  century.

The  trendline  is  finally  exceeded  by  5%   and  we  sell  at  $37.24,  an  amazing  gain   from  a  $0.29  investment  (adjusted  for   stock  splits).  Our  profit:  $36.96  over   14.6  years,  equal  to  an  annual  gain  of   893.83%.
The  various  Red  Line  Alerts  are   ignored  given  that  we  have  a   legiUmate  open  posiUon.
The  proposed  buy  of  January  1  
2007  is  too  expensive  and  is  
ignored  by  the  system.  It  
would  not  have  appeared  in  
the  weekly  advisory.

The  trendline  cuts  off  -  just  in  Ume   as  it  turns  out  -  any  hope  of  
recovering  our  investment.  We  sell   at  $34.61  for  a  loss  of  $9.79  over  5.0   years  or  4.4%  annualized.
However,  the  first  of  the  four   Red  Line  Alerts,  the  one  we   count  in  our  staUsUcs  
because,  like  most  people,  we   cannot  see  into  the  future,   creates  a  buy  August  27  2007   at  $31.64.

The Home Depot, Inc. 2009–present

Although  we  suffered  
through  the  enUre  Great  
Recession,  by  the  close  
February  7  2000  we  had  
a  gain  of  $5  a  share.  I  
figure  we  earned  it  in  
stress!

SUMMARY:  There  were  two  trades,   one  loss  and  one  of  winner  bordering   on  the  ridiculous.  Catching  something   like  this  is  pure  luck  so  don't  even   bother  looking  for  its  cousin.  Without   that  first  trade,  Home  Depot  might   have  been  an  overall  loser.  As  it  was,   the  combined  average  annual  rate  of   return  was  444.71%.  The  average   trade  lasted  9.8  years. We  sell  at  $3.49  for  a  wild  gain  
of  $0.54  in  3.89  years.  That's  a  
heady  4.71%  annualized  return  
on  investment!

AIer  giving  up  a  good  trade  because  of  its  
price  relaUve  to  the  previous  high,  we  buy  
at  $2.96  aIer  crossing  the  downward  
trendline.
PenetraUng  the  downward  trendline,  
the  system  buys  at  $3.74  on  May  14  
1990.

This  acUon  caused  the  
subsequent  Red  Line  Alerts  to  
be  ignored.
Crossing  the  false  bear   trendline  May  10  1999   creates  a  buy  at  
$29.41.

The  trendline  is  penetrated  by  more  than  
5%  on  June  15  1998  and  we  sell  at  $20.42.  
That's  a  gain  of  $16.69  in  8.09  years.  The  
annualized  return  on  investment  was  
55.18%.
AIer  a  poor  start  and  
an  ignored  Red  Line  
Alert,  the  stock  starts  a  
steady  climb.

The  proposed  buy  of  November  9   2009  at  $49.09  was  ignored.  The   system  judged  it  too  expensive.  At   the  close  February  7  2011  the  price   was  $48.14  proving,  for  now  at   least,  the  system  was  right.

Close  to  the  top  of  the  market,  we   sell  for  $39.93  aIer  exceeding  the   trendline  by  5%.  That  was  a  gain  of   $10.53  but  it  took  8.7  years  to   achieve  it.  As  a  result,  the  
annualized  return  on  investment   was  just  4.11%.
SUMMARY:  There  were  three  trades,  all   profitable.  The  average  return  on  
investment  was  21.34%.  The  average  length   of  each  trade  was  6.89  years.
AIer  a  fairly  standard  bull  move  including  a  nine- month  correcUon  starUng  in  October  1983,  we   sell  for  $18.46  June  10  1985  when  the  trendline  is   penetrated  by  5%  in  absence  of  a  viable  short   term  low.  Gain  is  $11.20  for  an  annual  average   rate  of  return  of  44.18%  over  3.49  years.

Bear  market  trendline   and  short  term  high  
exceeded;  bought  at  
$7.27  December  14,  1981   right  aIer  the  first  
recession  of  the  decade. False  bear  trendlines  (the  upper  of  the  two  red  lines)  have  an   enUrely  different  set  of  rules.  For  one  thing,  they  frequently   idenUfy  mere  correcUons,  as  was  the  case  here.  The  stock   moved  sideways  for  long  enough  that  the  rising  trendline  is   penetrated.  Stocks  in  this  situaUon  are  oIen  merely  gathering   strength  for  another  push  upward,  so  once  the  bear  market   turns  false  and  the  line  rises  instead  of  falling  a  buy  is  made   1%  above  the  line.  

Whether  it  is  at  or  above  the  level  of  a  previous  high  is  not   taken  into  account,  as  it  would  be  for  a  regular  buy.  We  buy   November  18  1985  for  $21.30.

The  laber  half  of  the  1980s  were  rough  
on  IBM  and  we  suffered  through  the  
1987  crash  with  no  protecUon.  Red  
(wrong-way)  bull  trendlines  do  not  set  
stop  loss  orders.

Because  of  the  exisUng  posiUon,  
the  Red  Line  Alert  is  ignored  by  the  
system.
A  whole  cluster  of  Red  Line  Alerts  are  ignored  in  1992  
and  1993  while  IBM  conUnues  to  have  problems  but  
finally  finds  bobom  in  the  fall  of  1993.

We  sell  close  to  the  top  on  July  3  2000,  just   before  the  start  of  a  recession.  Price:   $91.51.  That's  a  gain  of  $70.22  a  share,   averaging  22.55%  return  over  14.62  years.   It  paid  to  have  faith  and  endure  the  rough   years.
The  proposed  buy  on  December   3  2001  at  $105.51  was  within   16%  of  the  cycle  high  and  was   ignored  by  the  system.  That   brought  Red  Line  Alert  into   play.
We  buy  on  the  first  alert,  May  20  2002  for  
$74.46.  From  the  perspecUve  of  our  data,  
the  following  three  Red  Line  Alerts  are  
ignored.

The  steep  plunge  of  2008  did  not  allow   sufficient  Ume  for  the  bear  trendline  to   adjust  closer  to  the  market.  We  bought  at   $104.56  when  the  bear  line  and  a  short   term  high  were  passed.  This  open  trade   stood  at  $164.82  February  7  2011.

The  excepUonal  width  of  the   trend  channel  gets  us  out  late   in  the  last  recession,  at  $74.47   for  a  marginal  profit  of  $2.58   and  an  annualized  rate  of   return  of  just  0.54%  over  6.42   years.  The  ignored  regular  buy   would  have  lost  $28.45.
SUMMARY:  There  were  three   profitable  trades  and  no  losers,  not   counUng  the  open  trade.  Average   rate  of  return  on  investment  was   22.42%  over  the  24.53  years  we   were  invested.  The  average  length   of  each  trade  was  8.18  years.

