ADVFNGuide: 101Ways to PickStockMarketWinners

ClemChambers

PublishedbyADVFN978-1-908756-00-8Copyright © Clem

Chambers2011

http://www.advfn.com

TomyFatherwho taughtme.

For the millions ofADVFNuserswholooktoustohelpbuildtheirprosperity.

IntroductionPicking stocks need not bereserved for financial gurusand degree-wieldingmathematiciansininvestmentbanks.

Picking good stocks justrequires a toolbox of simpleideas that filter out and zeroin on companies that

investorsshouldbelookingtoadd to their portfolio, ortraders should be looking toplay.

Investing is not tradingand vice versa. Investing islike farming, trading isbetting. Both can be verylucrative and either can loseyouyourshirt.

However, in the main,investing is much easier,more leisurelyand less risky.Investors might not get rich

quick, but they shouldn’t getpoorfasteither.

Investing is notnecessarily that popular;whereas everyone likes tochance their arm at being atradinggenius.Itis,therefore,no wonder that the stockmarketcarriesacertainaromaofthecasino.

Yet investing is themostprudent way to approach themarket.

This guide carries

investingand tradingrules tohelp you select stocks forinvestingandtrading.

They can be, and shouldbe, combined to complementa stock selection, as whileeachcanbethekeytoastockselection, none arecontradictory. The more ofthese rules fit the candidatethebetter.

The101waysareaseriesof techniques ofwhich someare easy and some tricky,

hence thedifficulty rating.Adifficulty of one wouldsuggest the idea was simpleeventoanovice,and,winorlose,thechoicestogetinandout are very simple. A highscore over five means thetechnique needs carefulthought andmight take a bitof reflection and practice touse.Atthehighend,aneightornineratingwouldmeanthetechnique was extremelytricky—a do or die method

that should only be used ifyouareveryconfident.

TheLongandShortofit.The ways are also

categorised by signal; eitherlong or short (sometimesboth).

When you buy a shareyou are long. That’s simpleenough to understand. Longmeans you own the share. Ifyou have a thousand poundsof Shell, you are long a

thousandpoundsofShell.Tobeshortistheopposite

oflong.This idea can be

confusing.Howcanyouownminus a thousand pounds ofShell? How can you ownnegative shares?Well if yousell shares you don’t have,you are short. This mightsoundillegalandwicked,butit is not and it is understoodtobeOK,eventhoughpeopleoftenmoanaboutpeoplewho

areshort.Shortingworkslikethis:Youborrowsomeshares.Yousellthematapriceto

someone.You buy them back and

return them to the folks youborrowedthemfrom.

When you go short, thebrokerarrangesallthedetails,like borrowing etc, so youjust sell and then buy backwhenyouaredone.

You sell and go short

becauseyouthinkasharewillfall. If it falls you buy backcheaper than you sold andmake a profit. If the sharegoes up and you buy it backyouwillhavemadealoss.

Picking stocks is not allabout what makes a sharegood, it isalsowhatmakesasharebadandthereareafewno-no rules that canmelt thewingsofanystockIcarusanddissuade an investor fromgettinginvolved.

To pick stock marketwinners you need the righttools. I use ADVFN, thewebsite I amCEOof, as theplatform to find the stocks Iwant tobuyandsell.WhenIstartedADVFN I put all mymoney into shares on thebasis that this wouldguaranteemyfullattentiononthe tricky task of building astocksandshareswebsitethatwould actually be aboutgrowing a private investor’s

wealthratherthanaprettybutvapid site driven by a bunchofgraphicdesignerswith‘noskininthegame’.

ADVFN is now a hugesite with usage around theglobe.It isa leadingsite,notjustintheUK,butintheUS,Brazil and in variousterritoriesfromItalytoJapan.

Inessencethisbookisthecondensation of my rules ofthumb for investing andtrading.

Amongsttheways,Ihavelisted a few golden rules,which should be rigorouslyfollowed.Breakthematyourperil.

If you follow theprinciples listed in this bookyou should do rather well.Please feel free to sendmeaChristmascardwhenyoudo.

Don’t be afraid to makeup your own rules. If youthinkCEOswithbeardscan’tbetrustedthenmakeitarule

and keep track of how itworks.Youmayberight.

The thing to remember isthere are 2000-plus stocks inthe UK market, if youexclude one share there arestill another 2000-plus tochoose from. In any eventyou are going to ignore 99%of all possibilities, sodevelopingyourown rules isa useful way of winnowingthechaff.

As time passes you will

build up your own toolkit ofideas and these will likelyserve you well becauseexperience is the mostvaluable asset of investmentand it soon turns into yourown valuable investmentguidelines.

GoldenRuleNo.1

DiversifyDo not put all your eggs inonebasket.Ifyouinvestyourmoney in too fewsharesyouwillnotreapyourjustresults.

Ifyouputallyourmoneyinto one share at a time, yourisklosingthelot.

At best, if you do notdiversify you will have arough ride as the small

number of shares in yourselection buffets your capitalaround. Concentration ofcapital will not help yoursleep.

Aim to own30 stocks. Ifyoudonothavethecapitaltohave 30, then build towardsthat number as you addmoney to your brokerageaccount.

Buy shares in units, say£1000, and do not increaseyour unit size until you have

30stocks.If you make £500 on a

stock,thenextshareyoubuyshould still be that £1000unit, leaving the £500 asideuntil you have made up theextra to buy another stock atthe£1000unitsize.

Always rememberdiversification is your bestfriend.

Internetchatrooms

(discussionforums/bulletin

boards)Notmany people are cut outtobelonelyhunters.Investors

like to club together anddiscuss their positions.Internet chat rooms areunruly, garrulous places.Theyare likenoisymedievaltaverns; loud, uproarious andfun.

Is there gold to be hadfrom the fetid river of freespeech?Youbet.

SilenceisgoldenSignal:Long

Difficulty:4

If you find that a discussionon a stock you are interestedin is muted this is anextremelygoodsign.

People talk a lot aboutstocks when they are unsureor when they think theirinvestment needs a shove intherightdirection.

Solidstocksattractasolidkind of investor and whilethey like to communicate,they generally aren’t themanic kind of people thatinhabit many of the topicsinternetboardshavetooffer.

Successful investors arealso likely tobewelloffand

this again tends to keep thenoise level down. They havelittle toproveandaremerelydippingtheirtoesintoaboardabout a stock they own andhavenodesiretocauseafuss.

Ittakesabitoftimetogetthe hang of bulletin boardslike ADVFN’s, but onceyou’ve spent a few hourssurfing, you will note howsome threads are madnessandsomearesedate.

The more sedate the

better.

Way2

Madnessisbadness

Signal:Short

Difficulty:7

Whenyoufindasharewhichis the topic of furious debateonabulletinboard,whateveryou do, do not buy it. The

noisier the thread, the morevirulent the language, themorecolourfulthedebate,theworse the prospects are forthecompany.

Dying companies attractthe attention of the worstinvestors. They are likelemmingstoacliff.

There is somejustification for this, as adisastrous stock has a tinychance ofmaking aLazarus-like return and if this does

happen its share price willrocket.

This100toonechanceofmakingtentimesyourmoneyis what attracts the stocktradermothstotheflame.Tothem the attraction of apossible ten times profitdwarfsthefearengenderedoflosing 99 times in a row togetonefatwin.

If you are plucky, youwillshortthestockandwatchthe spectacle of dozens of

dizzy stock gamblers losetheirshirts.

However it’s a trickygame, best only played forpennies. There are moresensible ways to makemoney.

Way3

‘Duedil’Signal:LongorShort

Difficulty:4

Bulletin Boards are a greatplace to get the backgroundstory on a company. Quiteoften people discussingstocks will have a goodknowledge of what the real

story is behind a company.Whether it’s a crazydiscussionaboutariskystockoraboringone,alotofdetailand history will be ondisplay. Merely reading adiscussion that has takenplaceoveranumberofyearswill give a good flavour ofwhat has and is going onbehind the headlines. Thiscan be invaluable when youare sizing up a share for itsinner personality in your

selectionprocess.You can’t do too much

‘due diligence’, and amessage board thread can belike having lunch at thework’scanteen.

Way4

Locateminnows

Signal:Long

Difficulty:6

Thereareover2000stocksonthe UK market. Unless youhaveallthetimeintheworldand the memory of an

elephant,thereisnowayyoucan know all the companiestrading on the stockexchange.

There are many ways ofzeroing in on the interestingones and a good one isinternet chat rooms. Withoutdoubt there is a lot of badinformation about poorcompanies but that shouldn’tput you off. After a whilesearchingforcompanies,youknow roughly what you are

looking for. However, thatdoes not necessarily meanyou can find all thecandidatesrightaway.

Untold investors andtraders are doing what youaredoingandoncetheyhavefoundastocktheythentrytotell everyone, so that their‘friends’ will help drive theprice up. There is nothingwrong with that, particularlyasit’sanopportunitytohaveaprospectaddedtoyourpick

list.You have to be very

choosy of course and go offand do your research, but astock discussion is a goodplacetofindnamestoaddtothehopperofnewcandidates.

There are many smallcompanies. Any companywith a market cap less than£250 million is consideredsmall. But small can mean£10 million. These microcaps can be great companies

but they can also be rubbish.Thegemsare inamongst thetailings.BulletinBoardsareagood place to go sieving forthesegemsas,inthemain,noone covers these companieswithbrokerresearch.BulletinBoardchat is aquickway tobrowse the micro-cap worldto home in on companiesworth further research. It’s agoodjumpingoffpointinthehigh risk world of small capinvesting.

WAYS5-25

Stockchartsandtechnical

tradingIt’s been proven that sharecharts do not tell the future,yet all investors use them.Many simply couldn’t tradeor invest without them. It istrue that if you pour over all

the data of minute or dayscale moves for shares, it’snearly impossible to find ascheme that roboticallymakes money. This isbecause this ore has longsincebeenminedout.

When looking at the dataitallappearsprettyrandom.

What follows are ways Ipick stocks using charts.Unsurprisingly, these arenovel ideas. There willalwaysbenewwaystomake

money using charts and overtime they will stop working.This is the way it is withmarkets.BytellingyouImaybe responsible for killingmyown techniques. Hopefullythe book will have to sellbucket loads for this tohappen.

Also,tobesuccessfulyouneed to be constantly on thelookoutfornewmethods;oldones are always eaten awayby the efficient market. To

make gold you must slowlydestroy your philosopher’sstoneandthenmakeanother.

(Note:Don’tbelievechartexamples. Only ones thatworkareevershown.Mineofcourse are an exception tothis rule: not. My examplesare to illustrate the idea andarenotinanywayproof.)

Way5

GoodhorsesonsteadycoursesSignal:Long/Short

Difficulty:7

Volatilityisameasureofhowmuchashareducksanddives

in the course of its trading.Volatility is a technicalmanifestation of uncertainty.If the market hasn’t got agood handle on the futurevalueofastock,itsviewwillswingaboutinabipolarway.This uncertainty meansvolatility.

So,asanoutsider,aquicklook at the performance of astock over a periodwill giveyou a quick viewofwhetherthe market knows what is

goingon.Ifyouputmoney inyour

bank deposit, the graph ofyour money will go up verysmoothly. If a stock is risingor falling smoothly, you canbe assured that for now themarketfeelscomfortablewiththecurrenttrend.

Conversely, if theday-to-day action is all over theplace themarket has no ideahowtopricetheshare.

Thismeansa risingstock

withlowvolatilityisastrongbet,whileputtingmoneyintoavolatilestockcanbeseenasaWAG(WildArsedGuess).

So, if you liked a stockand it was going up in asmooth way, it’s anothergoodindicationthisisagoodselection.

To add to this idea, astockthathasfallenandthengone into a long period ofsideways trading with lowvolatility is a candidate for

recovery. The bad newswould seem to be out of thesystem and the shareforgotten.Thisisanothernicesetupforalong.

CapeNotmuchuncertaintyhereasCapemakesluckybuyers,likemyself, a good post-crashprofit.

Way6

DudIPOsSignal:Short

Difficulty:6

For many years now IPOs(InitialPublicOfferings)havebeeninfrequentandvariouslyover-priced. It’s a viciouscircle: an IPO is launchedonto the UK market; it falls

andputseveryoneoff for thenext one. Not like Tell Siddays.

It is a rare IPO thatdoesn’t fall badly afterlaunch.

This is because the bankfloating the company isrelying on its position as animportant financial supplierto stuff pension funds withover-priced shares. It’s aracket, and like all racketsspoils the market and

dissuadesavibrantmarketfornewissues.C’estlavie.

What itdoesmeanisyoucan short a UK IPO andwatch it fall away for a fatprofit. As I write, it’s a nobrainer. The only thing towatchoutforisabigpre-IPOcut in the IPO price. If thishappens then perhaps theprice will be right and therewill be a post-IPO rise.However if the IPO isuneventfultheaftermarketis

liabletosag.By the timeyouread this

it will be a good idea toresearch the last six to 12IPOsandseehowtheydid.Ifthis scheme is still holdingtrue,whywouldn’tyoushortthenextIPO?

This is of course trading.Assuch it’smore tricky thangoodoldinvesting.

GartmoreGroupGartmore. Your pensionfunds bought this dud, nodoubt.SeeWay7forwhattodonext.

ThereturnofthedudIPO

Signal:Long

Difficulty:6

Adud IPOdoesn’tmean thecompanyisadud.Youcouldsaythatthebankwhichfloatsthecompanyisresponsibleto

stickit to investorsbuyinginthe IPO.Thebank representsthe old shareholders wantingto bail, not the new wantingtogetapieceoftheaction.

Post-IPO, the share willflounce down and down,another bum IPO… Butstocksdon’tgodownforeverinthesamewayastheydon’tgoupforever.Afterayearortwotheyhitabottomandarepoisedforabounce.Thiscanoftenbebecause it has taken

ayear or two for thevariousnew and old shareholders toget themselves comfortablewith the new set up. Whenthe share hits bottom, it’s agood candidate for adding toyour portfolio. As with alltheseways,youcanusethemon their own or better stillcombine them for a morerigorousselectionprocess.

QinetiqQinetiqbouncesbackfromitspost-IPO fall. It then fell offagain…

Volatility:going

nowherefastSignal:Longandshort

Difficulty:7

Everyonewantstoknowhowto trade, when really they

should be longing to invest.People will swap money forexcitementanyday,which isnotwhattheysetouttodo.

Swing trading is afavouritetradingtheme.Whatyou are looking for is acompanythatflailsaroundina long-term channel—saybetween 80p and 100p—everyfewmonths.Theideaisyougo longat thebottomofthe channel and short at thetop of the channel as the

share price rattles aroundgoingnowherefast.

Ifyouwanttoexperiencethe thrill of riding thisparticular tiger, then the keyis to build up a universe ofstocks behaving in this wayand then pick only the bestonestoplaywith.Thekeytotrading is only backing theblindingly obvious whileleaving the rest. To do this(and not go crazy waitingaround) you have to have a

big selection of gameswaiting to be played. Thenthere is a chance that of the30 or 40 situations, one willstare out at you as a nobrainer.

Otherwise you will betrading half chances andmakingyourbrokerrich.

With swing trading thereis much scope for pickingstocks tokeepaneyeon.Tofind them just pull up fiveyear charts, which can be

foundonADVFN,of the top300 stocks. Candidates willstandout.

RSAInsuranceRSA has been choppy andrange bound for years. Thelast sell point in retrospectsubsequently looks high riskasrumoursoftakeoverspush

its price up to the top of therange. Selling at the top andbuying at the bottom takesnerves!

Deadcatbounces

Signal:Long

Difficulty:8

Mosttradingcourseswill tellyou to avoid trading a deadcat bounce like the plague.They say: ‘Why catch a

falling knife?’ Why indeed.The reason is simple: as nooneelsedoes,thereismoneytobehad.

Whena stock takes abigknock due to a piece of badnews it very often falls off acliff.Itwillthenbouncebackabitbecausetheinitialpaniccaused by this news isfrequentlyanover-reaction.

The idea is to catch therecovery.

Thisishowyoudoit:

Don’t catch the fallingknife. Wait for it to hit theground,thenwaitforadayortwo,thenbuyin.

The delay changes withmarket conditions, so it isalways a good idea to keeptrackofcollapsingsharesandmeasure the delay fromslump to bump. Then, withthis in mind, you can get infor the dead cat bounce. Thekeyistobailassoonasithasbounced for two or three

days. While some bouncescan keep going, many rolloverandcollapseagain.

The key is to only tradesolid companies rather thaninherently risky ones.Howeveronceyouhavetriedthe scheme on goodcompanies you can stretchyourreachalittle.

Unlike easy investinggambits, trading a dead catbounce is tricky. It takesnerve, patience and

discipline. As a highrisk/reward trade you shouldkeep your position as a tinyproportion of your capital. Ittakes no time at all to blowyour money trading. If youwanttoattempttheadvancedtradingstuff,takeitslowandkeep your educationinexpensive.

GartmoreGroupThis dead cat was thrownfrom high up and bounced alot.Youhadtobequicktogetoutifyoudaredcatchit.

BuytheBullSignal:Long

Difficulty:5

A Bull market makeseveryone a genius. Any foolcanbuyinaBullmarketandmake money. Likewise ageniuswho is long in aBearmarket will lose money. As

such, knowing what marketyouareinisthekey.

It’s a simple call, but ifyou want to make an expertsweataskhimifthemarketisgoingupordown.Youdon’thave to be wimpy like this,you can ask yourself: Is themarketgoingupordown?

If you don’t know, whyareyouinvesting?

Personally,I thinkweareon the edge of a very long-term Bull, but that shouldn’t

influenceyou.If you think this too, you

can just buy a FTSE trackerand forget about it for 20years. You’ll likely be veryhappy with the results afterthistime.

Likewise you could pick30stocksyoufancyandlookat themonceayearanddoatidy up. This will look a lotlike the FTSE tracker return,butifyouaregoodatpickingyoumaybeatit.Thisislikely

to be better than you wouldhavegotinthebank.

You can of course putyourbraintoworkandwithabit of luck get good atinvesting and do a lot betterthanaFTSEtracker.

Thekey thing is toknowthemarketisBullish,becauseinvestingagainstaheadwindistoughwork.

The thingaboutaBulloraBearmarketisthewindow.If you are looking to invest

for twoto threeyears lookatthelong-termchart.Hereisalong-term chart. Which waydoyouthinkitgoesnext?

FTSE100ThisistheFTSE100,summer2008,shownquarterly.Yes,itwentupabout30%fromthispointtothetimeofwriting.

Knowthegeneral

markettrendThere is a lot of rubbishtalked about stocks. The realquestion is: Is the stock ormarketgoingupordown? Ifyou don’t know, don’t play,whetheryouaretradingfora

minuteadayor investingfortenyears.

ABearmarketisnotafteramarkethasfallen20%.Itiswhenitisfallinginatrend—regardlessofhowmuchithasfallen.

ABulloraBearmarketiswhen the tendency for thatmarket is in a generalupwards or downwardsdirection over an extendedperiod of time. This can beforthenextfiveminutes,five

daysorfiveyears.A long-term Bull market

will be peppered with manyshort-termBearphases.

Assuch,youneedtolookat your investment timehorizon. If you are investingforthreeyears,youdon’tcareabout a two month Bearphase. If you were trading astock for a week, you mostcertainly would. Match yourviewofmarketdirectionwithyourinvestmenthorizon.

