A s mentioned earlier, before digging into a company’s fundamentals I must first see a

picture-perfect chart pattern. When analyzing chart patterns, I prefer to look at weekly
charts. Throughout history, the market’s biggest winners have adhered to weekly technical
patterns much more consistently than daily patterns. For this reason, institutional investors
tend to base their buy and sell decisions based entirely on weekly (and sometimes monthly)
patterns. If the smart money is doing it, I’m not going to argue.

The first 5 technical indicators are absolute requirements for a Superstock at breakout. To
keep it simple: at breakout, a killer Superstock will 1) be under $15, 2) break out of a strong base,
3) break out above its 30 week moving average, 4) show massive weekly volume, and 5) show a
steep angle of attack. These are the “Top 5 must haves” that I will present first, followed by the
“best of the rest” requirements of a Superstock.

But remember, rules are meant to be broken. Yes, you might occasionally see a $30 monster
stock at initial breakout, but by far the biggest gainers are those that start their runs at much
lower price points.

WOW MOMENT!

I f your research shows that your company is profitable, undervalued, growing like a weed,
has insider buying, high operating leverage, a low float, no debt, and a great chart, you have
probably arrived at a major WOW Moment! Now that you have found the stock, the real fun
begins. What do you do with it? Should you go out and buy it immediately? Finding your stock
means next-to-nothing. This is the case because the only two things that matter in this business
are 1) when you buy the stock, and 2) when you sell it.

“After spending many years in Wall Street and after making and
losing millions of dollars I want to tell you this: It never was my
thinking that made the big money for me. It was always my sitting.
Got that? My sitting tight! It is no trick at all to be right on the market.
You always find lots of early bulls in bull markets and early bears in
bear markets. I’ve known many men who were right at exactly the
right time, and began buying or selling stocks when prices were at the
very level which should show the greatest profit. And their experience
invariably matched mine, that is, they made no real money out of it.
Men who can both be right and sit tight are uncommon. I found it one
of the hardest things to learn. But it is only after a stock operator has
firmly grasped this that he can make big money. It is literally true
that millions come easier to a trader after he knows how to trade than
hundreds did in the days of his ignorance.”
Jesse Livermore

On a subconscious
level, 99% of investors will invest in a company they “like” rather than a stock that will make
them money. The process of due diligence and the emotional connection to a particular company
and its products provide most investors with emotional satisfaction that on a subconscious level
outweighs potential financial gain

going back to the 1800s. In any period of history, high growth stocks that are significantly
undervalued, undiscovered, with a contagious theme, a great chart, and ideally supported by
insider buying, have proven to outperform the market by a wide margin. Blockbuster chart
patterns combined with 5-star research will forever stand the test of time.

I would say that successful investing is 1% inspiration (stock picking) and 99% perspiration
(handling your emotions). In light of this, once you have 1) selected your stocks, 2) waited
patiently until they presented a low risk entry, and 3) visualized how you will react in the future,
it is then time to sit back, relax, and become a patient Zen-master trader.

strike when you find

a stock with the absolute best fundamentals in alignment with the very best technicals while trading at a distressed price.
When I’m risking precious capital, I’m in the market for
one reason and one reason only: to achieve spectacular returns by exploiting irrational market
behavior.

“If you’re not making someone else’s life better, you’re wasting your
time.”
Actor Will Smith

The ability to control your

emotions is 90% of investing. Emotions never enter into the equation when you analyze stocks
you never owned.

I found that the formula of a simple

lifestyle + no debt + independent communities + sunshine + close family + daily involvement
and interaction with nature = one heck of a consistently BIG smile.

Little book that beats the market NOTES

Choosing individual stocks without any idea of what you’re

looking for is like running through a dynamite factory with a
burning match. You may live, but you’re still an idiot.

if you just stick to buying good companies (ones that have

a high return on capital) and to buying those companies only at
bargain prices (at prices that give you a high earnings yield),
you can end up systematically buying many of the good companies
that crazy Mr. Market has decided to literally give away.

what would happen if we decided to only buy

shares in good businesses (ones with high returns on capital) but
only when they were available at bargain prices (priced to give us
a high earnings yield)? What would happen? Well, I’ll tell
you what would happen: We would make a lot of money! (Or
as Graham might put it, “The profits would be quite satisfactory!”)

owning a business that has the opportunity

to invest some or all of its profits at a very high rate of return can
contribute to a very high rate of earnings growth!

companies that achieve a high return on capital

are likely to have a special advantage of some kind. That special
advantage keeps competitors from destroying the ability to
earn above-average profits.

by eliminating companies that earn ordinary or poor

returns on capital, the magic formula starts with a group of companies
that have a high return on capital.

Hmmm . . . buying above-average companies at below

average prices, it sounds like it should work

So here’s the other thing you need to know about Mr.

Market:
• Over the short term, Mr. Market acts like a wildly
emotional guy who can buy or sell stocks at depressed
or inflated prices.
• Over the long run, it’s a completely different story:
Mr. Market gets it right.
Although over the short term, Mr. Market may set stock
prices based on emotion, over the long term, it is the value of the
company that becomes most important to Mr. Market.
This means that if you buy shares at what you believe to be
a bargain price and you are right, Mr. Market will eventually
agree and offer to buy those shares at a fair price. In other
words, bargain purchases will be rewarded. Though the process
doesn’t always work quickly, two to three years is usually enough
time for Mr. Market to get things right.