Trendline  and  short  term  high  are  
penetrated  April  10  1989  and  we  buy  
at  $0.73.
A  solid  gain  in  the  making.  See  how  
successive  trendlines  are  tracking  
higher  as  the  stock  gains  momentum?  
This  should  mean  we  don't  give  up  
too  much  when  we  eventually  sell.  
Wide  channels  cause  us  to  miss  too  
much  of  the  profit.

We  get  knocked  out  early  in  the   recession  that  began  in  2000  when  the   trendline  is  exceeded  by  5%.  However,   from  pennies,  our  holding  has  grown  to   $34.19  a  share,  a  profit  of  $33.46  with   an  annualized  rate  of  return  on   investment  of  400.13%  averaged  over   each  of  11.48  years. We  buy  back  in  on  June  4  2001  when  
the  line  is  exceeded  and  the  nearest  
short  term  high  is  more  than  7%  away.  
Price:  $26.88.

The  subsequent  Red  Line  Alerts  are  
ignored  in  view  of  the  exisUng  posiUon.
November  13  2006  qualified  as  a  
legiUmate  buy  when  the  line  and  
short  term  high  were  crossed.  
We  bought  at  $20.00.

The  trendline  is  exceeded  by   5%  and  in  the  absence  of  a   useful  short  term  low  we  sell   at  $19.81  on  January  16  2006   for  a  loss  of  $7.06  over  4.62   years,  5.69%  annualized. AIer  a  roller  coaster  ride,  which   included  The  Great  Recession,  one  of   the  comparaUvely  rare  holdings  to   endure  that  period,  we  ignored  the   Red  Line  Alerts  due  to  the  earlier   posiUon.

Intel Corporation 2009–present

Having  gone  through  just  
about  the  worst  that  could  
be  thrown  at  us,  this  open  
posiUon  was  at  $21.69  
February  7  2011  for  a  slight  
gain.  The  first  ignored  Red  
Line  Alert  would  have  been  
ahead  almost  $9.

SUMMARY:  There  were  two   completed  trades  for  this  stock,  one   winner  and  one  loser.  Because  of   the  unusual  gainer,  the  annual  rate   of  return  was  197.22%  averaged   over  16.10  years. The  potenUal  buy  at  $0.79  
was  ignored  as  being  too  
expensive  compared  to  
the  earlier  high.

The  Red  Line  Alert  came  
into  play  two  weeks  aIer  
the  cycle  low  and  we  
bought  on  October  29  
1970  at  $0.73
When  the  bear  trendline  and  a  
short  term  high  are  exceeded,  
we  buy  in  again  at  $1.30  
November  5  1984.

And  it's  straight  up  from  there   unUl  we  meet  the  October  1987   plunge  and  sell  at  $2.55.  Profit  is   $1.27  over  2.95  years  giving  an   average  annual  return  on   investment  of  33.32%.

The  difference  in  purchase  price  
was  just  six  cents,  but  our  return  
was  17.62%  compared  to  the  
ignored  buy's  13.63%.  We  made  a  
profit  of  $0.55  over  4.27  years.
The  buy  at  $3.31  on  August  
1  1988  is  just  legal  and  sets  
off  on  another  nice  run...

...unUl  October  5  1992   when  the  price  exceeds  the   bull  trendline  by  5%  and  we   Weeks  later,  on  December   14  1992  the  "too  
expensive"  rule  keeps  us   away  from  a  buy  at  $9.35.

sell  at  $7.68.  That  was  a  
gain  per  share  of  $4.38  over  
4.18  years  for  an  annualized  
rate  of  return  on  
investment  of  31.69%

Instead,  we  buy  March  8  1993  off  
the  first  Red  Line  Alert  at  $7.21,  
close  to  the  bobom  of  a  saucer-
shaped  dip.
JNJ  breaks  through  the  
trendline  by  5%  just  as  the  
company  stock  changes  
momentum.  We  sell  for  
$21.36,  a  profit  of  $14.16  over  
4.64  years,  annualized  at  
42.36%.

A  false  bear  line  gets  us  in  
again  a  few  weeks  later  at  
$26.07.  The  change  in  price  
momentum  is  clear  on  this  
chart.
We  survive  (endure?)  the  first  bear  
market  of  the  decade  and  meander  along  
the  same  route.

Johnson & Johnson 2007–present

The  bear  trendline  kept  geung   Then  we  exit  before  the  
worst  of  the  most-recent  
recession  at  $59.00  on  
October  6  2008.  Profit  per  
share  over  10.81  years  was  
$32.94  for  an  annualized  
rate  of  return  of  11.69%.
pushed  up  by  false  breakouts   unUl  it  was  at  such  an  angle  that   the  proposed  entry  at  $60.15  on   October  5  2009  was  ignored  as   being  too  expensive  when   compared  with  the  previous   high.  We  would  have  shown  a   very  small  loss  at  Ume  of   wriUng.
SUMMARY:  Five  investments  were   made  in  JNJ  and  all  were  profitable.   The  average  annual  return  on   investment  was  27.32%  over  the   26.85  years  we  were  invested  in   this  stock.  There  were  2.32  years   when  capital  would  have  been   available  for  investment  elsewhere.   Length  of  the  average  trade  was   5.37  years.
AIer  the  plunge  was  over,   we  bought  again  May  30   1988  for  $4.16  when  we   crossed  the  trendline  and  no   viable  short  term  high  was  in   sight.

Almost  three  years  later,   October  19  1987,  it  got  
stopped  out  crossing  the   trendline  in  the  market  crash   of  that  year.  Price:  $4.50;   profit:  $0.82  over  2.88  years   This  stock  began  with  a  false   bear  trendline  and  bought  1%   above  it  at  $3.68  December  3   1984.

It  was  not  a  smooth  ride,  however.  The  Red  Line  Alert  was  
perfect  but  was  ignored  due  to  the  earlier  posiUon.

We  finally  start  to  be  compensated  for  
the  earlier  scare.

JPMorgan Chase & Co. 1998–2002

We  are  caught  near  the  top  of  the   market  (not  that  we  could  know  it  at  the   Ume)  by  a  false  bear  line  that  causes  a   buy  at  $36.86  on  February  1  1999. I'm  sure  we  were  ready  to  groan  and   maybe  throw  in  the  towel  aIer  buying   at  $27.74  April  15  2002.  The  market   plunged  and  we  saw  our  investment  fall   to  a  sickening  low  of  $12.02.  If  you  are   diversified,  learn  to  trust  the  system  and   to  have  paUence.  Don't  even  listen  to   the  news;  reporters  and  most  other   people  are  always  fighUng  the  recession   when  it  is  already  over.  It  just  takes  Ume   to  recognize  that  fact.