I say themarket is goingupoverthenext10yearsandthat my two-to-five yearinvestment timeline fits innicely with that. As such IwashappytositthroughMay2010’sbigcorrectionwithouttoo much bitterness. As Iwrite,inSeptember2010,itisalready leaving the systemandbymidnextyearwillbeall but forgotten. I say it’sgoing up, between now andwhenever, and that is why

I’mlong.If you can’t identify the

trendofyourinvestmenttimehorizon, don’t get involved.Trading or investing withoutaviewbackedbyknowledgeis random behaviour and thecosts of doing so willconsumeallyourmoneyovertime.

If you can’t answer theobvious question, is it goingup or down, then that is ananswer in itself. You can’t

lose your shirt watching andwaiting from the side lines.Whenyouknow, it’s time toplay.

SellaBearSignal:Short

Difficulty:4

The market is symmetrical.Just like in physics, ifsomethingworksonewaytheopposite will work the otherway.SoyoucouldwriteWay10 in the negative and it

would work just as well.Rather than do that, I willexplain away toknowwhenyouare inaBearphase. InaBear phase, a little bad newswill smash prices, while alittle good newswon’t moveprices at all. So if you flipthis around for a Bull, youwillseethatabitofbadnewswillbeignoredwhileabitofgood news will send priceszooming.

InaBearmarketachimp

canshortandgetrich,whileagood stock picker willflounder.

As stated in Way 10,knowing the market bias isthe starting point. Theorysays you can’t know this butyoucangetafeelingforit.

Another sign is the shapeof the chart wave of a Bulland Bear. In a Bear market,pricesspikethendriftoffandinaBulltheyslumpandthendriftbackup.Thesharpmove

ofthesawtoothisactuallytheoppositeofthemarketbias.

Thismightfeelwrongbutone of the reasons peoplehangoninagainstthetrendistheseriesofnearescapesthatgive them hope. When youpull away to the long-term,these short-term movesdisappear and the trend isshown.

UKXThe FTSE 100 during thebeginning of the creditcrunch.Onceagain,thelong-term view comes to therescue.

SellingaBull,sellingabubbleSignal:Short

Difficulty:8

Everyone has amazinghindsight. To those who go

onaboutthedotcomboomorthe credit bubble as beingobvious,youshouldaskhowmuch they made shorting it.The answer is inveteratelythat they made none. Todayas I write there are severalbubbles: China for instance.The idea that China is abubble is held only on thefringes. To me it’s a bubblethatatsometimewillburst.

The troublewith shortingbubbles is that theycankeep

on going for a long time. Abubblecaninflatewayfurtherthanyou’dguess.Soshortinga bubble is very tricky.However, bubbles do notdeflateovernight.

Ratherthantryandgetinatthetop,thebestthingtodois wait until the fall is wellunder way then jump onboard. The dotcom bubbletook twoyears todeflateandthecreditcrunchkickedoffin2007; almost a year before

thefinalcrash.Soleavingthebubble to come unstuck is agood idea because althoughyou might lose the braggingrightsofcatchingthetopandperhaps a few percentagepoints,youwilllowertheriskof the bubble continuing andhurtingyou.

Also themaths is inyourfavour. Say the top was 100and the bottomwas going tobe 25. If you shorted at 100andclosedat25,you’dmake

75% of your money. If youshorted at 50 and sold at 25you still make 50% of yourmoney. For lots ofcomplicated reasons youcouldarguethisdoesn’thelp,but if you are sure you aredealingwithabubble,itdoes.Bubbles very seldom re-inflate, so once a bust isestablished, it is a one-waybet. Nevertheless, playingbubbles is a tricky businessbutitisalucrativeone.

Agoodsignabubblehasblown is an initial period ofsilence,when themarketandmedia seem not to havenoticed that the bubblemarket is falling. This is asignalthatallthelongsareindenial. They are of courseutterly committedandunableto buy more, so when therollercoaster comes off thetracks there is often a periodofsilence,beforethescreamskickoff.

NasdaqCompositeThe Tech bubble in all itsglory.The small chart showsitinrelationtotheDow.

BuyingaBear,buying

acrashSignal:Long

Difficulty:7

A crash is an amazing eventin any market. It is pure

adrenaline and high drama.Fortunes are made and lostbut generally lost. Whenmarkets crash there is asuperbopportunitytopickupgoodstockscheap.Inacrasheverything falls and there islittlediscretion.Attheendofthe process positions can beadded that give enormousreturnsafterthecrashisover.

Buying a crash is likeselling a bubble and, onceagain, it is best to leave it

until after the crash hashappenedtogetinratherthantryandget thebottomas thecollapse is underway. Thebigger the crash the morepost-event time you have toget in. Proper crashes veryrarely recover quickly and itis said one year is quick. Sowhentheballoongoesupitistime to go looking forbargains rather than themoment to jump in willy-nilly.

Normallywhatcausesthebust is notwhat youwant tobuy. It’s the companiesdragged down for no reasonyou want to buy. When themarket crashes, companiesthathavebeenaroundforeverwill be crushed alongside allthose bubble stocks thatimploded.Itisinacrashthatthewinnersandthelosersareseparated. The winnerssurvive and the losers areshown for what they are:

puffedupconfectionswithnosolidbusinessunderthehood.

While you are makingyour post-crash selections donot listen to themedia.Theywill be prophesying the endof the financial world. Theyarewrongagain,itstillisn’t.

Just look at the balancesheet of the companies youare interested inandgrab theones beaten down but withsolid assets and business.When the panic is over they

will come good, while theweakcompaniesgounder.

UKXStarting to slowly buy aftertheinitialbustin2008wasavery lucrative strategy. Youcould have held off to thebottom in March but that

would have needed muchmore luck than judgement.The big chart shows theperiodbetweenlate2007andMarch 2009 that ishighlighted in an oval in thesmallchartat thebottomleftofthepicture.

InvestingintheBull,

tradingintheBear—buying

thedipsSignal:Long

Difficulty:5

‘Buying thedips’ isaclassiclong-terminvestors’ trick.Ofcourse anyone can makemoney buying in a Bullmarket and sitting tight. Thewhole point about knowingyou are in a Bull is that itleaves you free to operatewith confidence. However,once you are onto a goodthing, the question is how to

optimise your returns. Ofcoursethereareamillionandoneways to lose even in thejaws of victory, but stickingto the golden rules shouldprotect you. Therefore it isfindingtrickstoincreaseyourreturns that can make a bigdifference to your long-termoutcome.

Onewaytooptimiseyourreturns is to buy when themarket falls within the Bullrun; a little Bear inside of a

bigBull.Nothing goes straight up

inthemarket.Allpriceshaveafairamountofdownzagforeveryupwardzig.Ifyousaveyour buying for thedownward zags this can helpyourreturns.

Aportfolioisagreathelpin this if you have alreadyspread your money, becauseyou can top up on shareswhen theydrop, andbecauseyou have a basket to choose

from there is always onestock sagging down at anyone time. That way yourmoney doesn’t sit idly bywaiting for a whole marketcorrection.

InvestingintheBear,

tradingintheBull—sellingtherallies

Signal:Short

Difficulty:5

It is important to remembertheideaofmarketsymmetry.Ifbuying thedipsworks inaBull,sellingtheralliesworksinaBear.Ithastobecauseifthe market wasn’tsymmetrical, an infinitenumber of one way betswould develop whicheveryone could make moneyfrom.Thatwouldbenice,but

it would have the effect ofdrainingall themoneyoutofthe market and killing it.Again, it’s the same asphysics; if physics wereasymmetrical the universewould break. Imagine if thesameamountofeffortmovedyou along one dimensionfurther than the other…wellpretty soonwe’dallbe stuckdownoneendoftheuniverse.Inasense,profit in investingis about finding asymmetries

because by trading them youpush the market back intobalance.Inawaythisiswhatthe market pays you to do;make it efficient andsymmetrical.

So, ‘selling a rally in aBear’ is just the reverse ofbuying the dips in a Bull.They key is knowing whatmarketyouarein.

Flat-liningcompanies:deadorina

coma?Signal:Long

Difficulty:7

Unless you are looking at anindex,whichbyitsnatureisaheavily traded instrument,after a crash in a stock therewillbeaperiodof long-terminactivity.

This inactivity is a long-term recovery period that agoodcompanywhichhashadbadluckwillsuffer.

When companies crash,the ones that go on tocollapse normally continuetheir collapse pretty quickly

after their first catastrophicblow.Thisisbecausetheyarea ‘pack of cards’. A knocksets the whole thingcascading out of control.Conversely, a solid businesswill likely recover its poiseafter a long period ofrecuperationandthenstartoffonarecovery.

As such, splitting thewheat from the chaff after astock has slumped involveswatchingandwaiting.

A company with a long-termflatlineisaninterestingcandidatetolookintofurther.If there is a solid businessunderthehoodofacompanythathascrashedandthenflatlined for an extended periodof time it could be about toenjoy a renaissance. Theseare exactly the sort ofcompanies you want to ownsharesin.

HornbyGoingnowhereuntil…

VolumerisesSignal:Long

Difficulty:7

A long time ago it wasnoticed that a sleepy sharewould suddenly develop astrong growth in tradingvolumebeforeitspricewouldrocket up. This was because

the insiders were buying onsecret information that goodnews was on the way. Thisledtothebeliefthatasuddenriseofvolumewasapreludetogoodnews.

This is of course no lesstrue today than in the past,evenwithallthelawstostopthis kind of skulduggery;after all insider trading iscriminal. A sudden risingvolume is an interestingindicator that something is

afoot and is still regularlyevidentinthemarketsdespitegreater stringency from theauthorities

However, the storymightbedifferent.

Rising volume is oftenused to lure traders into astock; it’s a fat worm to agreedy trout. The bait ofrising volume suggests thatsomething is afoot whenactually it isn’t and is just atrap.

‘Wash trading’, wheresomeone buys and sells tothemselves is a way to fakevolume.Using thismethod afraudstercancreatea suddenrise in volume in a dodgystockand tradersare lured into buy. This trap is setbecause someone actuallywants to sell. There is nonews coming, just a loss toanytradersuckeredin.

This is thecoreof ‘pumpand dump’– a way shady

operators make money byskinningunwarytraders.

Yet in big stocks whichcannot be so easilymanipulated, a rising volumeisasign the trend is inplaceand likely to go further. Anincreaseinpopularityshould,anddoes, raise thepriceofashare.

However,attheextremes,rulesof investing tend to flipupsidedown.Theveryendofa trend is often shown by a

climaxinvolume.Inthiscasethe investor will see anexplosion of volume and adramatic price rise. Thisclimax of volume is theclosing move and suggests afinale is reached. As such ahuge increase in volume canindicatetheendofthegame.

(Of course laws ofsymmetry apply here too. Acrash is often ended withwhat is known as ‘a puke’whenvastvolumesofselling

makeabottom.)But strong rising volume

is not the same as the hugevolume marking a marketlimit. It’s the differencebetween a gale and ahurricane.

BuyingBSwhentheBull

rulesSignal:Long

Difficulty:8

When markets are hot, goodcompanies and bad

companies all rise uptogether. The market oftenloses its efficiency at thelimits of its range. This iswhy bubbles make billiondollar valuations of poorcompanies. However, soonenough normality is restoredand it is tricky to play theextremes.

However, if you are insuch a period there isopportunity for big profits.Near the end of a big Bull

trend, all the rubbish at thebottom of the market willboom. It’s an avalanche setoffbyotherweakcompaniessuddenly shooting up.Suddenly all the dross in aportfoliowillcomealiveand,seeing this, investors willlook for similar companies.Asthesecompaniesaresmalland thinly traded their priceswill rocket and, so long asyou don’t have too much tosell, you can make a tidy

profit.This is an aggressive

tactic and one that should bemarginal for your overallstrategy, however next timeyou are in the last legs of abubblebereadytotradesomecrazystocks.It’swhattraderscall‘optionmoney’,asifyoulose you won’t care toomuch, but if you win thereturns are sweet enough toadd a little extra overallreturn.

BoxingcleverSignal:LongorShort

Difficulty:6

When shares really take offthere is a lot at stake: hugeprofits or lost opportunity.Withouthindsightitishardtoknow when to hold or foldwhenastockisrocketing.

Itwouldbe impossible toeven try to judge without astockchart,butevenwithoneitishardtoknowwhattodo.

Backin1960aspeculatorcalledNicolasDarvaswroteabook called How I Made$2,000,000 in the StockMarket.Hismaintrickwastoput a box around a share’strading level and use the topandbottomboundtoindicatewhether the rise was over ornot.

Ifthepricebrokethroughtheupperboundoftheboxitwas a buying signal, if itbroke through the bottom itwasasellingsignal.

It’sprimitivebuteffectiveand certainly helps theinvestoror traderhaveastoploss systemwhich is easy tofollow.

What is happening is ashare ‘re-prices.’ Thismeansthe market suddenlyconcluded a share should

trade at a different level,because of a change infactors. This new price, say100 now rather than 50previously,isanewleveltheshare will oscillate around.This oscillation after timeestablishes a spot themarketconsiders roughly the rightvalue for the company. Ifsomething new crops up, themarket will re-price againeither upwards ordownwards. Putting a box

around the new level definesthe random shaking aroundthe new levels and if thatrange is broken, somethingnewishappening.

Like all systems, youshould be loathed to use italone. You need to becynical, clinical and focusedto make any tool work instocks. Nonetheless, when astock you hold goes intoflight or free fall, putting aboxaroundthenewlevelisa

good way of putting limitsaround your position andgiving yourself clearguidelines on whether it istimetobuyorsell.

PendragonBoxingpractice.

Rockets.Ladlesofmoney

Signal:LongorShort

Difficulty:8

It’s a sad fact that mostpeople who buy this book

don’twanttogetrichslowly,they want to make anovernight fortune playing themarkets. Sadly it’s not thateasy.

The stock that everyonewants to pick is the one thatgoes up 1000%. If you aredetermined to go looking forthese then you need to lookout forachart formation thatlooks like a bowl forming,with the hope that the cupwill form into the base of a

take-off leaving behind achartpatternIcallaladle.

There are alwayscompanies that form thisshape,ofteninthespeculativeendof themarketof theday,bethattechnologyormining.

Once you find one, youneed to use the previous boxtechniquetotryandholdontothe risewithout suffering theprobablefall.

The stock market islitteredwithstocksthatgoup

likearocketanddownlikeastick.Catchingthemearlybylooking at the right sectorsand contenders in them, thenusing‘boxes’totryandavoidmissing the upside whileavoiding thedownside, is theway to go. But it is a verytricky combination, which iswhyifyougetitright,itpayssowell.

One of the overarchingrules of investing, whichshould always be born in

mind: Risk = reward andoftenrisk=stress.

On-LineA typical chart pattern of anexplosivelyrisingstock.

Risk=reward

People like to think they canget so good at trading andinvestingthattheymaketheirmoneyfrombeingright.

Sadly that’s probably notthecase.

The market pays you toparticipate.

The market pays you totake risk; the risk of holdingshares is that youmight loseyour money. The waycompanies are fundedmeansthey need to sell shares andreward the consequentshareholder for theirparticipation. The higher thechance of a problem, themoreshareholdersneedtobepaidtoponyup.

Thisiswhyrisk=reward.Your smarts as an

investor can add to yourreturns, but risk will alwaysbe the base reason why youare getting paid so having asmanyways to control risk aspossibleisagoodidea.Thenyou can take onmore,makemore returns and not suffercatastrophe.

HalfwayorwholewaySignal:LongorShort

Difficulty:8

There is a core principleunderpinning the market.This is the efficient markethypothesis. In a nutshell it

maintains the market and isvery good at pricing shares,sothatbyandlargesharesarethe right price. Consequentlyday-to-day price changes arerandom.

Everyone in the marketlaughs at this idea, but notmanylaughallthewaytothebank. In fact the people thatfollow the truth that themarket is highly efficient aregenerallytheonesmakingthemoney.

For instance, a broker ishappyforyoutoinvestinthemarket and facilitate youdoing so for a tinycommission, but appears lessthan keen to jump in thegame themselves. This maybewhybrokersgoonforeveryet traders seldom last long.This makes perfect sensefrom an ‘efficient markets’point of view. Better acommission today than thehopeofaprofittomorrow.

How does this help uspick stocks? The key israndom: the market israndom. Now I won’t boreyouwithfactsorproofsandIapologise to pedantic math-types for the following handwavy explanations of onewayrandomcanhelpyou.

There are plenty ofdifferenttypesofrandomandlet’snotexaminethat.

However, in some casesthe following is true. If you

are on a journey of a veryrandom kind, you are likelyto be half way through it atanygivenmomentona50/50chancebasis.

Thiscanmeanifyouhavewritten one book, you are50/50likelytowritetwo,andif you have written ten youare50/50likelytowrite20intotal. The further you go on,the further you are likely togoon.Youwilldropdeadatsome point and then the

process will end, but weknow intuitively that themore you do, the more youend up doing. The rich getricheretc.

It is one of those crazyprobability phenomena thatyouthinkcan’tworkbut thathaveahabitofdoingso.

Thisideaisusefulwhenastocksuddenlygoesoffaclifforrallies.Howfarwillitgo?After the first move it willsettle down and then the

questionis:Wheretonow?The answer time and

again is: it’s either gone halfwayorthewholeway.

This isparticularlyusefulwhen combined with theprevious ‘box’ techniquesbecausewhena stockhitsanequilibriumpointyoucanuseWay21toset theboundariesneeded to be broken to giveyoutheanswer.

This might sound likehedging your bets and in a

goodwayit is,becauseit’sa50/50betwith amuchbetterpayout than theodds.This isbecause if you are half way,you don’t need much of asignal to give you an insightinto a big upside, likewiseyou don’t have to hold astockallthewaydown,whenthe ‘half way or whole wayrule’suggeststhefunisover.

ValeS.A.ThisisVale,ahugeBrazilianminer. Boxes and halfwayanalysiscouldhelpBraziliansmakemillions.

Long-termlevels

Signal:LongorShort

Difficulty:8

Charts aren’t necessarilymuchuseintellingthefuture.Iftheywere,we’dallgetrichvery quickly. They are

however very good at tellingyouthepast.

Sadly hindsight doesn’thaveagreatreputation.

Howeverthereisauseforhindsight.

Take a company that hasbeenbumblingalongmindingitsownbusinessfortenyears.Ithasn’tsettheworldonfire;it hasn’t grown more or lessthan anyone else. Like mostcompanies, for all its efforts,nothingmuch happened to it

asabusiness.However, the price has

beenallover theplaceas theshare has traded throughboom and bust and backagain.Oneyearitssectorwasin vogue yet five years laterthe sector was just not theplace to be for institutions.This has a big impact on theshareprice.

What happened to theintrinsicvalueofthebusinessoverthatperiod?Nothing.

However,theactualvaluethe market assigned to thecompany was all over theplaceduringthatperiod.Thisis where a smart investormakes good money. Themarket pays you to besensible, not a follower offashion.

Youlikethestockbutyouwant toknowif it’scheaporexpensive. Quite a lot ofcompanies with thesecharacteristics will suggest a

price level where thecompanybelongs,sothatifacrash or some otheremergency has struck, youcan seewhere, given enoughtime, the company mightrecover to.By looking at thechart you can spot placeswhere thecompany traded ina narrow range for a longperiod. A quick snapshotshould give you an idea of arangeofvaluethemarketwashappy for the company to

haveinthepast.Thesegiveasteer to valuations for thecompany in normalcircumstances. This isparticularly useful in boomsandbustswhenthingsgetoutofwhack, but as formarketsso for sectors and as forsectors so for individualstocks.

