Dear Investor,

Thank you for downloading your copy of the Investopedia Advisor’s 7 Key Ingredients to Picking Market-
Beating Stocks. We truly believe that these seven steps are essential in selecting stocks that have a
chance of beating the market.

Before explaining each of these steps, I’d like to take a few moments to introduce myself. My name is
Cory Janssen and I’m the co-founder of Investopedia.com. Along with my long-term friend, Cory Wagner,
I’ve helped grow Investopedia into one of the largest and most critically acclaimed financial education
websites available today.

Back in 1999, Cory W. and I - a few pounds lighter and many gray hairs the lesser - embarked on building
Investopedia.com. In doing so we aimed to:

1) Put individuals in control of their finances through education.

2) Serve our readers and users in an unbiased and independent way - that is, provide information
that isn’t influenced by, say, trying to sell you a particular investment.

Our guiding principle is that you are the best person to control your financial destiny because nobody
cares more about your money than you do. Investing is not rocket science; anybody with the desire to
learn can do so.

Still, many people are intimidated by investing. Perhaps it is the jargon; maybe it is the fear of being
wrong. Investopedia strives to help you through the difficulties and provide a helping hand on the way to
financial freedom. These principles have ushered us through what has been a very rewarding six years -
Investopedia enjoys a readership that exceeds 1.5 million visitors a month.

BUT!
Many investors still wanted more from us. A large portion of our readers have expressed that they simply
do not have the time or desire required to truly pick stocks successfully.

The final result of this feedback is our recent launch of the Investopedia Advisor (IA), an advisory service
providing investment research and stock recommendations. This product will allow you to access what we
believe are some of the best opportunities available to the individual investor. Investopedia Advisor is
guided by the same principles as Investopedia, with an additional goal: We want you to make money
from our ideas!

We want to offer investing ideas that you can put to work today.

I’d now like to introduce the Editor in Chief of the Investopedia Advisor, Mr. David Harper. This was a
position that we struggled to fill, largely because we needed to be very particular. However, after a long
and arduous search, we finally realized who the perfect person was, a person whose investment style
meshed with ours – it made sense to fill the position with one of Investopedia’s long-time writers.
Now, like most of us, David does not like to toot his own horn so to speak, so I’ll take the liberty of doing
it for him.

Mr. Harper is a Berkeley-educated man who is a CFA charter holder (CFA stands for “Chartered Financial
Analyst”, one of the most prestigious certifications for analysts). He has a background in the software
industry, more than a decade of consulting experience - which includes serving some of America’s largest
and most prestigious public companies - and extensive experience conducting proprietary research for
hedge funds. It is this impressive combination of experience that attracted us to David and ultimately
compelled us to offer him the position.

This isn’t all, however. David’s track record for recommending stocks definitely caught our attention. For
example, in 2004 - a time when the S&P 500 increased slightly more than 10% - David’s
recommendations gained an annualized 60%, and not one pick declined in value. THAT’S A
PERFORMANCE OF NEARLY SIX TIMES THE S&P! Of course, after seeing the research David was
putting out, we wished we started this service last year.

It is largely due to the seven ingredients outlined in this vary report that David has experienced success,
and now with the launch of the IA you too can profit from the extraordinary brilliance of the team we have
assembled to author the IA.

We sincerely feel that David’s razor-sharp wit coupled with the experience Cory Wagner and I can lend is
going to be quite the 1-2-3 punch! So sit back and enjoy this report.

Sincerely,

Cory Janssen
Investopedia.com (co-founder)

P.S:
After reading this report I hope you give us a chance to prove that with these seven ingredients we do
have a successful recipe for picking market-beating stocks, and become a charter member to the
Investopedia Advisor. Remember, there is absolutely no risk to you to try this service - to learn more
click here or call us directly at 1-866-795-7673 (toll free from anywhere in North America).

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Ingredient #1
Don’t “Pick Stocks” – Invest in Companies
“Buy a business, don’t rent a stock.” - Warren Buffett

We couldn’t agree more with the Oracle of Omaha! Many individual investors make the mistake of
focusing on stocks and the stock market at the expense of focusing on the underlying companies. We
know that sounds strange. But many people continue to ignore Mr. Buffet’s most important lesson: first
analyze the business. The individual investor plays a dangerous game when he or she tries to divine
whether a stock is going to go up or down next quarter. It’s tough to do well, and even tougher to do
consistently.

You might know how Wall Street sells its predictions to the public. A hundred analysts will make
different predictions, and sure enough, when the year is over, you will hear from only the 10% who just
happened to guess right!

Our opinion is the market offers no magic bullet or money machine. If you are a buyer, the best you can
do is find a good company with strong fundamental prospects that is currently undervalued or otherwise
under-recognized (or maybe temporarily beaten down because of an overreaction). This brings up an
important point – there are many good companies, but not all are good investments. We’re looking for
1) good companies at 2) the right price. A good company can be too expensive; and a bad company is
never cheap enough.

The problem with investing in good companies at the right price is you need patience. Nothing good
happens overnight, and it might take a while for the market to catch up with your (hopefully) correct
judgment.