A  sharp  drop  ends  the  posiUon  when  the  price   crosses  the  trendline  by  5%  in  absence  of  a   viable  short  term  low  and  we  sell  August  24   1998  for  $26.44.  That  was  a  gain  of  $22.28  over   10.23  years  for  an  annualized  return  on   investment  of  52.35%.  Had  the  Red  Line  Alert   trade  been  open  to  us,  the  gain  would  have   been  more  than  three  Umes  greater,  not  so   much  because  of  the  price  difference  but  more   because  of  the  Ume  difference.
AIer  suffering  a  rounded  top,  we  sell   exceeding  the  trendline  by  5%  and  take  a   $16.36  loss  at  $20.49.  We  held  the   posiUon  through  3.05  painful  years  and   the  annualized  return  on  investment  was   negaUve  14.57%
Given  that  buy,  we  pass   up  the  two  juicier  Red   Line  Alerts  that  followed.

We  turn  the  corner  and  have  a  fairly   decent  rise  interrupted  by  an  18- month  sideways  correcUon  halfway   through.  We  eventually  sell  at  $42.52   when  the  trendline  is  penetrated  by   5%.  We  gained  $14.79  over  5.27   years  which  annualized  at  10.12%.

JPMorgan Chase & Co. 2008–Present

We  were  in  grave  danger  of  buying  at   the  market  top  and  would  have  done   so  if  the  red  line  at  the  top  leI  of  the   screen  had  been  penetrated.  

But  than  line  was  eventually  able  to  Up   downward  (even  though  it  was  pushed   back  up  again  a  fair  bit  by  false  
breakouts)  and  we  bought  at  $39.59.   The  posiUon  is  sUll  open  and  traded  at   $45.50  February  7  2011.
SUMMARY:  We  had  three   winning  investments  and  one   fairly  significant  loss  with  this   stock  but  sUll  achieved  a   combined  average  return  on  

investment  of  13.92%.  The   average  length  of  each   investment  was  5.36  years.

Kraft Foods Inc. 2001–2006

We  first  bought  KraI  aIer  the   2002-2003  bear  market  at  $24.72,   close  to  the  price  at  which  it  was   first  sold  to  the  public.
Although  KraI,  as  KraI  Cheese  
Company,  went  public  in  1924,  it  has   been  through  major  corporate  and   ownership  changes.  The  last  major  one   was  when  Philip  Morris  acquired  the   company,  took  it  private  and  combined   it  with  General  foods.  Philip  Morris  sold   16.1%  to  the  public  in  2001,  explaining   why  we  have  stock  data  extending  only   from  June  11  2001.

Kraft Foods Inc. 2006–2010

We  seem  to  be  doing  beber  second  Ume   around.  July  13  2009  we  bought  back  in   for  $25.92.  You  may  think  you  could   have  done  just  as  well  staying  in  for  the   whole  Ume,  and  maybe  you  could  have.   But  remember,  Ume  is  money  in  the   investment  business  and  you  would   have  added  nine  months  for  virtually  no   gain.  The  investment  is  sUll  open  and   February  7  2000  stood  at  $30.87.

And  the  stock  went  nowhere   from  there.  We  exited  October  6   2008  before  the  scariest  part  of   The  Great  Recession  with  a  loss  of   two  cents  over  4.89  years.  The   annualized  return  on  investment   was  minus  0.01%
SUMMARY:  There  was  one   completed  trade  that  lost  0.01%   annualized  over  4.89  years.  The   cash  loss  was  2  cents  per  share. The  first  recommendaUon,  at  
$0.58  November  9  1970,  was  
ignored;  it  was  too  close  to  the  
recognized  cycle  high.  It  would  
have    made  an  excellent  $0.43  
profit  and  an  annualized  return  
on  investment  of  25.0%.

We  had  to  wait  unUl  March  17  
1975  for  our  first  real  investment  
at  $0.60  when  the  bear  line  and  a  
short  term  high  were  crossed.
It  looked  reasonable  at  first   but  the  price  dropped  just   enough  in  1979  and  early   1980  to  cost  us  five  cents  and   a  negaUve  annual  return  on   investment  of  1.47%  over   4.96  years.
Here  you  might  have  kicked  yourself   for  not  hanging  in  but  we  can  never   know  how  far  a  falling  market  might   fall  so  it  is  best  to  pay  abenUon  to  all   protecUve  stop  losses.  We  buy  back   in  at  $0.67  and  head  as  low  as  $0.56   before  starUng  to  struggle  to  get  our   heads  above  water.

The  market  driIed  sideways  for   almost  a  year  and  we  buy  just  as   it  breaks  out  of  that  pabern.  Our   price:  $3.28  on  August  22  1988

And  above  water  is  exactly  where  we  
get  them  before  we  are  caught  by  the  
October  1987  crash  and  sell  at  $2.51.  
But  sUll,  that  was  a  gain  of  $1.85  
(rounded  for  splits),  annualized  at  
38.4%  over  7.28  years.

And  break  out  it  certainly  does  in  a  nice   Ught  channel.  We  sell  part  way  through   what  might  have  been  a  sideways   correcUon  on  April  5  1993  at  $14.38.  The   gain  is  $11.12  over  4.62  years  for  an   annualized  return  on  investment  of   73.6%.
Another  clean  rise  follows  and   we  sell  October  27  1997  for   $42.25,  a  profit  of  $25.44  over   3.2  years,  annualized  at  47.26%.

And  yes,  it   was  just  a  sideways  
correcUon.  We  buy  as  it  ends  at  
$16.82  August  15  1994.

We  should  be  geung  worried  with   the  next  recommendaUon.  We   have  come  a  long  way  since  1980   with  no  real  bad  news.  But  this  is  a   false  bear  market  line  and  there   are  no  restricUons.  The  rule  is  to   buy  1%  over  the  line,  which  we  do   at  $57.01.  Incidentally,  we   experimented  with  restricUons  and   they  worsened  the  overall  results.   SomeUme  we  have  to  take  one  for   the  Gipper! And  we  sure  did  this  Ume.  We  went  
through  an  enUre  bear  market  from  
1999  right  through  to  March  of  2003,  
ignoring  all  the  Red  Line  Alerts  along  
the  way  because  of  the  open  posiUon.

For  a  while  it  seemed  we  might  be  
saved  by  the  bell...but  then  the  bell  
rang  and  it  was  2008.

The Coca-Cola Company 2009–present

The  market  shot  straight  up  from  the   bobom,  crossed  the  downward  
trendline,  and  on  July  13  2009  we   bought  again  for  $48.45.  The  posiUon  is   sUll  open  and  on  February  7  2011  closed   at  $62.52.