This is also a goodindicatorofa targetprice forcompanies that have had todilute their shareholderswith

the sales of new shares toraise money to save theirbacon.Thathappenedalotinthecreditcrunch.

Say a company wastrading happily at 400pbefore the emergency struck,thensuddenlyhadtodilutebyabigrightsissuesothatthereare now four times as manyshares. That would mean itszoneof comfort shouldbe atabout £1 (400p/4). Roughlyspeaking, the company

should be worth the same asit was before, only now itsbalancesheetisfatter.

However, chances are itwillbetradingat65pafterallthe chaos. Unless somethingnew and nasty comes along,given time, the share willrecover to the £1. As aninvestor, it’s just a case ofbeinghappyahealingprocessisunderway.

MenziesThis chart is highlysuggestive of the company’sshare price once normalityreturns. Having said that, Ipersonally sold most ataround the latest levelsshown. Idid,however,buy it

at the lows and greed neverovercomesfearwhenIhaveaveryfatprofit.

BrokenmountainSignal:LongorShort

Difficulty:8

Some people like to short.What they want to find is astock thatwill fall out of theskyandbag themafatprofit

doingso.Onetypeofcompanythat

falls like a stick is the onethat once flew like a rocketupwards.

This is a good one tocombine with Ways 12, 19,20 and 21. As always, themore rules that fit the sharethebetter.

Asharehasgoneoff likea space shuttle and thenplateaus. The longer theplateau goes on for themore

likely a decisive break downwillindicatetheendofaneraforthestock.

Somepeoplewillcallthisa head and shoulders butfrankly I can never see thehead and this ‘brokenmountain’ formdoesn’toftenhave the middle sectionsuggestedtobethehead.

My view is simply theobvious:Theshareshotup…hit an equilibrium level…stuckthere...thenfellaway.It

could happen on a smallrange, itcanhappenonabigscale. However, when ithappens big time, thereversiontooldpricelevelsisverytastyforashorter.

ConnaughtDeathofacompany.

TheBigUSignal:Long

Difficulty:8

Let’s stick with the idea ofequilibrium. A share ishappily trading in a channelof equilibrium. The progressis a neutral range ofzigzagging. If nothing

changes this would go onindefinitely.

However, nothing sitsstill.

Someone drops a pianoon theChairman’s head.Theprice of the share craters; itdibbles about for a fewmonthsuntilanewChairmanestablishesthemselves.

The market is reassuredand up the price goes towhere it was. Once you seethe second leg of the U in

place,it’saneasylong.Pianos are not the only

thingtocausethisbehaviour;it might be a majorshareholder needing to sellout for any one of a numberof random reasons. A bigblock of stock will dig acrater in the price and whenthe overhang is gone, thepricewillfloatbackupagain.The same principle can beseen at work intraday onstocks. An institution selling

acoupleofmillionpoundsofstock can bite a short-termhole in a stock thatwill takehours to repair. Like mostthings in the market,symmetryappliesnotonly intermsofmarketdirectionbutalsoinscaleandtime.

CapeThis chart of Capedemonstrateshowanoutside,one off incident takes a biteoutoftheshareprice.Italsoneatly demonstrates thevaluesofWay22asthelong-term level is regained. Youcan also see themark of thenextway—‘TheBigW’.

TheBigWSignal:LongorShort

Difficulty:8

TheBigWmakesmealotofmoney. It’s simple andpowerfulandveryfewpeopleuse it; which is why itprobablyworks.

If you think about

fundamental patterns thebasic‘downup’moveisaV.Downthenup.Thenextlevelof complexity is aW: down,up,down,up.

AWmovecan,therefore,be thought of as a fall withrecovery with a hesitation atthebottom.

With any large fall youcanimaginealittlehesitationisofteninorder.

NowIwillhavetodetourinto some maths and I will

upset math-heads once againby waving my hands aboutandbeinggrosslygeneral.

Marketsarefractal.Thereisabucketof implications tothis but one is they are self-affine.

This means if you havelittleWs in the chart, you’regoing to get a big one at alargerscale.

Youcannowbehappyinthe knowledge that hundredsof math people now have

white foam pouring fromtheir mouths from readingthis.

The upshot is, especiallyin a crash, look for the lastleg of theWbefore jumpingin.

WhilemathematiciansarechewingontheirbeltyoucanskipontotheinternetandtakealookattheDowforthelast20 years (available onADVFN)andcounttheWsatthe bottoms of corrections

andcrashesandthenexttimethemarketgoesoffacliffasyou sense the hesitationbefore the recovery, you canwatchanewWformandwaituntilthelastlegtogolong.

Meanwhile, as an aside,the bottoms of the W alsogive a nice steer on theBullish orBearishness of thelong-term trend. A highersecond U is Bullish and alower one Bearish. It’s kindofobvious.

Thethingtorememberis,these patterns form on thebasis of millions of peoplegettinguptospeedwithwhatis going on in the worldaround us. Some are slowerormorecautious thanothers,sowavesof information taketime to percolate into theprice and the bigger thechangethelongerittakes.

However, no indicatorcan predict the unknowable,so if the extinction comet

heads towards Earth, themarket will not react untilafter thefiveminutesit takesfortheoperatoroftheHubbletelescope to call his brokerhaselapsed.

FTSE100AnswersbeginwithWtoo.

Commonsensewaystopickstocks

Common sense is amisnomer. We all knowcommonsenseisjustnotthatcommon.Themarketsarefullof sharks out after yourmoney. If you want to test

thathypothesis,take£10,000,split it into ten lots of £1000thenask ten randomadviserswhat to do with a thousandpounds.Do it and then comeback in a year and see whatyouhaveleft.

Well actually let’snotdothat,asweknowitwillbeanexpensivelesson.

My point is ‘bullshitbaffles brains’ in themarket,when in reality commonsense is agreatway tomake

money. However, commonsense, apart from being rare,is not the ritzy story peoplewanttohearwhentheyinvesttheir money. They buy thesizzle not the steak. Lots ofclever mumbo-jumbo sells.Nevertheless, it isunlikely tomakeyoumoney.

On the other handcommon sense does. Thetroublewithcommonsenseisit is boring and involveswork. However, people who

think making money can bedone without effort and hardworkwillbedisappointed.

You can swim the seaswiththebigfishbecauseasasmall investoryoufitanichewhichthemarketpaysyoutofill. However, you still haveto swim hard and keep yourwitsaboutyou.

KnowyourcompanySignal:LongorShort

Difficulty:5

Youcandefinitelyinvestinacompany and know buggerall aboutwhat it does.Manyinvestors will be quite smug

inthisfact.Thisisbecauseina Bull market even a chimpthrowing poo at the FT tomakeitsshareselectionswillmakemoney.Nevertheless,itcan’t hurt to know what thecompanyyouareinvestingindoes.

You can actually know acompanybetter than theCityif you so choose.Howmanyhighlypaidfundmanagersgointo a cheap furnitureenterpriseordrop in todrink

attheoutoftownlocationsofapubchain?

You might actually dobusinesswithacompanyandknowwhether its business isbooming or slumping. Youare assured to have a muchbetter view on the companythan any Oxford gradclimbing the slippery pole insomebrokerageintheSquareMile.

A chartist will sayeveryone’s opinions are

already in the share’s chart,soyoudon’tneed toknowifthe CEO is bonkers or agenius, or whether itsbusinessissuddenlyboomingor not, because the marketknowsall.

This could be right, itmaywellberightforaBPorVodafone company, butoutside of the top 500companies, theCity is prettymuch lost foraclearviewofwhat is going on. The City

willtellyouwithacurlofthelip that anything under£500,000,000 in value is asmallcompany.

This is great news,becausewhile they go off tolunch you can get to knowthese small companies indetailandgettospottheonesabout to rise above themyopicradaroftheCity.

Remember: the marketpaysyoutomakeitefficient.Getting to know companies,

particularly smaller ones is aplace it will pay you to helpit.

Knowyourcompany’sproduct

Signal:LongorShort

Difficulty:5

Appleusedtobealameduck.Microsoft practically had to

rescue it by taking a pile ofshares to keep it afloat.Nowit’s the secondmostvaluablecompany in thewhole of theUSA.Whathappened?

iPod,iPhone,iPad.Three products = $200

billioninvaluation.Thiscouldbeaveryshort

section because being thecommon sense section thisshould set you on the righttrack.

Product releases,

especially for smallcompanies, can be make orbreak events and you canoften cut through all therhubarb released by acompany and its brokers justbystudyingitsproduct.

It’s a simple thing, butdoesithaveapricelist?Youwould be amazed at thecompanies that do not. Doyou want to own shares inthatcompany?

Doestheproductexist?Is

itoutyet?Whencanyoutakedelivery?

Isitanygood?Ioncehaddealingswitha

drug company which had anamazingproductfortheagingamongstus.For some reasontheMD,whowasnotaspringlamb, didn’t take it. It waspackaged very poorly. Didthatmakemewant tobuyitsshares?Noitdidnot.

It is hard for a goodcompany to have bad

products, so if you want toinvest ingoodcompanies forthe long-term, check out theproduct. It will give you aleadontheprofessionals.

Gettoknowthe

company’sindustrySignal:LongorShort

Difficulty:5

A good place to start is theindustryyouarein.Youarealegal insider. That is to sayyou know more about theindustryandthecompaniesinthe industry than any Cityslicker; you know how itworks, you know its dirtysecrets, you know thepersonalities, the gossip andwhat’smore your knowledgeis legal tousebecause it’s inthepublicdomain.Youredgeis you are steeped in the

industry,whereastheCityhasonly a handful of overpaidUni grads to look in on thewholebewilderingmess.

Againthemarketwillpayforyourexpertisetoimprovetheefficiencyofthemarket.

Of course your industrymightbeslowandyouwon’tget rich overnight.Nevertheless,overtimeitwilldoyouwellandwhatisbetterit’sagoodplacetostartyourinvesting career. For one

thingyou’llmostlikelyavoidthedogs.

Onethingtobecarefulof,however, is over investing;particularlyifyouareactuallyemployedby a companyyoubuy stock in. Remember:diversification is a law to bebrokenatyourperil.

Readthespecialistpress

Signal:LongorShort

Difficulty:6

As you may have picked upfrom the previous points, the

City is not necessarilypopulated by the smartestfolk. It is a privileged worldwhere selling is often moreimportantthandoing.Assuchtherearealotofslicktalkersto be found andnot asmanysmart technicians as you’dimagine. This means thatimportant information thatwill affect share prices isoften quite slow to penetratethe workings of the marketandthusinformationcantake

alongtimetopercolatetotheCity.

It’s the same in themainstream news. Whatappears in an academicjournalcantakesixmonthstoshow up in a magazine likethe New Scientist or theEconomist and take anothersix months to appear in thenational press. That’s a fullyearbeforethenewsactuallygets to the mainstreamlistener.

As an investor you wantto be reading the academicjournal.

However,therearen’tanyacademic journals for mostindustries. The equivalent isspecialist press. There is amagazine for almost everyspecialist subject andindustry.I’msuresomewherethere is a Toffee MakersMonthly! (I Googled it andthere isn’t.) Whatever is thelatest thing in the toffee

industry will be in themagazine months before theCityknowsaboutit.Assuch,if you are following acompany closely or a sector(or two) keenly, getting thetrade press will give you aleap on the City and aninvestmentedge.

Again the market ispaying you to improve itsefficiency. If you know a lotabout a company you investin, the products it has and

theircompetitionandyouarefollowingtheindustryanditspress, it is common senseyou’llbe in a smallgroupofexpertinvestorsandthereforelikelytodobetterthanmost.

Once you are, you willfindtherearen’tmanypeopleout there like you. This iswhyyou’llexcel.

CalluptheFDandsay‘Hello.’

Signal:LongorShort

Difficulty:7

This is hard because mostpeople are intimidated by

someone with a grand titlelike FD or CFO. However,restassuredtheFDofaPLCputs his underpants on oneleg at a time like everyoneelse.

Frankly if he won’t takeyourcall,especiallyifit’stheCFOofasmallcompany,it’sabadsigninitself.TheFDisnotabusyman,orratherifheishemustbehaving trouble.He may not want to talk toyou; that’s anothermatter. If

he doesn’t want to talk toyou, you shouldn’t buy hisstock.

There are no paparazzioutside his front door and ifhe’sanygoodathisjobhe’llhavetimeonhishands.Heisjustlikeyou,heanswerscallshewants and doesn’t answercallshedoesn’twanttotake.

Ifhedoesn’twanttotakea quick shareholder’s call,there is a problem with thebusiness.

If he takes your call,that’s a thumbs upimmediately. If he’s onholiday, that’s a bad sign.Some company directorsseem to be constantly onholiday; this shouldn’t fillyouwithconfidence.

OK, so the FD ofVodafone may be busy butmost small company CFOsshould be reachable. Whenyou get through, ask a fewquestions and gauge whether

you’d buy a used car fromhim.Ifyouwould,thenthat’sa fair sign the company is ingoodhands.

NowyoucouldapplythisruletotheCEO.Heisthetopguyafter all.However,don’twaste your breath. The CEOis likely to be a first-classsalesman. He could sell youLondon Bridge if he wantedto.CEOsgettothetopjobbycharming thebirdsoutof thetrees. You will likely fall

under the spell as much asanyoneelse.

The FD, on the otherhand, is a number crunchingnerd. He can sell you a pupwithnumbers,butmagicwithwordsisnothisstrongsuit.

WhatishotintheStates

Signal:Long

Difficulty:4

In classic efficient markethypothesis, informationtravels instantaneously andprices jump to hit their

correct level immediately.You can see this at workwhennewsappears.Thepricespikes almost immediatelyandrisesinsecondstoanewlevel of balance. However,watch the market longenoughandyouwillseelags.Sometimes the lags lastseconds, sometimes minutesand sometimes hours.Earlierin the book I suggested thatmarket symmetries meanthings are similar over

differentscales.Assuch,lagscan also be weeks, monthsand years. A good examplecan fall to common sense.What’s hot in the US todaywill be hot in the UKtomorrow.

A prime example of thiswas the dotcom bubble. TheUS Nasdaq market had beenfizzing for two years withIPOslikeNetscapebeforetheUK market experienced thebeginning of the frenzy. I

knowbecauseIwasadirectorof one of the first UKcompanies (OnlinePLC) thatwent into orbit when thebubble hit the UK. I hadwatched rather desolately asSilicon Valley companiesexploded into overnightsuccesses while Onlinelanguished,thensuddenlythepennydroppedintheUKandOnline’ssharepriceexploded1000%.

What was big in the US

finally made it across thepond.

This has happened fordecades. The US originatesthebigideaandatsomepointit gets to the UK. Now itdoesn’t take too much efforttowatchUStrendsand,onceyou do, you will seetomorrowhappeningtodayintheUS.Thenyouaddthat toyour investment ideas andawaityouropportunity.

Right now ‘fracking’ is

bignewsintheUS…It’sjusta matter of time before it’sbig news in Europe.Meanwhileyoucanfigureoutnow how to get in on thegroundfloor.

WhatishotinJapanSignal:Long

Difficulty:4

This should be a very shortentry.Japanhas,overthelastdecade or so, also reached alevel of economic and

cultural maturity anddominance to set the bigtrends.When little girls startwearing strange footwear orplaying with weirdelectronics:takenote.

Right now Japan is intorobotics. Remember that,because in five years it willbebighere.

The US tends to lead byone to two years but Japantends to be further ahead.This is because the Japanese

can have a rather non-commercial streak, which israther British in a Victoriankindofway.Thismeanstheysetpre-commercialtrends.Atsome point they gocommercial.Robotfootballisnotgoing tobebigsoon,butrobots will be big somedayand when they are they willbeverybigindeed.

I could make Way 33:WhatishotinChina,butthatis yet to come. Bear it in

mind, because investing is along-termgameandtherulesevolve.

Themarkethascrystal

ballsSignal:LongorShort

Difficulty:5

Whenyoupicka stockdon’tlook to the news today.

Todayisgoneandthemarketislookingmuchfurtheraheadthan that. This is why goodresultsdonotmake thepricerise.Themarket is expectingthe result so it’s no big deal.The market is looking oneyearout.

That is to say it isfactoring ineverything it canguess about for the next 12monthsorso.Thisisbecausemost investors have a oneyear horizon for their

investments.As such, you need to

thinkaboutwhereacompanywill be 18 months to twoyears out. This sounds hardbut actually it’s quite easy.Right now the nationalisedUK banks Lloyds and RBSare struggling along, theylook like they are at a 50%discount to similar banks.Thatmakes sense; they havealotofhealingtodo.

Isthisgapgoingtoshrink

insixmonths?Whoknows?Inthreeyears?Well that seems highly

likely. So even if it onlyclosed half the gap in threeyears, you’d still be lookinggoodwitha50%profit.

In the market, short-termhorizons make foruncertainty; long-termhorizons are much morepredictable. The trouble ismost people hate the idea ofgetting rich slowly.That is a

bigmistake.So when the market is

filled with doom-laden newsand there has just been acrash, don’t be surprised ifthe market is rising; it’slooking one to two yearsaheadandsoshouldyou.

TaxiadsSignal:Short

Difficulty:4

Unlike publicity, alladvertising is not goodadvertising. Taxi ads are asbad an investment omen asyoucanget.

For some reason

companies doomed to failurelove to advertise on and intaxis. It’s not a particularlyexpensivewayofadvertising,atleastintermsofthesizeofthechequeyouhavetowrite.Nonetheless, taxis seem tocarrypublicity forcompaniesdoomedtogodownthepan.

This may be becausecompanies with a lot ofmoneytospendonamakeorbreak launch end upshovelling it indiscriminately

inalldirectionsinanorgyofdesperate spending. The taxiliveryandseatadsareafinalresort in this carpet bombingapproach.

As a money Yoda mightsay:Throwingmoneyaround,a successful company doesnotmake.

It’snotthetaxi’sfault,assuch, it’s just that anycompany that is so desperateto push itself forwards withadvertising,isprobablyinthe

process of throwing somuchmoneyoutofthewindowthatitwillsoongobroke.

Of the army of dotcombusts, few seemed able toresistthetaxiandeventoday,thenewbrandscomeandgo,nevertoreturn.

Keep your eye out forphone box advertising too;alsoagoodsignalforashort.

Thecurseoftheshirtdeal

Signal:Short

Difficulty:5

A company taking ads ontaxis is a bad sign, but atleast, in the common sensestakes, you can see how an

advertdrivingaroundLondoncosting littlemoneycouldbeagoodsellingproposition.

Yetonfirstblush,fromacommonsensepointofview,howcanitmakesensetopaymillions of pounds to haveyournameonafootballshirt?

Undoubtedly a greatsalesmancouldpresenttomeand you and dazzle us withscienceandhavetheignorantscales fall from our eyes toseeinfullTechnicolorwhyit

makesperfectsensetoblowafortune on having yourcompanynameonabunchofyoungsterskickingafootball.I’m sure we wouldn’t beswayedbythebraggingrightsofabigbunchofticketstoallthe games; for friends andfamilyandcustomerswithanamazing box with incredibleviews, I’m sure the reasonswill be strictly commercial.Isn’t the whole countrytransfixedbyfootball?

However, manycompanies doing these kindsof deal, and doing them big,havegonespectacularlybust.

AIG was on ManchesterUnited’sshirt,NorthernRockon Newcastle United’s. ManCity and Accident Group,CharltonandAllSports,WestHam and the XL airline; allthese companies camehorriblyunglued.