If you are being told that picking stocks is easy, think again. However, with the right team in your
corner, the market can be beaten and money can be made.

Give me and the rest of the IA team a chance to prove that the strategy we employ is a
profitable one. Join our winning team today!

Ingredient #2
Respect the Unpredictable Power of the Market
Even if you bought a good company that has good potential, you may still have a dog on your hands.
The market has an ability to paint entire sectors with the same brush. These prolonged “sector
judgments” can be very costly to you if you don’t account for them.

The market loves to render companies “guilty by association”. Reams of research have clearly
established that sector or industry dynamics have a greater impact on stock price than company
performance. Some reports go so far as to suggest that selecting individual companies is barely
important. In most cases, you are buying into a sector first and a company second.

Context matters more than company particulars. Now, you might be asking, “Aren’t we looking for the
next Microsoft or the next Amazon?” The real trick in finding Microsoft or Amazon - if you look back in
time - was to recognize the sizzling hot, emerging market that few people even thought to consider in
the first place.

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For example, to have found Microsoft at its precious infancy, you would have had to first appreciate the
enormous impact that the graphical user interface (GUI) was about to have on the world. (Remember
when your computer was nothing more than a black screen and a command prompt?) When Microsoft
was pushing Windows 3.0 over a decade ago, there were plenty of people in the industry who did not
believe graphical user interfaces were going to amount to anything. If, at the time, you believed in the
inevitable power of the GUI, Microsoft would have been a natural choice.

What does this mean for the individual investor? You can improve your odds by investing in solid
macroeconomic themes, and you can hedge your bets by avoiding dicey sectors. Sure, maybe you could
have made some money in airlines over the last couple of years, but why would you have even taken
the risk given the labor woes, the terrorism overhang and the sad fundamentals in general (not to
mention, the exceptional airline or two that was shockingly not well hedged against fuel prices).

We get a ton of email inquiries asking how to invest in REITs, which too must be considered assets that
are sensitive to macroeconomic events. Now, the attraction to REITs is understandable because these
investments have directly benefited from slow and steady interest rate declines. But you don’t have to
go further than Greenspan to understand we are headed into a “new regime” of higher interest rates - a
regime in which REITs will suffer price declines. That’s not to say you should stay away from REITs, but
tread carefully; it’s a different future.

Many individual investors have trouble with carefully considering the power of macroeconomics.

At the IA our stock selection process is built upon the pillars of any solid top-down investing
strategy. Recently we’ve uncovered a few of the absolute best industries. We’d love to share
them with you along with the stock recommendations based on this analysis. Join us risk free
for 30 days! You pay nothing if you are not 100% happy.

Ingredient #3
Know Your Time Horizon
Risk and return are really important, but your most important question might actually be this: How long
am I investing for? Your time horizon will determine your style in a big way. Day traders have very short
horizons - they don’t use fundamental analysis (nor do they need to). Many individual investors, whether
or not they admit it, get caught up in gaming the next quarter’s earning surprise, and are therefore
investing for about three months.

Investing for the next quarterly surprise is a playable game, but you should understand you are
competing against people who do it full time. You might be smarter, but you are trying to beat
professionals who spend their whole week on a handful of stocks.

They may move the market; they may know the people who move the market (just to clarify institutions,
not individuals, move the market). We are not saying short-term horizons are bad, but an individual
investor should realize they are playing a tough game. It may be wise to set a longer time frame, find
good companies, let the hedge funds obsess on quarterly fluctuations and wait for the market to
recognize your good companies. The good news is sometimes it happens sooner that you think!

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Ingredient # 4
Avoid Big Mistakes and Losses
At first glance, this fourth ingredient may sound like common sense, but far too often investors simply
do not practice the risk-mitigation tactic of avoiding big mistakes. Somewhat instinctively, investors
seem to hunt for big game – defending against losses is, well, boring. But, if you can manage to avoid
losses, you will really do wonders for your average.

David Swenson was the famed investment manager for Yale’s endowment fund – he achieved an
annualized return greater than 16% for over a decade, consistently outperforming his peers. Many have
marveled at his brilliance, but the recent comments one of his board members, Charles Ellis, has shed
some light on the reason for Swanson’s success: “It is one of the most defensive portfolios I have ever
seen.” Ellis means that the portfolio was designed to avoid losses.

What does this mean for you? You should balance your search for high-return stocks with a vigorous
effort to identify red flags. Familiarize yourself with the downside. This is harder because it is not as
much fun as looking for growth. After you’ve found a company you think can be a great investment,
resist the temptation to plunge ahead, and instead start to look for the company’s potential landmines.
Develop a checklist of possible red flags (a tactic we employ at the IA) and work down this list before
every investment.

If the red flags start to pile up, you have to find the discipline to let the “fish” go, at least for the
moment. One of the hardest things in investing is to find a company, get infatuated with it, get all
geared up to buy the stock and then, upon discovering a big red flag, find that you have to take a pass.