The  bear  market's  last  gasp,  literally,   knocked  us  out  at  $38.18  for  a  loss   of  $18.82  over  10.96  years.  Because   it  was  spread  over  such  a  long  Ume,   the  annualized  negaUve  return  on   investment  was  just  3.01%.  Had  we   been  able  to  use  the  earliest  Red   SUMMARY:  We  had  an  unusual  two   losses  in  five  completed  trades  yet   the  average  annual  return  on   investment  was  30.96%  over  the   31.03  years  we  were  invested.  The   average  trade  lasted  6.21  years.   Over  the  enUre  period,  we  could  

Line  Alert,  we  would  have  lost  81   have  taken  our  cash  and  invested   cents.

elsewhere  for  2.93  years.

Our  first  buy  crossing  the  trendline  
and  a  short  term  high  was  at  $0.79  
July  9  1979.

The  Red  Line  Alert  was  not  counted  
in  the  stats  due  to  the  earlier  
posiUon.
MickyD  crabbed  sideways  for  six   or  seven  months  and  then  broke   through  the  bear  trendline  to  be   bought  at  $4.05.

As  with  so  many  others,  we  
were  doing  fine  unUl  October  
1987.  We  crashed  through  the  
trendline  stop  and  sold  for  
$4.18.  However,  that  was  a  
profit  per  share  of  $3.40  in  8.26  
years  and  an  annualized  return  
on  investment  of  52.44%.
And  off  we  went  to  the  races  
again!

But  at  the  end  of  the  sideways  
correcUon  we  cross  the  false  bear  
line  and  we  are  off  again,  this  Ume  
at  $13.00.

A  sideways  correcUon  brought  

an  end  to  that  fun  and  we  sold  
July  18  1994  for  $10.50,  a  gain  
of  $6.45  in  6.13  years.  That  was  
an  annualized  return  on  
investment  of  26.03%.
But  the  horse  tripped  badly  over  the  first   recession  of  the  century.  We  missed   much  of  it  when  we  sold  at  $21.80  for  a   profit  of  $8.80  over  5.61  years,  an   annualized  rate  of  return  of  12.08%. We  were  not  yet  finished  with  
the  recession.  We  just  Uckled  
high  enough  over  the  bear  
trendline  and  a  short  term  high  
to  buy  at  $28.09  the  first  week  
of  January  2001.  Because  the  
price  qualified,  all  subsequent  
Red  Line  Alerts  were  ignored..

A  big  sigh  of  relief  as  the  bear  market   came  to  an  end  in  March  2009  and   McDonald's  rose  handsomely.  The  stock   even  weathered  The  Great  Recession  quite   well  but  we  sold  when  the  trendline  was   crossed  by  5%  October  6  2008  at  $52.83,  a   profit  of  $24.75  and  an  annualized  rate  of   return  over  7.76  years  of  11.35%

McDonald's Corporation 2009–present

The  false  bear  line  has  proved  helpful   so  far.  The  stock  was  bought  for   $64.37  February  1  2010  and  one  year   later  was  $73.45.
SUMMARY:  There  have  been  four   completed  trades,  all  profitable.   Average  profit  per  share  has  been   $10.35  and  average  annual  return  on   investment  has  been  25.48%  over   the  27.77  years  during  which  we   were  invested.  Length  of  the  average   trade  was  6.94  years.

Our  first  buy  of  3M  was  at  $2.27  April  21   1975  when  prices  spiked  up  through  the   downward  trendline  and  almost   immediately  dropped  back  again.  It  did  not   look  too  promising.
Then  things  sebled  down  and  
actually  got  exciUng  in  1982.

They  kept  being  exciUng  unUl  the  dreaded   October  1987  crash.  Of  course  (he  says  with   sarcasm),  we  sold  near  the  bobom  at  $5.85.   But  all  was  not  lost.  We  made  $3.59  over  12.5   years,  annualized  at  12.65%. As  we  have  seen  on  so   many  other  charts  tripped   by  the  October  1987  crash,   the  market  shook  off  the   surprise  over  the  next  nine   to  12  months.  We  bought   3M  back  again  at  $8.53   when  it  crossed  the  bear   line  and  a  short  term  high. If  we  weren't  salivaUng  by   now,  we  should  have  been! We  get  through  the  early  
decade  bear  alright  but  with  
noUceably  more  volaUlity  
once  we  buy  at  $30.30  
March  6  1999.

But  all  good  (and  bad)  things  eventually  come  
to  an  end.  Extra  volaUlity  causes  the  trendline  
to  be  broken  and  we  sell  at  $25.84  for  a  profit  
of  $17.32  in  9.95  years.  Annual  rate  of  gain:  
20.42%.
The  next  potenUal  buy,  at  
$70.47  April  3  2006  was  ignored.  
It  was  within  16%  of  the  
presumed  cycle  high.

But  four  months  later  there  was   a  Red  Line  Alert  creaUng  a  buy   August  7  2006  at  $60.74.  For  a  

Midway  through  the  decade,  on  April  15,   while,  it  looked  like  excellent   we  cross  the  line  by  5%  and  sell  at  $65.88,  a   Uming...
gain  of  $35.58  a  share  over  6.11  years.  That  
was  an  annualized  gain  of  19.22%.

3M Company 2008–present

...  then  prices  plunged  and  we  suffered   the  enUre  Great  Recession.  
SUMMARY:  There  were  three   completed  trades  during  the   28.56  years  we  were  invested.   Average  return  on  investment  was   17.43%.  Average  profit  per  trade   was  $18.83  per  share.

The  two  later  Red  Line  Alerts  were  
ignored  by  our  system  although  you  
may  have  used  them,  and  eventually  
we  survived  (unless  we  panicked  at  the  
end).  The  posiUon  is  sUll  open  and  
stood  at  $88.79  February  7  2011.
The  bear  line  Upped  down  just  in  
Ume  to  get  us  a  beber  price  when  
we  bought  Merck  November  30  
1970  for  $0.42.

It  had  a  good  run  up  unUl  it  hit  the  start  of   the  bear  market  in  1973.  We  sold  January   7  1974  crossing  the  bull  line  at  $0.69,  a   gain  of  $0.28  a  share  over  3.1  years.   Remember,  all  these  prices  are  aIer   several  stock  splits.  The  annualized  return   was  21.91%.
It's  wonderful  how  much  we  can  
see  with  hindsight!  Clearly  (as  
we  see  now)  the  buy  at  $0.79  on  
May  5  1975  might  have  been  
beber  considered.

Undaunted,  a  couple  of  months   later  we  buy  again  (and  perhaps   hold  our  breath?).

Even  where  we  sold  might  have   been  beber  considered!  We,  like   so  many  who  panic,  caught  the  tail   end  of  a  bear  market  and  sold  for   $0.82,  an  annualized  return  on   investment  of  just  0.86%.  A  bank   savings  account  in  this  rare  case   would  have  been  beber.
But  we're  not  saUsfied;  it's   like  an  appeal  to  the  umpire!   A  few  weeks  later,  January  9   1989  we're  back  in  thanks  to   the  trendline  and  a  short   term  high.  Price:  $5.04.