Perhapsacompanydoingashirtdealisactuallyjustout

ofcontrol.You can extend this idea

to companies that put theirnames on stadiums and tofirms that sponsor FormulaOne.

Remember the EnronStadium and the ParmalatFormulaOneteam?

This of course could bewhat is known as observerbias,insomuchasyoudon’tnotice companies that dothesedealsanddon’tgobust.

Yet even so, the thoughtis,whywouldyouthrowsuchtitanicmoneyaroundonthesekind of unaccountable dealswhich have no measurablereturnsifyouwererunningasmart business? ManchesterUnited is a great team, but$100milliontoputyourlogoon11shirtsissurelyasignofa kind of unexpressedinsanity.It’seasytocomeupwithalotofbadreasonstodosobutnotmanygoodones.

As such, when you’rethinking of selecting a stockor shorting one, this kind oftrophy marketing is a redflag.

Buytothesoundofcannons

Signal:Long

Difficulty:6

ApparentlyRothschildcoinedthisphraseandasabigfanof

his wine I have to go alongwith him. It doesn’t reallymake sense that the marketshouldhaveabig rallywhenawarkicksoffbutitseemstohappen.

The last instance of thiswas in 2004 when the IraqWarVersionTwokickedoff.That was the spark of therecoverypost dotcom. Itwasa rally that made lots ofpeople rich and didn’t enduntilthecreditcrunchsnuffed

itout.One of the reasons awar

cansparkarallyisitremovesuncertainty. Whereas no oneknew how far up the creekeveryonewasontherunuptowar and were consequentlyselling, the outbreak of warclears the fog and replacesfearwithexcitement.

Excitement may not bestupid, as countries throwlarge quantities of moneyaround inwarsandpeople in

therightplacegettoshovelitup.Thereforeawarcanbeareflationary period andwhilethere is great miserysomewhere, there are lots ofpeople with extra cash abouttheeconomymaking the tillsring.

Of course defencebusinesses will do well andthere are obvious choices tobemadewithawaronthego,but buying to the sound ofcannons may simply mean

buying stocks on your‘probable’ investment list orputting your cash reservesinto already establishedinvestmentstotakeadvantageofarally.

We obviously hope therewon’t be an opportunity toputthisideaintopractice,butif and when that sad daycomesagainitmakessensetoletthemarketpayyoutohelpitoutbybeinganoptimist.

Of course in a really big

nastywar likeWW2 itmadeperfect sense to go ‘all in’when you got off the boatfrom Dunkirk. Shares wereunsurprisingly low at thatpoint. However, if we hadlost the pound would havebeen worthless anyway, assuch buying was a one waybet.

DowJonesSad but true: war is goodbusiness.

Accountingirregularity

Signal:Short

Difficulty:5

There are really few reasonsto sell stocks you like.Clearly you can want to sellbecause you have done well

andarehappy to reinvest thegainsincompanieswithmoreupside. However, reasons tosimply cut and run are few.These are the same kinds ofreasonstoshort,sothereasonfor aBull to bail is a reasonforaBeartopounce.

Aclearsignaltobailisanaccounting irregularity.Companiesthatcan’tgettheirbooks straight are not to betrusted. You should not buycompanies that can’t keep

trackoftheirassets.Thereareveryfewharmlessreasonsforaccountancyirregularitiesandan infinite number of toxicones. As such you shouldexpecttheworstifyouhearacompany discovering one. Itisoftenapreludetocompletecollapse.

Either way, a companythat can’t control itsbookkeepingisunlikelytobeable to control its businessmodel. As such, a company

with accounting irregularitiesisprobablydoomed.

Deathofasalesman

Signal:Short

Difficulty:5

It’s morbid but it remains aphenomenonthatthedeathofthe CEO of a high flyingcompanycanbringabout the

company’scollapse.This is because the

companymaybe, ineffect,aone man band, whose futuredepends on the intricateknowledge of the industry,customers and internal statusof the company that only theCEO can master. It can alsobethattheCEOisthekindoffinancial juggler who alonecan keep the rocket ship oncourse.Thisisapolitewayofexplainingwhy, for example,

Robert Maxwell’s empireimplodedwithinweeksofhisdeath.

How many companiescould have imploded in thecredit crunch had the seniormanagementnotbeentheretofight a rear-guard action onthe brink of a corporateabyss?

When tragedy strikes, ifyou hold or are looking toshort companies then youshould pay close attention to

the replacementordemiseofa high flying company, highflyingmanagement.

Wehavecovered‘uplikea rocket and down like astick’ earlier and this isanotherexample.

Sometimesitdoesn’teventake the death of a CEO,merely his replacement, totrigger implosion. If the newmanagement hits a situationtheydon’tunderstandorcan’tmanage, they are very

capableofpullingtheplugona company rather thansteppingaside.

Now, if that high flyingcompany had a penchant forfootball shirt deals and hadjust suffered an accountingirregularity you wouldn’teven need to look at thosestock charts tomake a quickdecision.

Portfolio:diversifyor

dieSignal:LongorShort

Difficulty:5

Youmust have a portfolio ifyouwanttosurviveinvesting

inthemarket.Donotlistentoanybody, not even WarrenBuffett,who tellsyounot to.Ifyoudonothaveaportfoliothechancesareyouwill loseyourshirt.

Do not put all your eggsin one basket. We allunderstand that. This is thelawofhavingaportfolio.

Ibelieve30plusstocksisthe target to aim for. Nowyou will say, ‘I only haveenough money for three

stocks’.ThatisOK;buythreeand

thensavetowardsfour.Ifyoudouble your money on onestock and sell, go on to buytwonewstocks,notone.

Youwillget to30stocksin the end, probably quitefast.Then you can buymoreof each new stock, but notbefore.

30 stockswillmeanyourportfolio’s performance willstart to look like the FTSE

100, but if you pick well itwillgoupmoreandgodownless. The point is avoid thesort of wealth-crashingSNAFUthatyouwouldhavesuffered if you’d had fourtech stocks in the dotcomcrash or all your money inNorthernRockin2007.

Themoreriskyouwanttotake,thebiggeryourportfoliohas tobe.Ifyouwant tobuysmallcrazystocksyoumightneed to get to 40 before you

aresafefromgettingsquishedbyarunofbadluck.

Diversify should meanspreading yourself oversectors too.Thereisnopointholding 30 different goldmines; you won’t bediversifiedoutsideofmining.Whatyouneedtodoisbuildyour tool bag of investingrules then apply these to abroad range of companiesacross a broad range ofsectors. Why not go further

and think about beingdiversified across the globalmarkets?

Diversityisstrength.Classically you should

buyaloadofstocks,abagofbonds and keep say 10% incash. However we aren’tlooking at bonds and cash inthis book, we are pickingstocks, so you can go downthat route too, if you please,while still building a stockportfoliounderthatumbrella.

Investors that don’t wanttobuildadiversifiedportfoliousing this book may as wellthrowitinthebinnow.Afterthey have lost their shirt,maybe they can buy anothercopy and start again fromscratch.Many investors haveto spend a lot of money tolearn this lesson. Don’t beoneofthem.

BPJust one more reason whyyou wouldn’t put all yourmoney in a single company,even if it was a very longestablishedsuperbluechip.

Fromthemouthsofbabesandsucklings

Signal:Long

Difficulty:5

Those pesky kids are alwaysonto the latest thing first.Asmature adults of the world,we are far too busy to spendtime searching out the latesttrend in order to turn ourworldsupsidedown.

Therearestillacoupleofoldergenerationsthathaven’tgot to grips with computersand maybe never will. Howwere they to know that theyshould have bought GoogleorApplestock?

If they had stalked theirgrandchildren they mighthaveseenitcoming.

Stupidthingsthatkidsdooftenturnouttobethesmartthings middle-aged peoplecan’tgettheirheadsaround.

Keeping an eye on whatkids are up to is anopportunity to get in earlybecausekidsdon’tbuysharesand the oldies in the City,who have all the money,don’tdonew.

At some point even thegrey-haired get the pictureand suddenly off goes thepriceof thestockmakingthestuff that the kids have beenlovingforacoupleofyears.

This might soundimplausible, but anyonebuying Games Workshopwhen it got the rights to theLord of the Rings filmlicense, will attest that whilelittle metal figures pushedaround a board based on a

’60s book loved by hippies,might sound quaint, it wasalso something that rocketedthe price of the company bymultiples.

Now if you had read thetrade press, known theproductandwatchedthekidspractically living in GamesWorkshop stores, you wouldhavemadeaprettypenny.

NotforsaleSignal:Long

Difficulty:7

Everynowandagainyouwillcomeacrossashareyoucan’tbuy. It may sound perverse,but somesharescan’tbehadin enough volume to beworthwhile.

Back in the pit of thecreditcrunchIdecidedtobuysomePendragon,acardealer.Ionlywantedalittlebecausethe stock looked set to gobustasithadfallenwellover90%of itspre-crashandwasin the car selling business. Itwas therefore dependant oncredit and selling cars; twobadplacestobeattheendofafinancialcrash.

However, even though Ionly wanted a couple of

thousand pounds of stock,therewasnonetobehad.Mybrokerscouredall themarketmakers and gave the marketmakers’cagesagoodrattlingbut he simply could not findthe stock. In the end, afterthree days, a small bag ofstockwas found and I addedit to my portfolio. Once themarket started to recover itshotup1000%.

Supply and demand ismeanttodrivethemarketand

it does in normal times andfor normal stocks, but whenyou get into the lessmainstream places or tradethe more outlandish times,this rule stops applying. Assuch if you find a beatendown share which you can’tbuyasensiblequantityof,it’slikelytobeagoodlong-termbuy.

Only an idiotwould giveuptryingtobuyacheapstockno one wants to sell. Right

now I’ve been trying to buyone listed stock on AIM forfourmonths. It is an oddballbutifIdogetsome,Iwillbehappy in the knowledge thatif anything good happens tothe company, its share pricewill explode in value. Am Igoing to say which stock itis?NO!

PendragonIronically it can be hard tobuyatthebottom.

Makinganofferthatcan’tberefused

Signal:LongorShort

Difficulty:7

Common sense isn’tnecessarilyeasytouseunlessyou have a key to unlockwhat is really going on.Thereforecommonsensecanbeanoffshootofknowledge.

The following way topickastockisacaseinpoint.You have to understand thissimple process and ‘PrivateEquity.’

This is how ‘PrivateEquity’oftenworks:

Private Equity to

manager: ‘We are interestedinbuyingyourPLCtotakeitprivate. If we did, wewouldcutthemanagementinto20%ofthesharesofthebusiness.’

Manager to PrivateEquity: ‘That is mighty fineof you because I currentlyown 0.001% of thecompany’sshares.’

Private Equity tomanager:‘Thetroubleisyourshareprice is toohigh forusto buy this public company,

butwewill be happy to talkwhenthesharepriceismuchlowerandwecanallmakeahugeprofitfromthedeal.’

Manager to PrivateEquity: ‘Let’s talk next yearthen.’

Ofcoursethisshouldbeacrime, but it isn’t. Notsurprisingly this hashappenedalotovertheyears.

Soasaninvestoryoulookfor a good business with agood set of booksbut a very

depressedmanagement.Even though the business

seems to be piling up cash,eventhoughsalesarehealthy,the management isaccentuating the negative atevery turn. Of course theshare price keeps falling. Atsomepointthepricewillstopfallingandtherewillbealull.Then, voila, up will pop aprivate equity bid.Of coursethe management will thencomplain that the market

didn’t understand thecompanyandrecommend theoffer,whichwillgenerallybeata40%premium to the lullinthepricefall.

Now if you have seenyour stock fall from 400p to100p,140pashareseemslikearescue,especiallyifyouarea pension fund that has somuchstockitcan’tgetoutofthe company’s stock withoutdrivingitfurtheroffacliff.

Asaninvestorthatbought

around 100p you feel greattoo.Allyoudidwasuseyourcommonsensetoseethatthefigures didn’t match themanager’spresentationofthestateof thecompany, to lookat the chart to see the longshare price swoon was overand bore in mind PrivateEquitylovesacheapdeal.

Withthislittleinsightinto‘Private Equity’ everythingmakes perfect sense, both onthewaydownandontheway

uptotakeover.

InvestintheobviousSignal:Long

Difficulty:6

Investment managers like tocall them themes.Wewouldprobably call themes:‘obvious things happening

aroundus’.Young people can’t stop

usingtheirphones.Chinawillget more important. Peoplewill live longer and longer.Fluwillonedaysoonkilllotsofpeople…andsoon.

Once you feel somethingisobvious,youshouldbackitinyourportfolio.

If you think that one daysoon classic antibiotics willstop working, you wouldsearch out companies

researchingnewones. If it isobvioustoyouthattheworldwillgohungry,youwilllooktobuyafertilisercompanyortwo.

Weall seea fewobviousthings that are bound tohappen, yet most peoplewon’t see your insights andoften will violently disagreewiththem.Whatisblindinglyobvioustoyouwillbeopaqueto most and likewise theirinsights will be

incomprehensible to you.Being right is not ademocratic process and noone, except me and you ofcourse,hasamonopolyonit.

Broadcasting with myADVFN hat on, I called thecrash for nearly 18 monthsbefore the balloon went upand right upuntil it all cametumbling down, peoplelooked at me as if I’d beenreleasedfromthefunnyfarm.When I called the bottom

people thought I was crazytoo.

The lesson is, alwaysback what you think isobvious to you, especially ifothersmissthepoint.Youdonothave tobeabrilliantguyor have an opinion on everysubject, just one, now andagain,willdonicely.

Listentoourlordsandmasters

Signal:Long

Difficulty:6

Business people think theyaretoughandsmart,whichis

why they are often temptedinto politics. However, theyare slouches compared topoliticiansandoftengeteatenalive in the realm of politicsandgovernment.This iswhyyou should never backbusiness against government.Governmentwillalwayswin.Politicians wipe out wholeindustries,lockpeopleinjail,gotowaretc;businessisjusta pussy cat in comparison, aconvenient ‘milch cow’ with

no real power againstgovernment when pushcomestoshove.

This is why you shouldlisten to government andtrade their position. Whattheysayultimatelygoes.

Government is also slowto react so, ifyoucandefinethe political course set upon,you can trade it for a longtimeandletitbuild.

This goes for allinvestments fromForex right

down to small companies.The leviathan of governmentsets the agenda for acountry’s economy; it is oneofthosebigpictures.

If government is green,buy into wind farms. If it isblue, sell stocks that servicecouncils. If it is red invest innursing homes and bridgebuilders.

It’snotthatdifficult.

TakeoversSignal:Long

Difficulty:8

Everyone loves a takeoverand in normal circumstancestakeoversarerife.Thisisnotbecause they are good forshareholders per se, butbecause the City and

managersmake big pay dayswhentheyhappen.Ifyouruna business well, you haveplenty of time for strategyand plenty ofmoney at yourdisposal to play such gamesasempirebuilding.

Research shows thattakeovers destroy value, butlet’snotallowfacts to ruinafungame.

As investors we lovethem; it’s like the finale to agoodfilm.

Theobviouswaytofindatakeover target, apart fromlooking for managementtrying to sell out theirshareholders, is to look forindustries ‘ripe forconsolidation.’ Ripe forconsolidation is City speakfor ‘unable to resist beingplundered.’

Thismightbebecauseanindustry has borrowed amountain of debt and istherefore reliant on its

bankersformoney.At this point an industry

has to take note of itsbanker’sadvicetobuyXandsell Y and merge with A ortake over B. Of course thebankers are doing it for thebest, not the mind bendingfeestheywillearn.

Nonetheless, this eventwon’thappenovernight.Youhaveplentyoftimetojointheparty.

There will be plenty of

sagewritingaboutstrategy.Ifbusinesses are vertical, theywill need to broaden out. Iftheyarebroadtheywillneedto focus on their corebusiness by selling off un-strategic businesses and soon.

This talk will give youplenty of time to jump onboardatrend.Normallysmallcompanies get bought bybigones, so that if a market isgoing to consolidate, you

needonlysize theplayersupto see who is going to bebuying and who is going togetsold.

You want to buy thecompanygettinggobbledup.

Thegatheringinterestandexcitement will push up thewhole sector. As such, it’s awin-win scenario. You don’tevenhavetogetitrighttodowell, you just buy a goodlooking company using yourother picking tricks and add

anextrabitofzipbypickinga company in the crosshairsofatakeoverscenario.

But you want a hard tip.Always buy a companywhere a director that buys isanold retiredpolitician.Thisoldchapusuallyneedsaverygoodreasontobuyandaveryclosehorizon to sell andyoucan be sure that they’ve gotplentyofpaperwork toprovethe fact they were clear totrade.Whenatakeovercomes

theoldpoliticowillbeoutonhis ear and, now longforgotten, headed for thescrap heap. When he buys,followhim.

Takeovers:sellingthebuyersSignal:Short

Difficulty:8

Some people just aren’thappy to make money going

long, so evenwhen it comesto takeovers they want tomakemoneygoingshort.

It is common sense thatthe party writing the bigcheque is going to get a fatbillandendupwithabigbagof problems to sort out. Thiswon’t be good news for thecompanyintheshort-term.

Ifyouwereahedge fundmanager you would buy thecompany getting bought andsellthecompanybuying.

The company gettingbought will be at a discountto the offer becausesomething could go wrongand there is also a waitinvolved, meanwhile theheavy lifting of the buyingcompany will squeeze itspricedown.

You can take advantageofthis.

Nevertheless, if acompanyisonabuyingspreeit can end up bending the

company out of shape. Thekey is to watch an acquiringcompany go off on a bingeand then once it has bloateditself,shortit.

Itwillbeuptoitsearsindebt, drowning indysfunctional acquisitionsandexhaustedforfunds.Thisis a good time for ghoulishinvestors to come out andkick the company as themarketissureto.

Knowthelong-term

Signal:Long

Difficulty:7

Timing the market in theshort-term is extremelydifficult.‘Extremelydifficult’means, in investor language,

impossible. So why try andpullitoff?

Instead know the long-term.

In the long-term the UKhas a shortage of electricitygeneration. I know this butnot many people seem to.Don’taskmewhy.

However, why would Inot own DRAX? (A bigpower station in theMidlands).Well itburnscoalforone.Ohdear.

I can see how that pansout when the lights ofBirmingham and Manchesterstart to flicker. No one isgoing to be thinking aboutpolar bears drowning then.What’s more, it’s a cheapcompany paying a fatdividendrightnow.Knowingsimplethingsafewyearsoutputs a very simplecomplexiononthem.

Peopledonot think long-termanddonot invest for it.

That makes this tack verylucrative and kind of easy.It’s like inhabiting an emptyland full of fertile fields.Meanwhile everyone isfighting over tomorrow andnextmonth and next quarter;fightingoverscraps.

Ofcourseyouwanttogetrich quick, but getting richslow is much easier becausenooneistryingtodothat.

DraxDoesn’tanyoneknowtheUKwillbeshortofelectricityinafewyears’time?

Knowyourrisk

Signal:Long

Difficulty:7

Risk is badly understood; infact it may even be amisnomer. Some peoplewould call buying a crazy

small cap stock, run from afaraway place by peoplewhose names can’t beGoogled, high risk. Iwouldn’t.Thereispracticallyno risk, you are almostcertaintoloseyourmoney.