Ingredient #5
Filter Out Noise
Be very careful about daily news. Most of it is noise. You need to ask yourself just one question about
every piece of news regarding your potential investment: how does this news impact the fundamental
prospects of this business? Most of the news that falls into your lap is suspect.

Don’t trust it!

All public companies issue press releases that are understandably favorable; some of the news you get
is regurgitated from the press release. Much of the daily commentary that pushes through the media
onto your television or newspaper is highly trendy – commentators are finding patterns that do not
really exist and turning tips into news flashes.

You can almost use the following as a rule: if the information found you instead of the other way around,
you should be skeptical.

All good investors get conditioned to be on the prowl for new information. However, on the flipside of
this is the key skill is of tuning out noise disguised as useful information.

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Ingredient #6
Recognize Your Limitations
The talking heads on cable television can seem dazzling as they rove from analyzing biotech to financials
to transportation to technology. How can they be experts on so many subjects? Well, they aren’t.

Even some of the best analysts seem to stretch themselves and their area of expertise. In fact this is
one of the reasons why each of us at the IA focuses on different areas of expertise. The idea being of
course, that the team will draw on each individual’s strengths, a benefit you, the IA subscriber, will
enjoy. (We’d be thrilled if you gave our team an opportunity to help you make money in today’s
confusing market. Try us risk free for 30 days!)

You start to believe in an illusion when you think you really know your companies. All good investors
want to know as much as possible about their investments, but a company is an onion you can never
fully peel. Every piece of information is valuable and if you have it, the odds are tilted a bit in your favor,
enhancing the hedge against failure. But, remember, you are making an educated investment based on
incomplete information.

The Fannie Mae debacle gives us a great lesson. Wall Street has pimped - yes, “pimped” - Fannie Mae
ever since the company has provided for the Street a multi-million-dollar source of underwriting fees.
Dozens of analysts promoted the Fannie Mae stock while these analysts’ firms were collecting fees.

Why would the analysts do that? Well, their coworkers were simultaneously selling underwriting services
to Fannie Mae. We bet you could count on just one hand the number of “professional analysts” covering
Fannie Mae who actually understood Fannie Mae’s balance sheet. Fannie Mae was literally cheating on its
accounting, and the comfy board of directors was asleep at the wheel. So at the time the debacle was
uncovered, Fannie Mae’s balance sheet was a mystery wrapped in a riddle inside an enigma.

By the way, remember we mentioned our checklist for red flags? An utterly indecipherable balance sheet
earns the company a red flag.

So, since you cannot know everything, and much of the market commentary is suspect, what can you
do? Look elsewhere and trust real experts. If you are evaluating a retail-apparel company, skip the
market stuff. See if you can find out what true industry experts say, what industry associations say,
what customers say, what competitors say and so on.

Ingredient # 7
Be Different
It has often been said that in order to make money investing you need to be (1) correct and (2) contrary.
In other words, you can be correct, but if everybody else agrees with you, you probably aren’t going to
outperform the market.

You need to be correct and “apart from the pack”. Once you realize this, you’ll see how it is very difficult
to beat the crowd by watching cable news or even reading the newspaper - no wonder some people
think the market is efficient. In order to be contrary, you have to embrace your uniqueness and play on
a different field. This is not to say ignore fundamentals. You have to respect the foundation and the
basic tools of analysis, but on top of that foundation, you are better off approaching the market
circumspectly. In other words, you need to be somewhat suspicious of it.

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By looking for good companies in the world of real business and commerce, you are removing yourself
from a game that by nature is rigged, and instead participating in the worthwhile activity of finding
businesses that can put your capital to good use. Remember? That is what investing is supposed to be:
letting companies rent your hard-earned money so they can grow their business and pay you back, and
then some.

Anyone serious about research subscribes to industry journals. If you like tech, you read tech periodicals.
If you like science, read up on science. This strategy means you let the market gyrate on its endless
recirculation of gossip while you locate expertise that will help you find the growing companies worthy of
your money.

Conclusion
Well there you have it folks, 7 Key Ingredients to Picking Market-Beating Stocks straight from the mouth
of IA editor in chief David Harper. We hope that you have taken some valuable information away from
this report, we sure know how valuable it is to us.

If upon reading the report you have concluded that you are able to incorporate these ingredients
successfully into your strategy without any ancillary help, all the power to you. We sincerely wish you
the best in your stock-selecting future.

Alternatively, if you feel that you might benefit from a helping hand along the way, then perhaps our
new advisory service, the Investopedia Advisor is right for you. We are always happy to help individuals
succeed in the market. And always remember, no one cares about your money more than you do!

Cheers,

Cory Janssen
Investopedia.com, Co-Founder

P.S We are so confident the IA is going to help individuals like you make money that we are
offering you a 30-day trial. Check the site out, see exactly it is we are offering and if you don’t
feel it will help you, no problem, we’ll promptly reimburse your initial subscription fee, no
questions asked. To try the service risk free for 30 days click here.

We look forward to the opportunity to prove to you that our service is one of the best and will truly help
you make money.

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DISCLAIMER
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