Okay,  breath  again!  We  are  well  rewarded  but   forced  out  at  $4.53  by  the  tail  end  of  a  sideways   driI  following  the  October  1987  crash.  The  gain   was  $3.58  in  6.21  years,  annualized  at  60.68%.

Anyhow,  aIer  taking  a  breather   for  eight  months  we're  back  in   at  $9.56  March  22,  1993.

If  you  look  at  this  chart,  I'd  have  to  say  the   sale  (the  yellow  pin)  was  preby  poor  Uming,   but  that  has  to  do  with  the  standard  length   of  trendlines  in  this  system.  Many  different   lengths  were  tested  with  each  stock  and  161   weeks  proved  best.  At  any  rate,  we  sold  for   $9.93,  a  profit  of  $4.90  over  4.2  years.  The   annualized  return  on  investment  was  a   respectable  23.17%  -  so  I'll  stop  complaining  

about  what  we  leI  on  the  table! But  we're  sUll  not  done!  A  false  
bear  line  gets  us  back  in  at  
$34.96  less  than  three  months  
later,  on  January  12  1998.

And  this  Ume  we  clamber  up  the  hill  nicely  to  
sell  on  a  twitch  at  $28.49  October  27  1997.  
That  was  a  gain  of  $18.93  a  share  over  3.95  
years.  The  annualized  return  on  investment  
was  a  pleasant  50.17%.
Because  of  the  previous  buy,  the   Red  Line  Alerts  are  ignored.  Sad!

The  beginnings  of  the  first  bear   market  of  the  decade  pushes  us   out  at  $40.19  for  a  $5.24  gain.   What?  You  thought  the  big  ones   would  last  forever?  During  the   3.91  years  we  were  invested,   our  annual  gain  was  3.84%. Yes,  we  tried  expanding  the  16%   rule  to  cut  out  more  silly  trades  but   that  merely  reduced  the  overall  rate  

of  return,  so  we're  stuck  with  this   buy  on  October  28  2002  at  $37.25. We  did  not  leave  our  friends  at  Merck   very  long.  We  were  back  in  again   January  5  2009  at  $29.08  when  we   crossed  the  downward  trendline  and  a   short  term  high.  The  Red  Line  Alert   was  ignored  due  to  this  earlier  buy.

Because  the  market  sprouted  up  so   quickly  in  the  final  two  years  of  the   bull  market,  the  trendline  was  in  the   next  county  and  preby  useless.  We   sold  near  the  bobom  of  the  debacle   for  $23.20  October  6  2008.  That  was  a   loss  of  $14.04,  annualized  at  6.34%   over  5.94  years.  Can  we  please  go   back  to  Go  and  collect  $200?

Merck & Co., Inc. 2010–present

This  posiUon  is  sUll  open  and  was  at  

$33.00  February  7  2011.

SUMMARY:  We  complete  seven  trades  in   this  period,  all  but  one  of  which  were   profitable.  Over  the  34.42  years  during   which  we  were  invested,  the  average  return   on  investment  was  22.04%.  The  average   length  of  each  trade  was  4.92  years. Our  first  buy  is  preby  
straighlorward.  We  crossed  the   bear  trendline  September  4  1989   and  bought  at  $0.35  allowing  for   stock  splits.
The  iniUal  rise  was  graUfying.

GraUfying?  Is  that  all  you  can  say,  Tremayne?   We  sold  April  3,  very  close  to  the  top  and   were  rewarded  with  $35.63,  almost  all  of   which  was  pure  profit.  The  annualized  rate  of   return  over  10.58  years  was  a  breathtaking   966.45%.
It  was  a  different  keble  of  fish  when  we  bought  at  $24.85  on  
April  16  2001.  This  chart  gives  a  good  illustraUon  of  why  we  
use  no  stop  loss  protecUon  early  in  a  trade.  The  volaUlity  can  
be  nerve-wracking  if  you  pay  too  much  abenUon  to  it.  The  
simple  answer:  have  faith  that  the  results  you  see  here  in  all  
kinds  of  markets  are  likely  to  conUnue  within  reason  and  
don't  pay  much  abenUon  to  your  holdings  for  about  three  
years  unUl  stop  losses  start  being  recommended.  It  is  much  
easier  on  you  that  way...and  your  bank  account  will  probably  
thank  you  too!

The  next  recommended  buy   (the  green  pin)  at  $28.21  on   December  11  2006  was  ignored   as  too  expensive.  It  would  have   lost  more  than  $7  in  less  than   two  years.  There  were  no  Red   Line  Alerts.
The  next  buy,  off  a  much-adjusted   bear  line,  was  on  July  13  2009  at   $23.94.  The  stock  was  at  $28.20   February  7  2011.

SUMMARY:  MicrosoI  was  another  

The  trendline  is  penetrated  
April  24  2006  and  we  sell  at  
$22.32  for  a  loss  of  $2.53  
over  5.04  years.  That  
equates  with  an  annualize  
rate  of  loss  of  2.01%.
one  for  people  needing  to  recapture   their  reUrement  losses  in  a  hurry!   There  were  only  two  completed   trades,  one  of  which  was  for  a  loss,   but  the  other  was  a  doozy.  During   the  15.62  years  in  which  we  were   invested,  the  average  return  on   investment  was  an  incredible   482.22%.  The  length  of  the  average   trade  was  7.81  years. Pfizer's  first  recommended  buy  was  judged  
by  the  previous  high  to  be  too  expensive  so  
it  was  ignored.  Pity!  It  would  have  returned  
27.48%  annualized  over  3.09  years.

We  do  beber  with  the  second  
recommendaUon:  a  buy  at  
$1.27  September  12  1988.

Then  we  get  caught  by  a  hiccup  and  sell  (yellow  
pin)  at  $3.19  on  February  7  1994.  The  gain  was  
$1.94  a  share  over  5.4  years  and  the  annualized  
return  on  investment  was  28.41%.  Not  shoddy  
for  the  cheap  seats!

Crossing  the  bear  line  and  a  short   term  high  gets  us  back  in  at  $3.62   on  August  8  1994  and  there  was  a   long  a  beauUful  rise  ahead.
We  sold  at  $22.36  for  a  gain  of   $18.75  a  share  in  5.41  years.  The   annualized  return  on  investment   was  95.9%
But  somewhere  there  is  usually  a  price  to  pay  
for  excepUonal  results  and  it  was  Ume  to  pay  
that  price  now.  On  April  3  2000  we  bought  at  
$27.59  when  the  bear  line  was  crossed  in  
conjuncUon  with  a  short  term  high.  That  shut  
out  all  future  Red  Line  Alerts.  We  were  at  the  
start  of  a  bear  market  that  lasted  almost  three  
years.