It is important to knowtherisksyouaretakingandtolookforwhatmightbiteyou.Thecreditcrunchwascausedbecause99%ofpeopleinthefinancialmarketsdidn’tknowwhere the risk was. They

thoughttherewasn’tany.Therisktheythoughtthey

had removed had just beenscraped up into a giant pileand stuffed in a basementsomewhere. When it finallyescaped we all know whathappened.

If you have a handle onthe risk you are taking youcan manage it and use it tomake you more money, butthe amount of risk doesn’tcome written down on a

label,youjusthavetoworkitout.Agoodplacetostartistoimagine it isa lothigher riskthanyoumighthaveguessed.

Another recommendedway of getting yourjudgementofriskright isnottobelieveawordofwhatanyparty tells you. Pretend youare Sherlock Holmes at amurder and try to piecetogetherthe‘realstory.’

Trytounderstandwhytheprice iswhere it is, then you

can counter that with yourarguments.

BeatenupbrandsSignal:Long

Difficulty:5

In this age of celebrity andbranding it’shard to imaginethat brands can beundervalued. However they

canbe,andwhentheyareaninvestor should look at theshare very closely. Quiteoftenthebrandisunvaluedinthe share price; sometimesyou could be forgiven forthinkingitwasaliability.

Food companies oftenhave good brands and thissector is a good example ofone where companies andbrands can get beaten down.Brands always have a betterability to make a comeback

because quite often fashionscomeandgoandstockswithbrands can oscillateaccordingly.

The brand can be utterlyout of fashion too andperhaps even obsolete butstocking an old brand on anupdated idea can suddenlybringa companyback to lifeor simply save it from thedustbin.

Thefollowingisthestockchart of Hornby, makers of

model trains and slot cars.New management, old brandandsomenewsideascanbeapotentcombination.

HornbyHornby is still makingScalextrics and modelrailways...apparentlytheCity

didn’tlikeitafewyearsago,butfashionturned.

NegativeEquitySignal:Short

Difficulty:4

Technically this is quite adifficult idea to understand,butitiseasytospot.

This is a graphic fromADVFN of a company withnegativeequity.Seethestripychunk in assets? That’s theamountofnegativeequity.

What is it? NegativeEquity is the same forshareholders and for home

owners. Negative Equity iswhen the amountyouowe ismore than the asset you ownisworth.

If you borrow £300,000onahouseandit’snowworth£290,000,thenegativeequityis£10,000.Asahomeowner,youare£10,000inthehole.

Companies can be thesame.Theyowemorethanalltheir assets. In a worldwithout credit, it’s calledbust, but in the world of

corporatebondsandcredit, itiscalledhighlygeared.

Avoid these companiesand if you find one and ithasn’t fallen a longway youmightthinkofshortingit.

Companies get this waybecause our friends ‘PrivateEquity’ buy companies withassets, then strip those assetsout and pay themselves withthem. The company thenborrows a ton of money andthePrivateEquitypeoplesell

the company back onto themarket; normally to ourpension funds. Theseinstitutions are not brightenough to care they arebuying a business back theyonly recently sold from thepeopletheysoldittoacoupleofyearsback.Exceptnowthecompany has had its assetsplunderedandisinaworldofdebt but for some reason isworthmuchmore.It’soneofthe more obviously legal

crimes in the City: youcouldn’tmakeitup.

Thereasonthecompaniescanexistatall inthisstateistheymakeenoughcashtopaydown the loans from theprofits they make and cankeep the banks off theirbacks. If things get tricky,they go back to their newowners and ask for morecapital via a rights issue toreplace the cash recentlystripped.Itwouldbefunnyif

your pension wasn’t footingthebill.

In theory if a companylike this gets beaten down tothe lowly value it’s reallyworth,itcouldbeagoodbuywhen and if good times roll.This is because coming backfrom the brink can dowonders for a share price.Abooming period will help acompanypayoffitsloansandgethealthyagain.Apparentlythis is an efficient capital

structure.However, as I write, we

are in the middle of a nastyrecession so that’s notcurrently an investmentoption.However, this idea isworth bearing in mind for2013-2014*, when theeconomy will start to sizzleagain, yet there are probablymanybetterplacestolook.

* Market timing isimpossible so pleaseexchange these dates for the

words ‘sometime in thefuture.’

Apinchofsaltrequired

When it comes to investing,don’t believe anything asgospel. Don’t believe thenewspapers,themanagement,the friend with a tip or yourown ability to get it right.Everythingatbestisprobableand anything is possible.

Management is overoptimistic, brokers are flaky,facts are malleable and yourinsightpatchy.

If you keep this jaundiceperspective youwon’t go farwrong because one thing isfor sure, there are plenty ofbad people out to part youfromyourmoney.

Trackerfunds:simpleexposure

Research into stock pickingsuggests that you can’t beatthe market; you can onlyjump on board. Clearly it’shard to jump on the wholeFTSE 100 because buying

100 shares in the rightproportion is difficult,expensive and complicated.However, the ideawas takenup by financial companieswho created tradable sharesthat replicated the FTSE 100or theDow.These are calledtracker funds or ETFs. ETFstands for Exchange TradedFundandgives investorsandtraders a way of gettingexposure to things like goldor indexes inside their share

portfolios. Ways 51-52 useETFs.

ExchangeTraded

Funds.BuyaFTSEtracker

Signal:Long

Difficulty:1

An index tracker is a sharemadebyafinancialcompanythat follows an index as itmoves. If the FTSE goes up10%,aFTSEtrackergoesup10%.

Let’s say you don’t wantto go ferreting around themarket picking stocks, butyou think the stock marketwill go up. In this case youwouldjustbuytheFTSE100tracker and sit back. ThefamousUKoneistheiShares

FTSE 100 ETF(ADVFN:ISF)

You pay one brokeragecommission and you get aprofit or loss depending onexactly what the FTSE 100does. It’s that simpleand it’ssupersonicallycheap.

WithaFTSEtracker,youcanthrowyourarmsintheairand say, ‘I don’t care aboutthe details but over the next30 years shares are going upbigand I’mbuying£1000of

FTSE tracker every threemonthsforeverandthisismyequity strategy.’ It isn’t suchabadideaeither.Bookshavebeen written to explain whythisistheonlywaytogoandto disagree is to challengesome Nobel prize-winningeconomists to calculus atdawn.

Of course no broker orbank is going to get fat onthat,nofundorfundoffundsor hedge fund manager is

going todrive aPorsche911down Threadneedle Streetlooking cool, if that lessonwastaughttoallelevenyearsolds at school. So it’s hardlysurprising no one is takingbig adverts out saying, whynotdoit theeasyway;buyaFTSE tracker and forgetabout making us fat andhappy.Hell,ifyoulistenedtothat kind of talk you’d neverbuythisbook,sopleasedon’tpassthistipon.

FTSE100This is a chart of the FTSE100 (in black) tradingalongside the FTSE 100tracker(ingrey).

CommodityETFs.You

reallywanttobuy

commodities,youreally,

reallywantto?

Signal:Long

Difficulty:8

There is nothing like a goodbenign investment idea withlittle roomforerror toattractsomeonetotwisttheideainto

something almost guaranteedtoblowyourfaceoff.

ETF index trackers havebredall sortsof trackersofavery dubious nature. Thewhole idea is to wrap up adiversified portfolio into asingle stock for cheap, costeffective,efficienttrackingofa broad market index. Nowcompanies are coming upwith leveraged ETFs on allsorts of obscure and non-broad instruments and in

many cases they don’t eventrackproperly.

ForexampleacommodityETF, say wheat, gives youexposure in a share towheatprices.

Now for some reason ifyou wanted to put wheat orgold in your share portfolioyou could buy a commodityETF and, lo and behold, youwouldhaveit.

Now you might have anextremely good reason to

have wheat in your shareportfolio, so it is not anutterly silly idea, but youshould rest assured you needto have an extremely goodreason in mind to do so.Commoditiesareagreatwayof making a small fortunefromalargeone.

However, if you are afarmer and locusts have justshownup,youmightbeontosomething,butifyouareinatown reading a newspaper

warning about food security,you can rest assured that it’salready in the price and youareinvestingblind.

Letthecomputerdothework

You may know the sort ofcompany you fancy buying.Let’s say you want a bigcompanywith a fat dividendbuta lowP/E.The trouble isyoudon’twanttogooverall

two thousand companies intheUK, lineby line.Asharescreener like ADVFN’sFilterX lets you put in yourcriteria and pluck out all thecompanies that fit the bill.Ways 53-60 are someinteresting areas to applythosefiltersto.

P/E,thebasiccheapornot

cheapindicator

Signal:Short

Difficulty:4

P/E means price earningsratio. It is, in effect, thenumber of year’s profit ittakestobuythecompanyforits current market value.Crudely, a 10 P/Emeans thesame as a company worth£10mmakinga£1mprofit.

P/Es can be all over theshop. A loss-makingcompany really doesn’t haveone although the Americanssay it has a negative P/E.Likewise, a company that

makes a few thousand in ayear yet is worth manymillionsmighthave aP/Eof20,000.

So, at the margins, P/Ecan get a little useless.However, over say three orfour and less than 100 P/Emeansalot.

Asaninvestorwhowantsto buy a cheap company, aP/E under 12 and above sayfour,willinterestyou.

If you were going

searching for cheapcompanies,throwingawayallcompanies outside this rangeisagoodplacetostart.

P/Eisnotthewholestorybutitiscertainlyanattractiveattribute. Good companieswith low P/Es make goodinvestments.

Saleshavevalue—highsalestomarket

capitalisationSignal:Short

Difficulty:4

Many will disagree, buthaving spent my entire lifebuilding businesses I canassureyou, sellingproduct istough. Like most things youcan achieve big sales buyingselling to cheap or shippingcommodities at cost. Thereare alwaysways of cheating.However, a for a sensiblebusiness, selling a lot of

normal stuff is not an easymatter.

As such, a sensiblecompanywithalowcompanyvaluationthatsellsalotofitsproduct,couldwellbecheap.

A drugs company can beworth £100 million selling£15million of drugs. This issales,notprofits.Thisgivesita 4x ratio of marketcapitalisation to sales;meanwhile some companiescanbeworthonly10%ofthe

sales. Can a drug company’s£1ofsalesreallybeworth40times one of thesecompanies’ lowlyenterprises? To me theanswerisunlikely.

In extreme situationssome companies could bebought by the cash flowcreated by extending theircredit terms by three weeks.It is nowonder that it is notunknownforalargecompanywitha10%ofsalesvaluation

to get bought by anentrepreneur, then ask itssuppliersfora5%discountofcurrent invoices. This can behalf the cost of buying thecompany!

So a company with bigsalesbuta lowlyvaluation isan interesting candidate.Squeezing a couple ofpercentage points out of thebusiness process could makea huge difference to thebusiness.

Not many people look atthisnumberbutitworkstimeandagainforme. In theend,‘talk is cheap’ but ‘moneytalks’.

Getovertechno-fear.Lettherobotsortyouout

Signal:Long

Difficulty:6

Once you have a few, or forthat matter many, financialcriteria,youcanputthemintoa ‘screener’ or ‘scanner.’ADVFN’s is called FilterX.The FilterX screener willchop out companies thatdon’t fit your bill and prunedown the 2000+ stocks to ahandful.Thisselectgroupcanthen be further interrogatedby looking at charts andnews, or whatever tool youfancy,toqualifyorotherwise

thenextstocktogointoyourportfolio.

This is a very efficientwaytogetalistofcandidatesonto your radar. Only whenyou have a refined universeof companies can you stakethem out and watch theirstoriesdevelop.Thatwayyoucan get to know likelycompanies and get a feel forhow their story isprogressing.

You can play about with

the parameters and movethem around to see whoalmost fits, or tune in todifferent groups usingdifferentvalues.

Believe it or not,chopping out chunks of themarket and seeing who fitsthe bill can be amusing. Italso builds up your marketknowledge.

The whole stock pickingthing is separating the sheepfromthegoatsandit’salways

a good idea to let amachinedotheboringwork.

www.advfn.com

SectorsSignal:Long

Difficulty:4

The pros often talk aboutsectors. If you are a mediacompany, you are in themedia sector. If you have amine, you are in the miningsector. Being in a sector

usually means a companywill trade in line with othersin that group. Institutionslook at sectors and decide iftheyarehotornot.Thissavesthemalotoftimeandmeansthey can buy groups ofcompanies for your pensionrather than take a bits andbobsapproach.

It makes a lot of sense.Applesareapples.Therefore,if you see a company in asectorwhosevaluationisway

lower than a very similarcompany, you have to askyourselfwhy.Maybe there isnogoodreason.

In theolddays,Orange’svaluation was incredibly outof whack with Vodafone.Orangewentupalotandgotbought out by FrenchTelecom.

OfcourseVodafonecouldhave fallen, but othermobilecompanies had similarvaluations,soOrangewasthe

odd one out. In any event, ifyou wanted to be smart youcouldhave shortedVodafoneand longed Orange andprotected yourself from theoutcome that Vodafone wastoo high instead of Orangebeingtoolow.Thisiscalledahedge, the basis for the term‘hedge fund’ (not that this iswhattheydothesedays).

You could look at AerLingusrightnowandwonderwhyitisvaluedsodifferently

to RyanAir or Easyjet. Thisdifferential was even biggerinthepastbeforea100%riseinAerLingusclosed thegapsomewhat (date of writing18/9/10) but even so, thecompany’s value still seemswayoutofwhack.

So thegame is to lookatsectors and companies prettysimilar to each other and seeif one seems to be valueddifferently. If the companiesare not too dissimilar, you

should pay them some closeattention.

CashinthebankSignal:Long

Difficulty:4

Sometimes a company canhaveatonofcashinthebankand sometimes it can beworth less than its bank

balance.Nowitdoesn’tdototake

thisasa‘mustbuy’signal,astheremaybe,andprobablyis,something weird going on.Having said that it is worthtaking a peek; often thecompanyisjustcheap!

However let’s put thatideatooneside.

Acompanyanglingup togo private will be moaningandgroaningabouthowhardbusiness is. They will do all

kinds of things to makethemselves look bad. Profitscan be suppressed withaccountants, all sorts ofgimmicks can be used tomakeasetofbookslookbad,butonethingishardtocoverup: cash. For a start thecompany will want a pile ofcash when it goes privatebecause it won’t be able toraise much of the market. Itwon’twanttospenditorgiveit to creditors and it can’t

stealitinthetraditionalway.As such, when you lookbelow the moaning andgroaning, the cash will begrowing.

Gotcha, you can think.Private Equity takeover ontheway…

PEG,unleashed

Signal:Short

Difficulty:6

WelikeP/E,whichisaratherold measure of cheapness orotherwise. PEG is a turbocharged P/E; it has an added

ratio thrown in to confuse.Thisaddedratioistherateofgrowthofprofits.

This has the effect ofmoderatingP/Efortherateofprofit growth. If a companyhad a high P/E but wasexpanding like a plague ofzombies, then this wouldlower the PEG, which isgood. Likewise a companywith a low P/E but ashrinkingprofithistorywouldhave a high PEG, thus

showing it as a shaggy dograther than a misunderstoodpedigree.

PEG less than one =cheap, more than one =expensive.

Thisisapopularmeasureandagoodone to throwintothe mix. Like all tips andvalues it’s a starting placerather than an absolutefinishing line.Howevergooda company looks, there canalwaysbeagoodreasonwhy

it’sabadpick,andsoagoodgoingoverisessential.

Dividends:chequesdon’tlie;exceptonthedoormat

Signal:Short

Difficulty:4

Dividends are great. Thecheques that pop through theletterboxarepreciousthings.For a start no one can comeand take them back, unlikethepromisesmanycompaniesmake.

Dividendsarelivingproofa company has at least theresourcestocoughupcashtoits owners. This might seemlike a trivial thing but it isactuallyastrongindicationofagoodbusiness.

Manybigcompanieshavethe sort of finances thatwould push families intobankruptcy court. Yet therearecompaniesthatmakepilesof money and thesecompanies tend to paydividends.

The City isn’t much of afan of dividends, mainlybecause of tax. A growingcompany that can ploughback its cash into growingwon’t create a year dividend

taxbill.Beingabletoploughbackcashintogrowthshouldwork out much better forshareholders in the long run.Sogoesthetheoryanyway.

However,adividendfroman unloved company is agoodindicationit’snotaboutto go down the pan; what’smore it’s paying you out.Even big companies can bepaying out over 5% ofdividends, perhaps even 7 or8%.That’s a lotmore thana

government bond is paying,so the question is begged: isthe company cheap? If acompany paying a 5%dividendgoesup20% itwillstillbepaying4%,soasolid,high dividend-payingcompanyhaspotential toriseunder the pressure of itsdividendpayout.

Thebigdowner—50%down

fromthehighormore

Signal:Long

Difficulty:7

We are looking to invest inwhat amounts to situationswhere the market is actinginefficiently. This is theequivalent of finding niches.Normal rulesdonotapply inniches and as such there areopportunities.Forexample,inthe small cap end of themarketthereisvaluebecausethe big boys can’t play. This

leaves opportunity for smallfish.

If the market goesinefficient for whateverreason,pricesgoall over themap.Itcanbeuptoofarinabubble,itcanbedowntoofarin a crash.When the wheelscomeoff,themarkettendstolose its efficiency. In effect,the investor is looking forsituations where things arebroken and the market willpay them to fix them by

participating.When a stock falls

heavily, the very fall itselfcancausethemarket toseizeup.Thisisanopportunity.Assuch, looking at stocks thathave fallen over 50% is agood ‘trash can’ to gorummagingthrough.Youcaneven lookat shares thathavedropped70%,90%or99%!

The bigger the drop, themoreenticingtheopportunitycan be.However, themarket

isn’tthatstupid.Therehastobeagoodreasonwhyasharehas dropped 90% and thereneeds to be a very good oneto make it fly again. Youbetterbesureyouknowwhatthatisandwhyeveryoneelseis wrong. However, theseopportunitiesdoexist,eveniftheyarerare.

This is not a mechanicalsignal;itisaninvitetoshoveltons of crud through yoursluice box to find a golden

nuggetortwo.The less the fall, the

greater the chance ofresurrection andmany stockshalve and double in a twoyearcycle.Thereforelookingat stocks that have fallenaround half is a more fertilegrouptosearch.

Stockscanfallalongwayfornoreasonatall.Theycanfall because of therandomnessofthemarket.

(Why?A randomwalk—

think coin toss—will alwaysbringyouback towhereyoustarted, on average. But thefurthest distance away fromthestartingpointyouwillgetto on your jiggly walk, onaverage, will go up with thesquare root of the number ofcoin tosses. So a randomlyticking share will wobblefromitsrealpriceonarangethat expands with the squarerootofitsticks.That’swhyashare can halve and double

over themediumtermyetgonowhere in terms of intrinsicvalue.)

So ifasetofsolidsharesis wobbling about goingnowhereyoucanfollowtheirprogress and pick up shareswhen they have wobbled farawayfromtheirvalue,onthebasis that soon enough theywill revert back to theirorigin. Clearly you have tokeep tabs on a lot of stocksandkeepupwith their news,

butineffectalotofinvestorssimply do just that; jumpingin andout as a share juddersaround blown by randomevents. You can see that, ineffect, investors are pushingshares back to their realvalues and the profit for thisfeeds the market’s ability tooffertherightprice.

Rulesofthumb

Investing isn’t always by thenumbers.The fuzzyworldofwords and politics are oftenmore important than thegravity of finance.Ways 61-64 are about some of thosefuzzyissuesyouneedtokeepaneyeoutfor.