But  Pfizer  didn't  just  sink  during  the  bear  market;  it  
conUnued  down  and  down  and  down  through  the  next  bear  
market  too.

Pfizer Inc. 2009–present

By  February  7  2011,  11  
years  aIer  the  
investment  was  made,  
the  stock  had  struggled  
back  to  $19.04.  It  sUll  
has  a  way  to  go  to  break  
even.

SUMMARY:  There  were  two  completed   trades  for  an  average  return  of  62.15%  on   investment.  That  return  may  drop  when  the   current  trade  is  completed.  Average   investment  length  was  5.41  years.  If  any  stock   runs  counter  to  the  market,  parUcularly  those   in  the  same  industry,  always  check  for  reliable   corporate  news.
The  proposed  buy  at  $1.15   on  June  3  1974  is  too  high   to  be  acted  upon.

A  false  bear  trendline  starts  us   off  on  November  9  1970  with  a   buy  at  $0.63.

The  posiUon  is  held  for  a  
fracUon  over  three  years  and  is   sold  December  10  1973  at   $1.04  when  the  trendline  is   exceeded  by  5%  in  absence  of   a  viable  short  term  low.  Profit   is  $0.42  for  an  annualized  rate   of  return  of  21.47%.
A  Red  Line  Alert  creates  a   buy  on  October  14  1974  at   $0.89.

The  posiUon  does  nothing  but  hop  up  and  
down  like  a  grasshopper  on  steroids  and  
waste  Ume.
Two  months  later,  on  May  5  
1980,  we  miss  what  would  
have  been  an  excellent  
investment.  The  price  was  
considered  by  the  system  to  
be  too  expensive  compared  
with  the  previous  high.

We  finally  sell  for  $0.94  crossing  the  
bull  trendline  March  3  1980.  In  5.39  
years  we  earned  an  unnoUceable  
$0.06  for  an  annualized  return  on  
Our  next  opportunity  is  on  
August  29  1988  when  we  
cross  the  bear  trendline  and  
exceed  a  short  term  high  to  
buy  at  $2.97.

Seven  months  later,  
penetraUng  a  false  bear  
trendline,  we  are  back  again  
at  $9.87  November  8  1993.

The  posiUon  is  sold  at  $8.04  
when  the  trendline  is  broken  
by  a  sideways  correcUon.  The  
gain  was  $5.08  over  4.6  years  
for  an  annualized  return  on  
We  have  a  nice  long  ride.

We  are  caught  by  a  sudden   nosedive  March  6  2000  though,   apparently  geung  rid  of  the   early  century  bear  market  in  a   maber  of  weeks.  We  sell  at   $32.21,  a  gain  of  $22.35  in  6.33   years,  an  annualized  return  on   investment  of  35.8%.
The  bear  line  and  a  short  term  high   are  passed  and  we  buy  at  $30.75   the  week  of  December  25  2000.   Right  aIer  that,  the  stock  plunges   to  a  low  of  $22.63.  Even  when  the   system  tests  your  courage,  diversify   and  trust  the  system.

SUMMARY:  There  were  five   trades,  all  profitable,  for  an   average  return  on  investment  of   21.30%.  The  average  profit  per   share  was  $10.73.  We  were   invested  a  total  of  27.18  years   and  capital  was  available  for   investment  elsewhere  for  10.73   years.  Average  length  of  each   trade  was  5.44  years.
We  have  an  open  investment   in  P&G  taken  July  13  2009  at   $53.27.  The  stock  was  at   $64.64  February  7  2011.

A  clear  M  top  and  we  get  out  
on  the  second  leg  at  $56.48  
October  6  2008.  The  gain  is  
$25.74  over  7.78  years  for  an  
annualized  return  on  
investment  of  10.76%.
The  first  opportunity  we  had  with  this  stock  was   considered  too  expensive.  Now,  we  trade  aIer   crossing  a  false  bear  trendline  by  1%.  This  trendline,   like  all  false  bear  lines,  started  off  in  the  right   direcUon  (downward)  but  a  series  of  failed   breakouts  gradually  Upped  it  higher  unUl  it  was  no   longer  a  normal  bear  line.  A  false  line  like  this   normally  indicates  a  sideways  correcUon,  as  it  did   here.  We  buy  at  $7.40  December  16  1991. We  don't  feel  so  bad  about  being   unable  to  make  the  first  trade  now. We  are  well  into  the  bear  market  of   2000-2003  before  we  sell  at  $20.39  for   a  $13.01  profit  over  10.35  years.  The   annualized  return  on  investment  was   17.01%.
We  buy  again  December  2  2002  for  
$19.40  missing  the  opportunity  to  use  
the  Red  Line  Alert  a  lible  over  three  
months  later  at  $13.64.

We  buy  back  May  4  2009   at  $24.68.

The  2008  bear  market  catches  us  
on  October  6  that  year  and  we  sell  
at  $22.70,  a  gain  of  $3.30  in  5.84  
years,  an  annualized  return  on  
investment  of  2.91%

AT&T Inc. 2010–present

The  posiUon  is  sUll  open  and  on  

February  7  2011  stood  at  $27.96.

SUMMARY:  There  were  two  profitable   trades  and  no  losses.  The  average   length  of  each  trade  was  8.1  years  and   the  average  profit  per  share,  $8.15.  The   average  return  on  investment  was   9.96%.
A  straighlorward  start  for  Travelers  as  prices  
cross  the  downward  trendline  and  a  short  term  
high  for  a  buy  at  $3.46.

Pardon  the  poor  pun  but  we  keep  on  traveling  nicely!

End  of  the  road  as  we  sell  for  
$21.73,  a  gain  of  $18.28  over   In  the  midst  of  a  lot  of  
10.06  years.  That  was  an  annual   choppiness,  we  buy  again  
return  on  investment  of  52.56%   May  3  1999  at  $24.08.

The  two  subsequent  Red  Line   Alerts  are  ignored  because  of   the  exisUng  posiUon. This  posiUon  started  down  a  rocky  
road,  geung  as  high  as  $44.23  before  
plunging  to  $18.67,  but  then  it  sebles  
down  for  a  relaUvely  steady  climb.

The Travelers Companies, Inc. 2007–present

The  proposed  buy  September  15   2008  at  $50.43  was  above  the   cutoff  level  and  was  ignored. This  posiUon  is  sUll   open  and  stood  at   $57.88  at  the  close   of  business  
February  7  2011.

The  trendline  is  crossed  by  5%  in  

SUMMARY:  There  were  two   completed  trades  during  the  

absence  of  a  viable  short  term  low   period;  both  were  profitable.   and  we  sell  January  14  2008,   We  were  invested  a  total  of   before  the  bear  market  really  took  
hold,  at  $45.87,  relaUvely  close  to  
the  top.  The  gain  was  $21.81  in   Instead,  just  over  a  month  later  on  
8.7  years  for  an  average  annual   October  20  we  bought  with  a  Red  
rate  of  return  of  10.41%. Line  Alert  at  $31.38.
18.76  years  with  an  average   annual  return  on  investment   of  31.49%.  The  average   profit  per  share  was  $20.04   and  the  average  length  per   trade  was  9.38  years. Although  it  may  not  look  like  it  here,  the  nearest  
short  term  high  was  more  than  7%  over  the  line.  
We  bought  crossing  the  line  April  29  1974  at  $0.30  
-  and  the  Uming  was  preby  good.

We  start  to  run  into  a  bit  of  trouble  in  
1981  but  we  are  not  knocked  out.

1981  was  really  a  
breather  for  the  stock   and  we  invest  again   when  the  bear  trendline   is  breached  along  with  a   short  term  low  July  12   1982.  Price:  $1.26.

We  break  through  the  bull  trendline   February  1  1982  and  sell  for  $1.05  for  a   profit  of  $0.77  over  7.76  years.  That  may  

seem  a  long  Ume  to  wait  for  $0.77  but  
remember  these  prices  are  aIer  stock  splits  
over  the  years.  At  the  Ume,  you  would  have  
had  fewer  shares  at  a  much  higher  price.  
Any  way  you  slice  it,  the  annual  rate  of  
return  on  investment  was  33.56%.
That  trade  lasts  an  unusually  short  2.82   years.  (The  161-week  bull  trendline  starts   at  the  cycle  low,  not  at  the  Ume  of  
purchase.)  A  sharp  one-week  spike  down   penetrated  the  trendline  by  5%  and  we  sell   at  $2.35,  a  profit  of  $1.11  and  an  
annualized  return  on  investment  of   31.46%.
A  sideways  correcUon  of   almost  a  year  creates  a   false  bear  trendline  and   we  buy  again  1%  above   the  line  on  December  9   1985  for  $3.16.
The  October  1987  crash  is  survived  simply  because  that  
happened  too  early  in  the  life  of  the  investment  and  no  stop  
loss  protecUon  was  in  place  at  that  Ume.

The  Red  Line  Alert  was  ignored  
due  to  the  exisUng  posiUon.
Anyone  who  says  they  know  what  is  going  to  happen  
to  a  stock's  price  is  deluding  themselves.  The  system  
reacts  to  what  the  market  does  and  therefore  might  
do  tomorrow.  It  does  not  foretell  the  future  even  
though  it  seems  to  at  Umes.

The  spike  down  in  October  1998  
(investors  had  learned  from  the  
previous  year  to  be  nervous  of  October)   sent  us  to  the  sidelines.  The  trendline   was  exceeded  by  5%  and  in  absence  of  a   viable  short  term  low  we  sold  at  $15.27   August  31  1998.  The  gain  was  $12.12   over  12.73  years.  The  annualized  return   on  investment  was  30.20%.
The  brief  rest  created  a  false  bear   trendline  and  we  bought  again   November  9  1998  for  $20.60,  1%   above  the  line,  and  entered  a   volaUle  period  that  iniUally  saw  a   wide  gap  between  the  provisional   (unused  for  the  first  161  weeks)   bull  trendline  and  its  parallel. But  the  volaUlity  sebles  down  well.

United Technologies Corporation 2007–present

The  bear  trendline  allows  us  to  miss  
virtually  all  The  Great  Recession  and  
we  buy  the  stock  back  June  1  2009  for  
$52.06.  This  posiUon  was  sUll  open  at  
$83.66  on  February  7  2011.

SUMMARY:There  were  four  

The  trendline  gets  us  out  close  to  completed  trades,  all   the  top,  selling  January  7  2008  at  profitable,  for  a  combined  $68.11  for  a  gain  of  $47.52  in   period  of  32.47  years.  Average   9.16  years.  That  was  an   profit  per  trade  was  $15.38  and  

annualized  return  on  investment  the  average  annual  rate  of   of  25.18%.
return  was  30.56%.  In  fact,  this   stock  was  preby  consistent.   The  lowest  ROI  was  25.18%  and   the  highest  33.56%.  The   average  trade  lasted  8.12  years. Verizon  began  with  a  false  
bear  trendline  and  the  first  
buy  was  at  $2.67.

The  next  offering  on  December  3  at  $11.19  was  
ignored  by  the  system  and  would  not  have  
appeared  in  the  weekly  newsleber.  The  system  
assumed  that  $11.17  set  January  1  1990  was  a  
cycle  high  and  the  December  3  price  was  way  
too  high  to  invest  safely.

We  sold  at  $9.06  August  20  1990  on  what  at  first  
looked  like  the  second  leg  on  an  M-shaped  double  
top.  Profit  was  $6.39  a  share  over  6.08  years.  
Annualized  return  on  investment  was  39.49%.
Gamblers  someUmes  win  
but  the  system  tries  not  to  
gamble.

The  next  offering  on  July  9  2001  at  $35.05  is  
also  ignored  as  being  too  expensive  in  
relaUon  to  the  October  4  1999  high.

That  brings  into  play  a  perfect  Red  Line  Alert  
call  right  at  the  end  of  the  early-decade  bear  
market.  Using  it,  we  buy  at  $18.42  August  5  
2002.

A  bumpy  ride  that  forces  us  to  sell  at   too  low  a  price  October  6  2008.  We   sell  at  $25.48,  a  gain  of  $7.07  over   6.17  years,  annualized  at  6.22%.  The   "regular"  buy  we  ignored  would  have   lost  $9.56.

Verizon Communications Inc. 2009–Present

SUMMARY:  There  were  two   profitable  trades  and  no  losses   during  this  period.  We  were   invested  for  12.25  years  and   our  capital  would  have  been   available  for  other  investment   for  11.96  years.  Average  rate   of  return  was  22.85%.

We  have  an  open  posiUon  when  the  
downward  trendline  was  penetrated  
July  20  2009  and  we  bought  at  
$29.12.  The  closing  price  February  7  
2011  was  $36.02.
Wal-Mart  has  had  a  large  number  of  stock  splits  and  so  now  
shares  in  the  1970s  appear  to  have  traded  for  mere  pennies.  
This  is  one  of  the  strangest  charts  you  will  ever  see  for  
established  companies.  Crossing  the  downward  trendline  
May  20  1974  we  paid  all  of  three  adjusted  cents  for  the  
stock.  The  ignored  Red  Line  Alert  was  at  a  single  penny.

Here's  another  chart  you  will  not  see  too  oIen.  When  
a  stock  moves  in  pennies  it  repeatedly  gets  a  new  
Point  2  for  the  bull  trendline.  That  means  lots  of  
upward  adjustments  -  assuming  the  stock  is  rising.