Don’tplaywithpoliticalfootballs

Signal:Short

Difficulty:3

Industriesandcompaniescanbecome political footballs.

When they do they arescrewed. Business folk thinktheyaresmartandtough,butpoliticians are the next levelof machismo. Politics willalwayscrushbusiness.

Itisahappybusinessthatoperates away from the deadhandofgovernment.

For sure, if an industrymakes too much money,governmentwillfindawaytoconfiscatealotofit.

One of the good things

about new industries is thatgovernmenttakesalongtimetogetitsfangsintothemandtherefore there is plenty ofroom for growth before theparasitical drain ofgovernment gets hold. Thefinal phase of this death gripis when government tellsbusiness what to do andmakesitpayfortheblessing.

Now as a socialist youmight be gung-ho forgovernment; that’s OK.

Places with a lot ofgovernment and huge taxeslike Sweden can certainly bebetter places to live thanPuntlandwithneither taxnorgovernment. However, as aninvestor, you invest incompanies with an overlapwith government at yourperil.

Ifacompanyisactuallyapolitical football, it isdoomed. A company caughtup in a political process is

likearagdollinagameoftugofwarbetweentwopitbulls.Itcanbefuntowatchsolongas you aren’t the poor kidwhoownsthedoll.

When politicians getinvolvedinindustryyouneedto remember; they don’tknow about business theyknow about politics.Politicians don’t care aboutbusiness, they care aboutpolitics.Politiciansdon’tcareabout profits they care about

politics.Yougettheidea.As such, a company that

gets itself caught in thepolitical machine can expecttobehorriblymangled.

BarclaysvRBSRBS(ingrey)versusBarclays(in black). Perhaps a trifle

unfair,butyougettheidea.IfonlyIcouldfindmyRailtrackchart!

UnhappyfamiliesSignal:Short

Difficulty:6

Pickingshortsisaskillandofcourse the signs work as awayofdisqualifyingpotentiallongs too. It’s a good

exampleofmarketsymmetry.Family firms are often

brought up as fine examplesof how business should berun. However in myexperience you should neverinvestinafamilyfirm.

Why?There is a very simple

reason: you are not part ofthat family. Blood is thickerthan water and often thefamily will treat itself overand above the shareholders.

Why do the sons of familyfounders get the CEO jobwhen the old man retires—clearly because the kid, withhiseasylifesofar,hasutterlyoutperformed the rest of theworldtowinthetopjob?OK,so sarcasm is boring but I’msureyoufollowtheargument.

In history, the sons ofgreat kings normally end upwith their head on a spike.With business it’s normallythe shareholders that end up

on the end of somethingnasty.

Hereditary managementcan’tbe in the interestof thenon-family shareholders of acompany, yet you wouldexpectjustthatfromafamilyfirmandyoucanfinditoften.

Succession is of coursethe tip of the iceberg.Familiestendtoworkintheirown interests, which puts afamily firm squarely into thecategoryofabigfatrisk.

To make matters worse,notonlyisbloodthickerthanwater and the siblings nodoubt thicker than thefounder, when families fallout a lot of blood gets spilt.Time and time again familyfirmsget in familyfeudsandmess up the business in theprocess.

In short, family firms areworth watching for theirshorting potential. Many,especiallysmallones,willtry

to go private and not at apremium.

OldfriendsSignal:Long

Difficulty:5

If you have invested in acompany just because yousoldout,don’tstopfollowingit. The chances are, afteryou’vesold,itwillbepainfultowatch,asyouseetheprofit

youdidn’tmakegrow,ortheloss you took disappear. Tryto forget this. The randomwalk suggests that whathappens next could go bothways on a 50/50 basis. Thiswill make you a genius halfthe time and a fool the otherhalf.Trytorememberthis.

The reason you arewatchingisbecauseyouhaveinvested a lot of your timeandeffortinlearningthefactson this business. Thatmeans

you probably know moreabout thecompany than99%of the City. You have thisvaluable expertise burnt toyourbrain.Soasyoukeepalow level interest in thecompaniesyouhave investedin you will occasionally seeopportunity. This is in effectasecondcrop.

Thisisaparticularlygoodtechniqueduringcrashes.Inacrash everything goes off acliff. By having a data bank

of old investments, you canpickupgemswithalotmoreconfidence. You alreadyknowthehorseyouaregoingto ride and this lowers therisk of buying in at theriskiestoftimes.

Don’tbuythetop

Signal:Short(ifyoumust)

Difficulty:3

Whybuyasharethathasshotupa longway?Justdon’tdoit.

This tip runs against a

whole raft of investmentadvice. This advice is calledmomentum trading. In anutshell it says: if it’s hot,jump on it. My position is,justsayno.

Ashareshootingupisnotasufficientreasontoselectit.There can be all kinds oftrapssetforpeoplepossessedtodothat.

Ifyouhavealotofnerveyou can short this kind ofsituation as per Broken

mountain(Way23).This would be the active

thing to do, if you fancy thestress.

The passive thing is tojust leaveitalone.Don’tbuya share that has risen a lot.Howmuchofanoptimistareyou?OK,soinaBullmarketthiswillwork,butgoinglonganything works in a Bullmarket.

If you are getting to theparty late, just don’t go. The

greater fool theory ofinvesting, which involvespassing an overpriced shareontosomeoneelsebefore theinevitablecrashoccurs,reliesonsomeone tohold thebabythe very second everythingcraters.Thelateryougetintoa share that has zoomed up,themore likelyyouare tobethatgreaterfool.

If you didn’t see it early,youcan’taffordtobuyitlate.

GoldA certain kind of investorlovesgold.Doyoulovegold?Youdo!

For me it is just anothermetal. It isn’t money. Itsvalue, contra to a lot that iswritten, isveryunstable.It isnotacertainstoreofwealth.

It is not a hedge againstinflation, not in the long run

anyway. It is expensive andriskytohold.

Itisacommoditylikeanyother.Wellactuallyitisn’t,itis a commodity plus a largechunkofcraziness.

Its uses are: electronics,teeth, trinkets and paying forbignastywars.

I could write a book onthis.Itcouldmakemerichaslegions of gold bugs wouldbuy it, just to laugh at it andburn it in thehearthsof their

survivalist retreats inmountains across desolatepartsofAmerica.

Several years ago Imadea prediction that gold wouldhit $1000 an ounce andrecentlyImovedthattargetto$2000.Atthetimeofthefirstprophecy, the crowd askedwhether I ownedmuchand Isaid no, even though goldwasaround$400at the time.Theyseemedamazed.

‘Whynot?’

I said I don’t buy crazystuff even if it is going up,because you have no sanebasistoactonalongtheway.

I still hold to this ingeneral,whileIdohavegoldinmyportfolio.Goldis,afterall, a good thing touse for asplash of diversification; notthat many gold bugs see itthatway.

You just have to accept,toparaphrase, thatgold is anirrational barbaric relic and

people just love to playwithit. That is OK but playingaround with gold is not aninvestment strategy, it isspeculation.

Let’snotgetphysical:GoldETF

Signal:Long

Difficulty:1

Ifyouwanttobuygold,whynot buy a gold ETF? We

covered Stock Index ETFsearlier. Rather than buy alump of gold which costsmoney to keep safely in abank or lays in waiting in asock in your home tobe lostorstolen,youcanbuyasharewhich is an exchange tradedfund and safely sits in yourbrokerageaccount.

The price of the sharetracks the price of gold. OKyou’llmiss your pure animalpleasure of cuddling a

Kruggerand or counting yoursovereigns like scrooge, butat least it’s safe from themarauding mob bound toform when paper moneybecomes worthless andhyper-inflation strikes. OhdearIthinkImusthavebeenvisiting too many goldinvestmentwebsites.

There are two gold ETFscurrently in the UK: GoldBullion (ADVFN tickerGBSS) or ETF Gold

(ADVFNtickerBULP).It’s all the upside and

noneofthefunofholdingthemetal. If that alone puts youoff you are not buying goldfortherightreason.

Buyagoldproducer

Signal:Long

Difficulty:6

Thetroublewithholdinggoldor a goldETF is that it goesup 1/1 with the gold price.Yougetnobigbangleverage

effectifgoldbooms.Alotofpeoplewhobuygoldwant togetrichwhentheworldcavesin and they want amultiplication of the impactofgoldgoingupbecausetheyare sure the reckoningday isnigh. Gold mines can giveyouthisextraupside.

Imagine a gold minemakesgoldat$500anounce.The market price is $550 anounce so they make $50profit per ounce. When the

gold price goes to $600 theyare making twice as muchprofit an ounce and as suchthecompanyshouldbeworthtwice as much and its shareprice double. As such, whengold rises, the crummier theminethemorethesharepricewillrocket.

A great mine with a lowcost of goldwill actually actmore like a gold bar than amarginalminebecausea risein gold will have less effect

on its profits than onehanging on with razor thinmargins.Likewise,afallwillcrush a marginal mine whileleavingarichminemuchlessaffectedbythegoldpricefall.

As such you need to digintoamine’s figures toworkout what is going on. Goldminesareneversimple.

A big thing to watch outforishedging.

In the old days, a smartmine would sell its future

gold production on the basisof a bird in the hand beingworth two nuggets in theground. This was a goodmovewhen thepriceofgoldwasgoingnowherebutdown.Thenthe20-yearBearmarketingoldreversedandsuddenlymines had sold their goldproduction for years ahead,cheap.Darn!

Now many mines don’thedge their gold productionandsimplysellwhattheydig

up.Thisisgoodnewsaslongasgoldrises.However,somemines still have hedges inplace,orhedgesomeof theirproduction; but not all.Lockinginthesellingpriceofyourgoldandgettingagoodnight’ssleep,insteadofbeingspeculators on tomorrow’sprice of gold is still a goodidea, even if everyone thinksyouareanidiotwhenyougetitwrong.

A gold mine which has

hedged its future productionswillnotrisewiththepriceofgold. It has sold its goldeneggsatapriceinthepastandnow has to deliver them atthatpriceuntil theendof thecontract. Thismeans that themine isn’t going anywheremuch.Watchoutforhedgingor you can back the wrongmine; one without the zippysharepriceyoucrave.

Buythe49ersSignal:Long

Difficulty:8

Now if you are a rabid goldbug,noriskistoobigtotaketo ride the unstoppable goldtsunami.Goldistheonlytruemoney,theworldeconomyisa vast elaborate fraud of

printed valueless paper cashandsoononlygold,soapandcigaretteswill buy you thosebullets you need to protectyour desert compound fromthemadmax reality about tosweep civilisation away.Aheeem!

Anyway,evenifthatisn’tyou, you might want themaximum upside you canfind to capture a big goldrally. The answer is to buyspeculative gold mining

explorationcompanies.The trouble is these

companies are REALLYspeculative. Most have littlemore than a treasure map, aletter from a dodgygovernment to drill someholes in some remotebackwater and small hope ofhittingthebigtime.Ofcourseif these companies do hitgold, theirsharepricecangotothemoonbut,byandlarge,goldexplorersarelikehorses

thatrunracesatthetrack:nota good way of makingmoney.

BUT!Whengoldisgoingbonkerstheseminesfly.Soifyou wanted a maximumupside for a big Bull rally,you would buy a bag ofspeculative gold mines andwhile the market is hot youwill do really well. Peoplewith Gold ETFs and boringgold producers will looklongingly at your

performanceandsigh.This is really only a tack

for sophisticated investorswhohavewatchedthissectorlong and hard with ajaundicedeye.Therearegoodspec mining companies outthere among the Barnums ofthe mining world, but theyarehardtodifferentiate.

The key is to not believethe hype when the strategyworks.Whengoldhits$2000,don’t believe the people that

say it will hit $5000 or$10000becausemostlikelyitwon’t. Instead, when theprice turns and falls, yourprofitswillgoupinsmokeata tremendous rate. Beprepared tobail. Ifyoudon’tget your timing right, theholders of gold ETFs andgold producers will look atyour losses condescendinglyandsmile.

Goldhasasilverlining

Signal:Long

Difficulty:5

When gold goes up, so doessilver. If you want to buygold, by all means do, butyou can buy silver too as a

way of diversifying. Youcould also buy platinumand/or palladium sharesbecause when gold goes upall thepreciousmetalsgouptoo;theyareallelementswithahighvalue.These aregoodways of storing your moneyoutsideof currency.You cando thisby investing inminesorETFs.Asdiversificationisalawyoudon’twanttofight,use other precious metals tospread your risk; not only

over type, but currency andgeography. After all, there’sno point buying a mine in acountry if that countrymightgo belly up in a financial, orpolitical,disaster.

Letmegivetwoexamplesof why, even with gold,diversificationisagoodidea.IntheUSatthebottomofthedepression FDR confiscated—at coin face value—allprivately held gold. Thepenalty for holding out was

prison.Ouch!Gold is valuedinUSdollars,andin2010thevalue of the South AfricanRand was so high it wasunprofitable for mines thereto extract gold because theirUSdollarcostsweresohigh.

Don’tbuythegoldmine,

buythespademakerSignal:Long

Difficulty:7

Moretipsongold?No,ongeneralinvesting.In many booms it seems

thateveryonewantstobuyin.Consequently prices arealready high and the profitsareslim.ThishappenedintheCalifornian Gold rush whereminers with bags of goldfound a pint of beer or anapplecostafortune.Somuchfor the immutable value ofgold.Fromthiscametheideathat the place to invest was

not in gold miners and goldmines but in the people thatsell buckets and spades andwhiskey near mines. This iswheretheeasy,realmoneyistobehad.

This happened in thedotcom boom. It wasn’tdotcomcompaniesthatendeduprichbuttheguysthatsolddatabases and servers andnetwork bandwidth andcollocation facilities. Thesewere the buckets and spades

ofthatgoldrush.Likewise, if you think

gold is going to rise stronglyyou might look to a refinerlike Johnson Matthey whoactually takes the raw outputofamineandrefinesit.

This of course works forany boom, craze or mania.Unlike the bewitchedinvestors, don’t buy thesizzle,buythesteak.

Meanwhile alwaysremember the rule: up like a

rocketanddownlikeastick.

What’supdoc?

News drivesmarkets. Peopleare addicted to news and itoften overwhelms shareprices. Investors love newsand you can harness it tomakeprofits.Ways70-83areafewtrickstousethenewstoyouradvantage.It’sthetipof

the iceberg but it’s a goodplacetostart.

SelltipsSignal:Short

Difficulty:5

Tips are everywhere.Everyone loves to be toldwhat share to buy. It is somuch easier to buy a stockwithout any need to researchorevaluatethecompany.

However, it is often thecase that tips are promotedbecause someone wants tosell.

Magazine and newspapertips are a good place to lookfor tips to SHORT or as asignalthatashareyouownisreadyforselling.

Let’s face it, mostjournalists are not financialgurus. The City is full offinancial PR companieswhose job it is to get a

company written about andtheir success is not a reasontobuyashare;infactitturnsouttobetheopposite.

If you wanted to do thisproperly you would startvarious paper portfolios on asite like ADVFN and trackthe tipster tip for tip. Overtime his performance willbecomeapparent.

Pretty soon you willestablish who is particularlyweak.

A quicker way of doingthisistosimplycheckoutthestockandseeifitisalreadyastar performer, if it is, thiscouldwell be the end of theroad.

This may just sound likethe advice of a grumpyperson, but there are anumber of reasons why thisworks:

Aseller isdrummingupPR to help them

generate activity so theycan sell into it, orperhaps raise moneyfromanissueofstock.Astockhasdonesowellthatevenajournalistcannotice,so it is tippedonthe basis that anythingthat has risen that farwill go further. This isthe vapid reasoningbehind momentuminvesting.It’s better to tip a

favourite that everyoneholds because they willlike what they read andif it falls the tipsterwillbeingoodcompany.…and finally, someonemade it worth theirwhile.Godforbid!

Whenithitsthe

mainstream,it’soverSignal:LongorShort

Difficulty:3

As a prolific journalist Ishouldbelessdamning,butIhavetosay,ifyoureadaboutitonthefrontpage,whateverhuge boom or bust that it isreportingisdead.

If the market is crashingandit’sonthemainnews,thecrash is very nearly over ifnot already on its way backup.

If you hear about a newinvestment craze you can beassured you have already

missedit.Itusedtobesaidifataxi

driver is talking about themarketit’sabouttocrashandwhen a waiter is tipping astock it’s time to sell. Todaytheequivalentofataxidriverorbusboy is themainstreamnews. This is why earlier Iwas talking about specialistpress.Thepointisbythetimethe news percolates into themainstreammedia—which ismoreinterestedinpoliticians’

girlfriends and drug-snortingcelebrities—thebigbrainsinthe tower blocks of the Cityhavealreadystripped thekilltothebone.

However, if you aresitting in a crash and thepapers are talking about theend of capitalism on theirfront pages, you can preparetobuy.

Likewise, if the mediahasn’t noticed something bigishappeningyoumightjump

onfortheride.If you hold gold and the

media is saying it’s going to$10,000 an ounce with aheadline bigger than adeclaration of war, youshouldgetreadytosell.

Those reading this booknearitspublicationdateneedonly recall the recent Eurocrisis and TV news shots ofriots in the streets of Athensto know that once themediaknows what’s going on, it’s

alreadyover.

Getrichslow,getpoorquick

If you make 1% a day forfouryearsyoucanturn$1000into a billion. This is proofyou can’t get rich quick. Tomakehigherreturnsyouneedto take higher risks and at

some point risk of failureturns into certainty. Thisthreshold is probablysomewhere between 25-30%ayear.

If you aim for more youare probably heading fordisaster in the same way asstanding closer and closer tothe cliff edge increases youlikelihoodoffallingoff.

At 25% a year you willdouble your money everythree years. 25% a year is a

verytoughtargetbutonethatis a good goal. Even at 10%moneygrowshugelyover20years. So try for 25%, behappywithtenandbuildupafatlayerofwealth.Ifyoutryto double your money withevery trade you won’t bearoundforverylong.

Thinklong-term,verylong-term

Signal:Long

Difficulty:4

While I keep saying get richslow, no one is really

interested in that idea.Because of this, ways ofgetting rich slow aren’tfollowedmuch.

Getting rich slow ideasaremacrotrends.

If you can identify themyou can invest in them now,earlyandatalowprice.

For example, the gasdrilling technique of‘fracking’ has opened upuntold natural gas reservesthat only a few years ago

were thought of asunrecoverable. 200 years ofnatural gas reserves makesthe world a different place.All of a sudden the gasimport terminals that weremeantforgasimportationfortheMiddleEastarenowusedforexportation.

This is now a newgame.Where are the profits to behad?Gaspriceswillfall.Lotsof green tech looksexpensive. Who has natural

gas as a big input to theircosts? Fertilisermanufacturers. Is there a bigdemandformorefood?Theresure is. Maybe with thismacro trend inmind Imightgolookingforcheapfertilisermakers.

This is how you applymacro trends to pickingstocks.

If you think people aregoing to get fatter, invest inplastic surgery equipment. If

you think we are in forinflation, start tucking awaythe gold. If you build half adozen long-term theoriesyoucan build a whole portfolioaroundthatorsimplyusetheidea to add a little extrainterest or sparkle to yourinvesting.

You can speculate andinvestatthesametime.

ReadthroughSignal:LongorShort

Difficulty:7

An airline just released itsprofits;theyarewaydown.Itdoesn’ttakeageniustoguessother airlines are in trouble.Likewise an engineeringcompany has a great year

because the pound is weakanditsproducts,whichsellindollars,aresuddenlycheaporare making fatter margins.Again it doesn’t take muchbrainwork to realise otherengineers might be goinggreat guns. This is called‘readthrough.’

Consequently news aboutcompany A will affectcompanyBinthesameway.

Of course this can workbothways.IfcompanyAisa

poor operation, company Bwill still fall but end upshowing its superiority andrecover.

So you can play readthroughbothways.

However, these daysmuchofthetradingthatgoeson is driven by correlation,that is tosayhowsimilar themovementsofcompanyAareto company B on a normalday.AfallincompanyAwilldragdowncompanyB along

these lines immediately. Fortraders this is a potentialgodsendbecauseiftheyknowthe difference between thetwo they can jump oncompany B for a bit and lethumanscorrectthemistake.

Wiseman

WisemanandDairyCrestaretwo dairies. Bad news fromWiseman hits Dairy Cresttoo. Dairy Crest recovers inthefollowinghours.

DairyCrest

Contrarian:ifyouwantafriendbuya

dogSignal:Long

Difficulty:5

Some people say the marketmovesinawaythathurtsthemost people. People whohavelosttheirshirt,andthereare many, will relate to this(this is true but not forcontrarianreasons).

Contrarianism works notbecausethemarketisevilbutbecause of simple gravity.Hereisthecalculus:

The market is at its highwheneveryonehasboughtinand there is no one left to

buy. Everyone is happy andexcited, everyone is satcomfortably expecting theride to continue, yet sadlythere is nomore fuel for theride.Evena smallamountofselling will push the pricedown.When thepricebeginsto fall people will sell fromfear and there still is no onewith money to buy. Themarketwillfallandfall.

When the market isdesperately low, everyone

whocansell,ormustsell,hassold.Everyoneisgloomyanddragging themselves aroundpouring out despondency, noone can sell anymore, theyareOUT!

Any buyers that comealong can’t find willingsellers and with no onearound to provide the stocktheyhavetopushpricesuptoget any. The rising priceattracts buyers who push theprice up. The price rises and

generates more buyers andthepricegoesupandup.

LVMH bags arefashionable and expensiveand flared jeans are out andcheap. This fact and theabove is what drivescontrarians.

Soifyoufindacompanyinthedock,dustbinorontheshelfyoucanapply theotherways in this book to bolsteryourcontrarianposition.

Momentum:catcharising

starSignal:Long

Difficulty:8

Let’s face it, you are not acontrarian. You like to buy

into success. Yourtemperament means you’remade to be a momentuminvestor. Few can resist thesiren voices of momentuminvesting.

I could refuse to coverthis as it’s a lot trickier thanpeopleare led tobelieve,butitcanwork.

Asalwaysithastobepartofabroaderstrategy.

Let’s say you’ve usedsome of the previous ‘Ways’

and this star fits them welland the share price is on itsway to the moon. It ispossible it could be one ofyour Macro trends and nowfolksarefinallycatchingontoit. A momentum investmentdoesn’thavetobepurecrazyspeculation,evenifitoftenis.

Bigtrendsliketechinthe’90sandminingoverthelastfewyearscanrunandrun,somomentum investing isnotatotal death trap. However, it

is dangerous asonceyouaresimply tradingwhat the herdis charging at you have lostyour rational compass. Thatcompassisimportant.

Apple is the perfect caseforamomentumstockandintheir day so were Microsoft,AOLandGoogle.Youcouldfeel the crowd willing themon. These companies wererockstarsandApplestillis.

Therewasalotofmoneyto be made from these

companies’supernatural risesand who knows the fate ofApple(Isaydown!).

Ifyouseeabigcompanywith a huge fan base, thenyoucanconsiderfollowingitbut don’t become a fanyourself.Use asmanyof the‘Ways’ as possible and trynot to catch the almostunavoidablecomeuppance.

AppleIncorporated

NewbroomsSignal:Long

Difficulty:7

Ifyoufollowacompanyforalong time you get a feelingfor themanagement.Often itis less than brilliant. Thiswon’t be great for the shareprice. Consequently when

that management goes, thereis a chance good things canstarttohappen.

However much a CEOand his board like to thinktheyaresmart,abusinessthatisestablishedcanrunforlongperiods of time on autopilotand the resultant decline canbe slow and invisible. Atsome point the dam breaks,all hell breaks loose and themanagement is replaced.Theonlyway to see this atwork

is to look closely at thefinancial reports and try tojudge the quality of theprofitsandassets.

The new managementmight be great. Normallytheir previous track recordwill give you a hint onseveral levels.Herearesomepointers:

a) They did well beforeandwilldowellagain.

b) They came from agoodplace.Whowouldboard

asinkingship?Perhaps thereislifeintheolddogyet.

c) They talk sense, eveninthepastoronjoining.

d) You can imagine thatthey might be brought in toselloffthecompany.

Ifthenewmanagementisgood versus previousmanagement being poor, thisis a good long-term sign andyou should go long. This isespecially true of a solidestablishedbusiness.

However, the reverse isalsotrue;ahotnewcompanywith hot managementreplacedwithdudnewbossescankillacompany.Youneedtowatchoutforthistoo.

Newbroomsand‘kitchensinking’

Signal:Long

Difficulty:7

Good new management is agood sign, and a radical

approachtothebalancesheetisalsoagoodtipoff.

New management wantsto appear great. So when itmoves in, it organises itsaccountantstowriteoffeverypossible asset they can (thisside of legality). As theprevious management willhave been desperately tryingto paint over the cracks, thisprocesswill throwoutall thebadnews inonegoand rackup a single gigantic loss.

These will be blamed, inimplied fashion, on the oldguard,nowgone.

This process is calledkitchen sinking, as in‘throwing everything in,includingthekitchensink’.

Kitchen sinkingwill givethe newmanagement a cleansheet on which to writeprofits.Itwillprobablybatterthe share price in the short-termtoo,whichcanbeagoodpointtobuy.

Kitchen sinking is goodfor several reasons. The firstis, this management isdemonstrablyhard-nosed andruthless. An ailing companyneeds that. Secondly, it willnow be very easy tomanufacture good resultsgoingforwardsasallthecrapin the balance sheet is goneand some vague assets canprobably be rolled back inlatertoo.

For someodd reason, the

City doesn’t seem to recallthat a year earlier the newmanagement ‘kitchen sinked’theirresults.TheCityisonlyinterested in what is undertheir noses today—that is afat improvement in profit bythenewguys in charge.Thiswill help make the sharepopular going forwards andthe company’s share pricewillexperiencearenaissance.

As such, tough kitchensinking by new management

is a good way to pick out asharetoresearch.

Checkthewebsite

Signal:LongorShort

Difficulty:4

Thewebsitewilltellyoualotabout the management,explicitly and implicitly.Many companies even have

photos of the management.These can be truly grim, butthe point of looking at thewebsite is to evaluate thegeneral personality of thecompany and look for cluesofqualityorotherwise.

I will illustrate this withanexample.

Iwasinterestedinamineinafarawaydesert.

On thewebsite it showedthe mine and work inprogress.

Themanagementwere ina few shots of themine, andits workers under the desertsun. Their faces were aswhite as a Scottish officeworker’s. Clearly they didn’tspendmuchtimeatthemine.

The equipment wasimpressive, but it seemedunscratched and dusty. Thebig trucks still had paintinsidetheload-carryingtipperbays. Clearly not manytonnes of rock had been

ferriedabout.Whoeverhadputtogether

the website hadn’t beenbriefedontheofficialstory.

Youshouldn’t invest inacompanywhichhasawebsitefull of wishful thinking.Likewise,agoodwebsiteisapositiveindicator.

Everydarkhurricanecloudhasasilverlining

Signal:Long

Difficulty:3

You would have thoughtinsurers would hate disasters—afterallitcoststhem.Notabitofit,theylovethem.

Insurers love acatastrophe because it is anexcuse for them to jack uptheirprices.Itisapricefixingcollusion that requires nododgy meetings. They allknow what to do whendisasterstrikes.Theyallbanguptheirpremiums.

Of course an earthquake

or hurricane today does notincrease or decrease thelikelihood of one tomorrowsowhentheyhavegougedthemarket for higher premiums,insurers proceed to makebumperprofits.

So when disaster strikes,youbuyinsurers.

It’ssimple,it’sdumb,butitworks.

Of course don’t just buyany insurer, do lots ofresearch;itwon’thurttopick

thebestone.

Buyrumour,sellfact

Signal:LongorShort

Difficulty:6

This is an old investingmaxim. It’s good for traders.A trader will latch onto theundertowofarumourandsell

out just before theconfirmation or otherwise ofit. That’s fun if you like totrade.

An investor isn’t reallythat interested unless, ofcourse, a rumour has driventhe company he has investedin to a point he feels liketaking his profit. Someinvestors like to have setprofit-takingpoints,say30%;some hold on forever whileotherslettheirprofitsrunand

then jumpoutwhen they gettheflutters.

If a piece of good newstriggers your selling goal,then it is a good time for aninvestor to cash out as, timeafter time, it is the secretunreleased news that drivestheprice,with thehardnewsat theendof theroadfor therise itself. Unless there issomething else workingaway; after everyone knowsthe story, there is nothing to

cometopushthepriceup.

Browseandresearch

Signal:Long

Difficulty:4

You simply cannot know allstocksandyoucannothopetoget your head aroundeverything that is happening.

Youcanalsonothopetopullamodelofthemarketsoutofthin air. There is no betterway to find stocks to pickthan by browsing around theinternet.

Clearlyyoudon’twanttodo this at random, but afinancialsitelikeADVFN,orany one of a number, shouldbethebaseforyoutosetoutinto theworldof the internetin search of fact andconsequence.

An investor isbasicallyajudge.Theyjudgeacompanyon its merits usingknowledge. Most of thatknowledge is out therealready, you just have to goand find it and assemble thejigsaw.

Because most investorswant to be told, be theyprofessionals in search ofresearch or private investorshungry for tips, any investorthat actually hones their

knowledge will be streetsaheadofthecompetition.

This slowly builtadvantageisthebasisforhowyou pick stocks and get richslow.Relyingonothersisbyfartheriskierpath.

LookforhistoryrepeatingitselfSignal:Long

Difficulty:4

Themarketisjusttheaveragetakeonthevalueofstocksatthe time of consideration. Ifyouaveraged theparticipantsinto one person, it wouldprobablybeawell-paidfifty-year-oldwithgreyhairandaloveofclaret.

Just likea football crowdsings with one voice themarket trades with one tooandas thegenerations rotate,historyrepeatsitself.

It doesn’t take much

hindsight to seewehave justrelivedtheseventies.

Wehavehadanoilshock,a Middle East war, a stockmarket crash, a bankingcrisis, a rubbish Labourgovernment, a commodityboom;thelistgoeson.Ifyouhad spotted this you wouldhave done well over the lastfewyears.

Thereisnopunkrockbutthere’s emo. OK, so safetypinsthroughyournoseisnow

a diamond pin through yourcheek, but it is the samecycle, just in a slightlydifferentorder.

Thisofcoursecouldbeamad point of view, but as Iwrite inflation is coming,austerity and economicrebuilding is on the horizon;does that seem late ’70s orearly’80stoyou?

Mypointis,watchfortherepeating cycles and get inearly.Thedotcomboomwill

come again. This is maybeten years out, but when itstrikesyoushouldalreadybein on the ground floor. Itmight not be computers, itmightberobots,butitwillbesimilarandresonantof1995-2000. Then, if you are stillgoing in 2030,watch out forthosebanksgoingbellyup!

FTSE100ThisistheFTSE100.Ontopof the highlighted patterns,you can match up thecorrectionsbetweenonerallyand the next. The two bigcyclesarespookilysimilar.

Long-termearningsgrowthSignal:Long

Difficulty:7

A good company can growand grow. This is a rare

company but one definitelyworthowning.Whatcouldbebetterthanbuyingashareandwatching it mushroom over20 years? Take a look atMicrosoft or Apple’s historyand you will see what long-termgrowthcando.

Using FilterX you canpull up companies that havealready achieved long-termgrowthandyoucandigdownandseeifitcanhaveashotatkeeping it up. If it can then

it’sagreatcandidatetoaddtoyourportfolio.

This is how WarrenBuffett, the guru king ofinvestment, made his vastfortune. He boughtcompaniesthatwerewellrunthat could grow and growover the long-term, then satback and left it to them tomakehimrich.

These companies are rarebut worth the effort to find.Obviouslywe’dall liketobe

as rich as Warren Buffet.Most people, however, can’tabide the boredom of it.Don’t letgetting rich inyoursleepputyouoff.

What’supofficiallydoc?RNS is the official marketnews. RNS is like generalnews but on steroids. Hereare a few ways to use theRNSwhich can be found onthe internet on sites likeADVFN.

Directors’buysSignal:Long

Difficulty:4

Directors’buying is aclassictip off that a company ischeap. A director’s buy orsell of stock must be

announced in the RNS(regulatory news) which canbefoundonADVFN.

Directorsobviouslyknowa thing or two about theirbusiness. Things like: theskeletonsinthecupboard,thecondition of the market, thelong-term strategic plan, theskills of the other directors,the likelihood of a takeoveretc. They know stuff that noone else can possibly know.So when they buy their own

stock the chances are goodthecompanyisworthalook.

Company directors aren’talways stinking rich, soputtingafewthousandpoundinto the company’s shares isnotgoing tobe taken lightly.Like most people, theirexpenditure is likely to meettheir incomings, so theinvestmentisprobablyreal.

However, this investmentidea is not novel and somedirectors will buy to try and

encourage other investors tofollowsuit.ThethingtodoislookbackovertheRNSsandsee if they bought shares inthe past and what happenednext.Iftheybuyandthepricefallsit’sworththinkingtwice.

Likewise a cheapcompany where the directorsaren’tbuyingisabitofaturnoff, but like share sales bydirectors there can be goodreasons for this. However,selling or not buying should

beborninmind.If a company fits a lotof

your selection criteria, thenallsystemsarego!

Because directors’ buysare easy to follow (forexample ADVFN has aspecialpagetrackingthem)itcan be a good jumping offpointinyourresearch.Spotabuy,thencheckouttherestofthe info; it’s a handy andquick way to do yourhomework.

Managementcompetence:throwingpartiesinbreweries

Signal:Long

Difficulty:6

Readingyearendandinterimreports and company updateswill tell you a lot about themanagement.

A company is verydependent on itsmanagement. You wouldhopeso,seeinghowwellitispaid. However, in this ratherrandomworldweliveinthereareallshadesofmanagement

from criminal at one end tosaintly at the other; alright,maybe not saintly. Even so,all managements are notequal.

As such,youshould lookvery carefully at themanagementofthebusiness.

You should usestatementsbythecompanytothe market as a kind ofwritteninterview.

If you like the cut of theCEO and Chairman’s jib,

then it’s a good signal thatthismightbeastockforyou.If themanagement statementgives you the creeps, youshould avoid the companyliketheplague.

For me, I’m cautiouswhen a company starts itsstatements...‘I’mdelightedtoannounce this year’s figures,whichshowanincreasedlossfor the year up by…’Delighted by an increasedloss?

I am not sure where thedelightcomesfrom.Maybeitis getting their interestingnumberspassedtheauditoratall that produces the delight.In any event I always lookout for oddness in reports;oddnessisapoorindicator.

You’d think Iwas jokinguntilyouspentafewminutescheckingyearendstatements.

If you go back over theyears you can also read thecompany’s updates to the

market. Do the optimisticstatements of new deals turninto sales? You would beamazedatcompanieswhotellthe market about a neverending flow of deals yetneverseemtohaveanysalessubsequently; even afterseveral years. Often thesecompanies are keen to pumpup the share price and arevery popular with investorsbecauseof it, butyou shouldavoidgettingsuckeredin.

Usewhatthemanagementwrites to benchmark itsquality. Look for good clearstatements one year that arefollowed throughwithresultsin the next. The story of thecompany should flow withthe times andmake sense. Ifitdoesthenit’sthumbsup,ifnotthenthumbsdown.

RNSalertSignal:LongorShort

Difficulty:7

MostRNSarereleasedbeforemarket open or after marketclose.Howeverinsomecasesitisreleasedduringtheday.

This kind of news willmovethemarketalongway.

Ifyouarefastenoughyoucanjumponarisebeforeit’sfinished.

As such, it’s a good ideatokeepyoureyeonit.

Conversely, if a sharesuddenly takes off to themoon during the day andthere is noRNS, chances area rumour has hit themarket;something like a falsetakeover story. If the cat isout of the bag, the companymustrespond.Themoretime

that elapses after the pricespike without any news, themore likely there is no catandnobagandtherumourisfalse.

As a trader you can sitand wait and as soon asenough time has elapsed, itbecomes increasinglyunlikely the rumour is true.When the price starts to fallawayyoucanshort theshareandridethepricedown.

It’s fun, it’s dangerous

and it’s profitable, but it’sstrictly for traders who wanttositbyascreenalldaylong.

‘Thenextbigthing’Signal:Long

Difficulty:6

If you watch the news longenough you will pick up on‘the next big thing.’ Smallcompanies in particular are

floated because there isinvestorappetiteforthatkindof business, not because thecompany needs to be public.Many flotations are inthemselves opportunistic. Bywatching the news you canseewhattheCitythinksishotasanidea.This iswhyallofa sudden the market will befullofnewinternetcasinosorrareearthelementexplorationcompanies.

Whenyou spot this trend

you can look to jump on thewave by buying alreadyestablished companies in thesector.

As suggested in Way 31you can do the same in theUS. If the US markets arefloating dental companies enmasse, pick up dentalcompanies in the UK andwait. ‘The next big thing’ isnormally a wave that lasts ayear or two, so catching itearly can add a nice pep to

yourportfolio.Like all fashion-based

investments, do not end upbelieving the hype.Remember shares arefinancial instruments notfootballteams.

Madmanagement

Signal:Short

Difficulty:4

Apparently 2.5% of thepopulation iscertifiablymad.On that basis, 50 companiesin London have a mad CEO

and 50 a mad financedirector.One listed companyshould,accordingtostatistics,haveboth.

You should seriouslyconsider shorting a companywherethemanagementseemsmad. Itmight seem unlikely,but you will nonethelesscome across instances whereyoucannotcometoanyotherconclusion.A quick recap ofthe credit crunch throws upanynumberofcandidates.

Likewise,whenimportantmanagers resign because of‘stress’,youcanbequitesurenothing good is going tohappentothecompany.

Profitwarnings

Signal:Short

Difficulty:5

Companies really hate toannounce profit warnings.Companies get their shareprice badly smashed if they

release one. As such,companies try to avoid themand this often means thatwhentheyareforcedtocomecleanthenewsissobadtheycan’t release all of it at thesametime.

This is why profitwarnings are said to be likebuses, if you see a profitwarning, two or three areliabletobeclosebehind.

Thethingtowatchforisalack of clarity in the first

warning. If it isn’t forthrightand doesn’t say, ‘this isdefinitely all you need toknow, there isno furtherbadnews’ and instead says: ‘themanagement is evaluatingdevelopments’ more badnewsisboundtofollow.

A profit warning,especiallyforabusinesswithlots of debt, can be thebeginningoftheend.

If the warning slipssomething in at the end that

sounds harmless but usesweasel words pay closeattention. This is where theindications of what happensnextarehidden.Avaguelineabout discussions with thecompany’sbankers isallyounormally need to know thatthe profit warning is just thebeginningofthetrouble.

OilOil is likegold,a fascinatingarea for investors andspeculators. It’s a riskyplacetoplaybutpeoplecan’tkeepaway. As such, it’s good tohave a selection of tricks upyoursleeve.