The  trendlines  ulUmately  sort  themselves  out   to  leave  a  single  dominant  one.  We  avoided   the  October  1987  market  crash  but  got  caught   in  the  November  30  bounce  when  the   trendline  was  exceeded  by  5%.  We  sold  for   $2.08  aIer  13.53  years.  Pennies?  It  wasn't   bad  considering  the  three-cent  investment.   Profit  was  $2.05  and  the  annualized  return  on   investment  was  a  massive  578.83%.
The  bear  trendline  and  a   short  term  high  get  us  back   in  at  $3.10,  103  Umes  our   first  investment.
Another  good  run  stops  when  the   bull  trendline  is  exceeded  by  5%  in   absence  of  a  closer  short  term  low.   We  sell  June  14  1993  for  $10.86,   with  a  gain  of  $7.77  over  5.0  years.   Annualized,  that's  a  return  on  

investment  of  50.15%.

We  buy  back  in  again  February   27  1995  for  $10.35  when  the   bear  market  is  almost  over.

Because  of  the  exisUng  posiUon,   the  Red  Line  Alert  of  January  29   1996  at  $8.53  is  ignored. A  fairly  lengthy  bear  trendline  was  
exceeded  along  with  a  short  term  high   and  on  July  23  2001  we  bought  the   stock  again  at  $48.60.

Wal-Mart  fared  well  through  most  of  
the  early-century  bear  market  
although  we  missed  most  of  it  when  
the  bull  trendline  was  exceeded  by  
5%  and  we  sold  at  $37.37,  a  gain  of  
$27.03  over  5.61  years.  This  Ume,  the  
annualized  return  on  investment  was  
46.55%
We  suffered  through   an  enUre  recession...

Wal-Mart Stores, Inc. 2008–Present

...and  yet  another.  The  posiUon  is  sUll  
open  and  stood  at  $56.07  on  
February  7.  Unless  there  is  
commensurate  profit,  the  longer  the  
trade  the  lower  the  rate  of  return.

SUMMARY:  There  have  been  three   profitable  completed  trades  and  no   losses.  The  average  annual  return  on   investment  was  225.18%  over  the   total  of  24.15  years  we  were   invested.  Unusually,  the  minimum   return  for  any  of  the  trades  was   46.55%.  The  average  length  of  each   investment  was  8.05  years  and  the   average  profit  per  share  was  $12.29. The  first  potenUal  investment   on  August  14  1978  at  a  split- adjusted  $0.72  was  too  close   to  the  previous  cycle  high  and   so  was  ignored.  We  missed  an   annualized  46.6%  over  the   next  9.18  years.
No  comment,  except  grr! AIer  the  sharp  drop  of  October  1987,  this  stock  like  many  
others  went  into  a  sort  of  hibernaUon.  Perhaps  investors  
were  too  shell-shocked  to  do  much  else  than  hold  on  Ught.  
But  eventually  Exxon  began  to  move  upward  again  and  
when  it  did  it  penetrated  the  false  bear  trendline  by  1%  
and  we  bought  at  $6.19.

The  trendline  is  crossed  during  what  now  appears  to  
have  been  a  further  sideways  correcUon  and  we  sell  
for  $9.96,  a  gain  of  $3.77  over  4.48  years.  That  was  
an  annualized  return  on  investment  of  13.59%.  The  
false  bear  trendline  happened  only  because  prices  
nibbled  away  oIen  enough  without  creaUng  a  buy  
that  the  original  true  bear  line  was  forced  upward.

Different  rules  apply  to  false   bear  lines  otherwise  the  buy   on  March  6  1995  at  $11.20   would  have  been  ignored.

It's  a  good  thing  it  was   not   ignored.  We  sold  near  the  top  of   the  market  when  the  trendline   was  penetrated  March  19  2001.   Price:  $32.84,  gain  $21.64  over   6.04  years.  Average  annual   return  on  investment:  32.03%. We  just  seem  to  keep  piling  it  on  with  
this  stock  during  a  Ume  when  OPEC  
was  forcing  oil  prices  ever  higher.  I  
suppose  this  is  one  way  to  pay  for  gas  
at  the  pump.  The  system  bought  at  
$30.89  January  6  2003.

Exxon Mobil Corporation 2007–present

The  current  open  posiUon  was  bought  
October  12  2009  for  $70.71.  Anyone  with  a  
weak  heart  or  lacking  faith  in  the  overall  
system  might  have  suffered  a  heart  aback  in  
the  following  nine  months,  but  they  are  
probably  celebraUng  now.  February  7  2011  
price  was  $83.93.

We  sold  just  two  months  aIer  

the  market  high,  on  July  14  

SUMMARY:  Three  trades  were  2008  for  $76.60,  and  missed  

most  of  the  bear  market.  Profit   completed  during  the  period,  all   was  $45.52  per  share  over  5.52   profitably.  Average  return  on   years.  Annualized  return  on   investment  was  24.11%  and  the   investment  was  26.71%. average  profit  per  share  was  

$23.65.  The  average  length  of   investment  was  5.35  years. HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   282  

Summing Up

There are 30 stocks in the Dow Jones Industrial Average. The ground covered in the preceding charts showed results for 97 completed trades. Eighty-seven of those were profitable; 10 lost money.

The worst loss was 14.57%. The best gain was ridiculous! The averagereturn was 64.40%. Obviously, that was helped by the best gains, but it was also impaired by the handful off losses.

Kraft, with one completed trade that lost all of two cents a share and had a negative rate of return of 0.01% was the only stock on the list to have a net loss, and it is doing well with the current open position.

Study of the charts together with the summary of rules on page 80 should give you a sense of comfort through understanding.

But there are several significant things to take away from this study:

• This is not a system for short-term traders. It is for serious investorswho want to make money for a better future for themselves and their family;

• You will suffer downturns that will be painful for some people. If you think you will be unable to tolerate these temporary downturns, close this book now and do not subscribe to the weekly publication. The fact that those downturns usually recover should be a comfort to others;

HOW  TO  BECOME  A   WEALTHY  INVESTOR   PAGE   283

• The system does not offer a fun or exciting game as, perhaps, day trading does for some. It offers a businesslike, managed approach to making money from solid companies;
• Four stocks on the list (13.33%) had total triple-digit returns. An equal number had single-digit returns. You might or might not have invested in any of them. But the point is this: to guarantee within reason the best return possible you had to be invested in all. I am not saying you should invest in 30 stocks but I amreinforcing the mantra to diversify. We cannot know in advance where success or failure will hide.
• Finally, you should have seen that you need patience. Those four single-digit gains I talked about a moment ago each have ongoing trades. At the time of writing, those continuing positions have pushed three of them to overall gains in excess of 30% and one to more than 10%. That includes the poor results from before. And Kraft, our single net loser? It's not a loser any more with a gain of about $5 a share at time of writing.

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