Buyanoilproducer

Signal:Long

Difficulty:7

Somepeople likegold; somecan’t get enough of oil. It iskindofasimilaraddiction.

Thechoicesarethesame.

You can buy an ETF, whichisbetterthanhavingatankofpetrolinyourgarageandwaysafer.TheADVFNtickersforthem are LSE: OILG andLSE: OILS. The ETFs alsoinclude oil with gas andbuyinggas in the samestockshouldn’t put you off, if youwant naked exposure tohydrocarbons.

Then you can buy sharesintheproducerssuchasShellor BP and you can also buy

anETF that rollsupabunchofUS oil producers into oneshare. On ADVFN you canfindthemunderthefollowingtickers: LSE:0o41 andLSE:0o42.

Thereare,ofcourse,hugeoilcompanies in theUK likeShell and BP and a host ofUS and European oilcompanies to boot, but thething to remember is that oilcompanies don’t own oil;governmentsownoil.

Oil companies are simplyhired hands who do all thework and take all the risk,while governments take thelion’s share. This is not ananti-governmentrant,it’sjustafact.Youonlyneedtolookatthetaxonagallonofpetroltoseethatatwork.

The trouble is because ofthis, oil can zip all over theplace in price and not reallyaffect an oil company likeShell. However, blow up a

drillhole in theseaandyoursharepricecouldsinkwithit;asBPfoundout.

That aside,oil companiespay fat dividends and it’sprobably a reflection of theriskinherentinowninganoilcompany that their P/E is solowandtheirdividendsaresohigh.

So if you want oil, youneed to really stretch tocombine ideas. Contrarianplus oil might equal BP,

dividendplusoilmightequalShell.Onethingisforsure—oilcompaniesarebigand, inaway,youneedalittleoilinyour portfolio to bediversified,butdon’tbuybigoil if you want to make bigbucks on a spike in the oilprice.

Thosedarnwildcatters

Signal:Long

Difficulty:8

Like the gold explorers, theoil exploration companieswilldoextremelywell,ifyoupardon the pun, when oil

shoots up. For a start,expensive oil gets viablewhenpricesrise.Whatisun-commercialat$40abarrel issuddenly amazinglyprofitable at $90. Also a50/50prospectof$50abarreloil is a lot more valuable asoil rises. Even a tall storyabout oil in faraway placesbecomesmorevaluableasthepriceofcruderises.

It is insanity,however, toput a lot of money into a

single oil explorer; it isequivalent to financialsuicide. At best you shouldputa littlemoney intomany,separating the ultra-dodgyfromtheplausible.

Chuck out any explorerthat has management frompreviousfailures;discardanycompany that leaves youscratching your head aboutwhat theyaregoingonaboutand avoid companiesinvolved with any litigation

or any dodgy soundingcomplicated deals. OK thatwon’t leave you manycompanies but don’t say Ididn’twarnyou.

Once again remember,‘shares that go up like arocket,godownlikeastick.’

VorsprungdurchtechnikInvesting can get technical.Technical issues in themarket leave most peoplecold or confused. As such,grasping some of thetechnicalitiescanaddtoyourprofits. 92-101 are a fewopportunities to get you

started. You can’t know toomuchininvesting.

Tradingcosts;thelessthebetterSignal:LongorShort

Difficulty:3

Do not give your profits toyour broker or the market.

Theydonotdeservethem.Costs are often hidden

and you should understandthem.

If you buy a small capwith a spread of 95-100(that’s 95 to sell and 100 tobuy) you lose 5p or 5% justbuyingandselling.

A £10 a trade onlinebroker giving you this as anautomatic trade is a veryexpensive broker indeed.Mybroker Derek at TSCtrade

would probably get me thestockat98andsellitat96byringing up the market makeranddoingadeal.That’sa3%saving that amounts to £150on every £5000 of stock.Heis therefore much cheaper,even at a commission of0.75% than a flat rate £10 atradebroker.

Understand your costsand keep them low; thesavingscompoundover time.Likewise, put your shares in

an ISA. Over the years, thetax savings will have a hugeimpact,becauseatsomepointyou will hit Capital GainsTax (CGT) and that hurtsyourreturnsbadly.

Costs are often hidden.CFDs and spread bets, forexample, have a built-infinance cost so, when youleverage£1000upto£10,000tobuya stock,youpay, say,7% finance on the £10,000;thatis£700ayearor70%of

your capital. Imagine theshare simply doesn’t movefor a year. That’s expensiveeven if you are dealing forfree.

Spend some timeunderstanding your costs andthenkeepthemincheck.

SellinMayandgoaway.Summerholidaysat

workSignal:Long

Difficulty:4

Firstly,youshouldnotsellinMay and buy back inSeptember. This can be anexpensivemistakeevenifthemarket falls during thisperiod. The exact timing ofwhen it falls and when itbounces is almost impossibleto gauge. Get it wrong andyougetthefallandthenmissthe bounce. This can be

horrendously disappointingandcostly.

However, the summer isincreasingly quiet these daysand the market often feelslikeithasgroundtoahalt.

Stocks therefore seem tohave a tendency to fall awayin the summer, so a goodtechnique is to hold offbuying stocks you fancy,which are falling, until theyhavereachedabottom.

Theway to do this is by

putting on a trailing alertwhich says: alert me whenthis stock goes up from itslow.Thisway,asitcontinuestofallorflailsaround,yousitback and wait, but when thetrendreversesandsomezipisback in the stock and it risessay 5%, you get an emailsaying, ‘come look’. Thenyou make the choice ofwhether to buy or not. Youcan get alerts like these onwebsites but of course I use

theADVFNsystem,asinmybiasedopinionitisthebest.

The trader of course canfeel free to trade theBearishenvironmentknowingthatthechances of a crash orcorrection are heightened bythelackofsummeraction.

FTSE100They certainly sold in May2010! But by September youare back to square one. Sellin lateAprilandbuyback inthe summer? Shame thatdoesn’trhyme.

TheSantaEffectSignal:Long

Difficulty:5

Shares tend to rally atChristmas. This is because itis year end and two thingshappen: funds with risky

strategies, often involvingshort positions, close out sothey can go off on holidayearly, and standard fundmanagers buy stocks theyown to spike them for theyear end and, thereby, showbetter returns than theydeserve.

Of course nothing works100% of the time and a badmarket will overcome alltechnical moves like this.However, in mediocre years

theSantaEffecthasappearedveryfrequently.

Soforatraderitisagoodtrend to watch for and beready to jump on board. AFTSEfutureorFTSETrackeror spread bet would be idealways to ride along with thereindeer.

CloseofdayauctionSignal:Long

Difficulty:8

Most investors haven’t evenheard of auctions. Yet at thebeginningandtheendofeachtrading day there is a share

auction to open or close themarketwhereinafiveminuteperiod traders and investorscanputbids inforstocks.Atthe end of the process theresult is worked out and thebidderseitherdoordon’tgettheir orders filled. It is anexciting and often confusingevent.

In volatile times, thesepricescangoabitcrazy.

Insayacrashorabubble,orinperiodsofcorrectionsor

othersuchabnormality, theseauctions are worth watchingas you can pick up bargains.Auctions can go haywire inturbulent times and thisbringsopportunity.

Just before the auction isover you canput in bids andhopetogetcheapstock.Youcanalsoshortastockthathassuddenlyjumpedup.

This is a game for thebrave and patient and it isdefinitely only for traders.

However, it doesn’t cost towatchandlearn.

RDSAEvenaBigCaplikeShellcanreacttothelimitedwindowofanauction.

Nonewsbutit’smoving

Signal:Long

Difficulty:4

A company that is rising orfallingwithoutanynews isashare towatch.Youcanspota company like this from

Directors’Buys,Topgainers,Break outs, a Bulletin Boardoranynumberofways.

The point is the share isgoingsomewherewithoutanyreason,orat leastany reasonwhich isknownin thepublicdomain.Thebestonesarethequietest ones; the ones thatmove without volatility orsuddenness. A determinedticking up over an extendedperiodislikeafloattwitchingtoafisherman.

Thisiscausetogooffandstartdigging.

BiggainsSignal:Long

Difficulty:5

Itisagoodideatowatchthelist that shows today’s biggainers. For the trader it’s asignal to jump on a fastmoving stock;whether that’sto jump on the trend or try

andcatchitsturn.The bigger themove, the

betterforatrader.For an investor the big

gainers list can show twothings: what is hot and invogue, and how what wasonce a dead stock is back inaction. The first is useful fortrying to find an equivalentshare that hasn’tmoved, andthe latter to see if a sleepingbeauty is about to rise andshine.

The big gainer list,popularonsiteslikeADVFN,will have a heavy contingentof what the market thinks isexciting. For instance, as Iwrite, there will be lots ofmines on the list. The hotsector is always worthkeeping an eye on.Opportunities will arise andconsistent big risers andfallers are worth a look, justto see if there is any realvalueinthecompany.

There will also be a fairnumber of broken companiesjumping about in their deaththroes. Ignore these. Theyhave tiny share prices and afew buys can make themshoot about. However, theyare untradeable, belowinvestment quality and awasteoftimeandmoney.

There will also bedormant companies withgood businesses who aresparkingbackintolife.Ifyou

see one of these you maywant to add it to yourportfolio.

Percentage gainers lists,like directors’ buys, are agoodplatform toalertyou toprospects. It is a startingplace, not a green light initself.

BreakoutsSignal:Long

Difficulty:5

Sharestradinginatrendtendtostickinthatchannel.Everytime the price looks like it’sabout to jump into newterritory it is highly likely todrop back off. This is the

basis for swing trading.However due to marketsymmetry there is nocertainty this will happen.One time out of five it willbreak out and then possiblygowayhigher.

This is also the basis fortheBoxsystemofWay19.Agood way to find companiesbreaking out is to use anADVFN ‘Top List’ calledBreakouts.

A favourite is a 52week

break out or down whichshows companies breakinghighs or lows of the year.This is a particularlyinteresting breakout as it iswatched by traders whobelieve it to be veryimportant. They think it’simportant because the medialikes to talk about highs andlowsoftheyearandtherefore52 weak break outs can getattentionfromtheherd.

As always this is a good

place to start your research,the more ‘Ways’ that fit thesituation,thebetter.

Constantgainers

Signal:LongorShort

Difficulty:4

A company that keepssneakingupeverydayisanobrainer to consider for yourportfolio. Someone is clearly

buying and you’d hope thatwouldbeforareason.

Constant Gainers is aparticularly useful ‘Top List’onADVFN.

This list containscompanies that have beengoingupdayafterday; fromthree days in a row up to asmany days in a row as thereare. In a good market somecompaniescanrisefortwoorthreeweeksinarow.

Agoodonetolookforis

a share that is inching up,ratherthanzooming.Notthatzooming up is bad, it is justthat a company that is beingsnaffled up sneakily is moresexy than some shooting staronitsfireworktrajectory.

When you look at thestock’schart,ifitisgoingupsteadily without muchvolatility this is a supercandidate foryou toexaminefurther.Alackofvolatilityisa sign of certainty and

purpose.You can of course turn

this on its head and look forconstant fallers.This toowillworkwellforaBear.Aslowconsistent fall is the sign ofsomeone big easingthemselves out of a largeposition.This is blood in thewater for a Bearish shark orevenasharkishBear.

Re-examineyourportfolio

Signal:Long

Difficulty:4

Ifyouare investingcorrectlyyou have lots of stocks inyour portfolio and some aredoinggreatandsomearen’t.

Take a look at the dogsand think: is the reason Ibought in still good? Howdoesthisstocklooknow?Ifithas fallen, perhapsdrastically,yetitstillfitsyourcriteriaand it still feels right,considerpickingupmore.

Youcan’ttimethemarketand just because you boughtdoesn’t mean it’s going upright away. It’s where thestock is in a couple of yearsyou are interested in. Even

then you will have yourwinners and losers, but younever know specificallywhich iswhich. It’s just thatyour overall return is good,because you have beendiligentandcareful.

With this in mind youshould look at your currentportfolio occasionally anddecide if you want to buymore,whileat the same timeconsidering whether to selloutothers.

Your portfolio is after allyour most understood andresearched selection and assuch the safest zone to pickfrom. Yet remember to keepdiversified; don’t getoverweight in any one stockhoweverkeenyouareonit.

UseallavailabletoolsSignal:Long

Difficulty:4

There are over 2,000 stocksin the UK. Their size goes

from a total value of£300,000 to £118 billion.You can make as muchmoneyfromthetiddlerasthegiant.

The thing about themarket is you make adecision, contact your brokerand you are either right orwrong. There is no thief inthe night, no saboteur, novoodootothwartyou,justthetoughjobofpickingtherightshares to buy and looking

afterthemproperly.When you are going to

buyastock,donotjustuseasignaltodoso.Useyourhalfdozen favourites. Make sureyour selection process has asmanycrossreferencesasyoucan.

Obviously a stock can’tfit all criteria, especiallywhen there are a 101 in thisbook, but they can certainlyfithalfadozen.

Itakemyfavourites,look

atalistofprospectsandmarkeachstockoutof10foreachvalueI’monthelookoutfor.

I add up the scores andthen I pick the top stock.There is no need to diveheadlongintoanyinvestment;there are always new stockstomorrow.

You will always beunlikely to pick the sexieststockoftheyearandyouwillprobably pick a number ofstocks that will go bust. Yet

because you have a diverseportfolio it will all come outinthewash.

As you weight yourselections by your favourite‘Ways’youwillbuildupskillin applying your rules andyou will build up generalknowledgeinthemarket.

Theprocessofevaluationwill build up your ability tomakebetterreturns.

Itiscommonsense.The market will pay you

to invest and help you getrichslow.

If you treat the marketlikea farmitwillgiveyouacrop. If you want to treat itlikeacasinoitwilldealwithyoulikeagambler.

http://www.advfn.com/kindle?adw=900203

http://www.advfn.com/kindle?adw=900204

http://www.advfn.com/kindle?adw=900205

ADVFN26ThrogmortonStreetLondonEC2N2AN

978-1-908756-00-8

www.advfn.com

Copyright©ClemChambers2011TherightofClem

Chamberstobeidentifiedastheauthorofthisworkhas

beenassertedbyhiminaccordancewiththe

Copyright,DesignsandPatentsAct1988.

Allrightsreserved.Nopartofthispublication

maybereproduced,storedinorintroducedintoaretrievalsystem,ortransmitted,inany

form,orbyanymeans(electronic,mechanical,

photocopying,recordingorotherwise)withouttheprior

writtenpermissionofthepublisher.Anypersonwhodoesanyunauthorisedactinrelationtothispublicationmaybeliabletocriminal

prosecutionandcivilclaimsfordamages.

Acataloguereferenceforthisbookisavailablefrom

theBritishLibrary.

IntroductionGoldenRuleNo.1:DiversifyWAYS 1-4: Internet chatrooms (discussionforums/bulletinboards)

Way1:SilenceisgoldenWay 2: Madness isbadnessWay3:‘Duedil’Way4:Locateminnows

WAYS 5-25: Stock chartsandtechnicaltrading

Way 5: Good horses on

steadycoursesWay6:DudIPOsWay7:ThereturnofthedudIPOWay8:Volatility:goingnowherefastWay 9: Dead catbouncesWay10:BuytheBull

GoldenruleNo.2:Knowthegeneralmarkettrend

Way11:SellaBearWay 12: Selling a Bull,

sellingabubbleWay13:BuyingaBear,buyingacrashWay14:InvestingintheBull, trading in theBear—buyingthedipsWay15:InvestingintheBear, trading in theBull—sellingtheralliesWay 16: Flat-liningcompanies: dead or in acoma?Way17:VolumerisesWay 18: Buying BS

whentheBullrulesWay19:BoxingcleverWay20:Rockets.Ladlesofmoney

Golden Rule No. 3: Risk =reward

Way 21: Half way orwholewayWay 22: Long-termlevelsWay 23: BrokenmountainWay24:TheBigU

Way25:TheBigW

WAYS 26-50: Commonsensewaystopickstocks

Way 26: Know yourcompanyWay 27: Know yourcompany’sproductWay28:Gettoknowthecompany’sindustryWay 29: Read thespecialistpressWay30:Callup theFDandsay‘Hello.’

Way 31:What is hot intheStatesWay 32:What is hot inJapanWay33:ThemarkethascrystalballsWay34:TaxiadsWay 35: The curse oftheshirtdealWay 36: Buy to thesoundofcannonsWay 37: AccountingirregularityWay 38: Death of a

salesmanWay 39: Portfolio:diversifyordieWay 40: From themouths of babes andsucklingsWay41:NotforsaleWay 42: Making anoffer that can’t berefusedWay 43: Invest in theobviousWay 44: Listen to ourlordsandmasters

Way45:TakeoversWay 46: Takeovers:sellingthebuyersWay47:Knowthelong-termWay48:KnowyourriskWay 49: Beaten upbrandsWay 50: NegativeEquity

GoldenruleNo.4:ApinchofsaltrequiredWAYS51-52:Trackerfunds:

simpleexposureWay 51: ExchangeTraded Funds. Buy aFTSEtrackerWay 52: CommodityETFs. You really wanttobuycommodities,youreally,reallywantto?

WAYS 53-60: Let thecomputerdothework

Way 53: P/E, the basiccheap or not cheapindicator

Way 54: Sales havevalue—high sales tomarketcapitalisationWay 55: Get overtechno-fear. Let therobotsortyououtWay56:SectorsWay 57: Cash in thebankWay58:PEG,unleashedWay 59: Dividends:chequesdon’tlie;exceptonthedoormatWay60:Thebigdowner

—50% down from thehighormore

WAYS 61-64: Rules ofthumb

Way61:Don’tplaywithpoliticalfootballsWay 62: UnhappyfamiliesWay63:OldfriendsWay 64: Don’t buy thetop

WAYS65-69:Gold

Way 65: Let’s not getphysical:GoldETFWay 66: Buy a goldproducerWay67:Buythe49ersWay 68: Gold has asilverliningWay 69: Don’t buy thegoldmine,buythespademaker

WAYS 70-83: What’s updoc?

Way70:Selltips

Way71:Whenithitsthemainstream,it’sover

Golden rule No. 5: Get richslow,getpoorquick

Way 72: Think long-term,verylong-termWay73:ReadthroughWay 74: Contrarian: ifyouwant a friendbuyadogWay 75: Momentum:catcharisingstarWay76:Newbrooms

Way 77: New broomsand‘kitchensinking’Way 78: Check thewebsiteWay 79: Every darkhurricane cloud has asilverliningWay 80: Buy rumour,sellfactWay 81: Browse andresearchWay 82: Look forhistoryrepeatingitselfWay 83: Long-term

earningsgrowth

WAYS 84-89: What’s upofficiallydoc?

Way84:Directors’buysWay 85: Managementcompetence: throwingpartiesinbreweriesWay86:RNSalertWay 87: ‘The next bigthing’Way 88: MadmanagementWay89:Profitwarnings

WAYS90-91:OilWay 90: Buy an oilproducerWay 91: Those darnwildcatters

WAYS 92-101: Vorsprungdurchtechnik

Way 92: Trading costs;thelessthebetterWay93:SellinMayandgo away. SummerholidaysatworkWay 94: The Santa

EffectWay 95: Close of dayauctionWay 96: No news butit’smovingWay97:BiggainsWay98:BreakoutsWay 99: ConstantgainersWay 100: Re-examineyourportfolioWay 101: Use allavailabletools