Bonus Topics - TurboSearch, Index Tracking Stocks EFTs

5-Step Investing Formula
Online Course Manual
Bonus Topics:
TurboSearch
Index Tracking Stocks / ETFs 8
Section 8 of 11
www.investools.com
© 2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA www.investools.com Bonus Topics
Section Contents
SECTION 8 Bonus Topics
TurboSearch............................................................................................4
Index Tracking Stocks / Exchange-Traded Funds (ETFs) .......................8
Dow Jones Industrial Average—The Diamonds (DIA).................11
S&P 500—The Spider (SPY) .......................................................12
NASDAQ—The Qs (QQQQ) ........................................................13
© 2005 INVESTools Inc. All rights reserved. page 2 of 15

Course Overview
INTRODUCTION SECTION 6 Step 4: Technical Analysis

SECTION 1 Getting Started Technical Indicators
Logging into the INVESTools Investor Toolbox Moving Averages
Support Links MACD
Workshop Review Stochastics
Account Information Volume
Subscription Renewal Support & Resistance
Technical Support Buy Signals
Contact an Instructor Money Management
Sell Stop Orders
SECTION 2 Introduction to Investing How Many Shares to Buy
Tolerance for Risk Sell Signals
Setting Goals Insider Trading
Asset Allocation
Tax Exposure SECTION 7 Step 5: Portfolio Management
Brokerage Firms Creating a Portfolio
Introduction to the 5-Step Investing Formula Managing Your Portfolio
Paper Trading Account
THE 5-STEP INVESTING FORMULA

BONUS SECTION
SECTION 3 Step 1: Searching for Stocks
Using a Prebuilt Search
Navigating the List of Stocks SECTION 8 Bonus Topics
TurboSearch
SECTION 4 Step 2: Industry Group Analysis Index Tracking Stocks / Exchange-Traded Funds
Top-Down Analysis Dow Jones Industrial Average—
Big Chart The Diamonds (DIA)
AutoAnalyzing All Stocks in a Group S&P 500—The Spider (SPY)
Best & Worst Industries List NASDAQ—The Qs (QQQQ)
SECTION 5 Step 3: Fundamental Analysis

Phase 1 SECTION 9 Introduction to Options
Phase 2 Advantages/Risks of Options
Price Pattern Leverage
Volatility Call Options
Zacks Report Put Options
Market Guide Covered Calls
News
AutoAnalyzer™ SECTION 10 Appendix
Phase 2 Stock Scoring Form
Phase 2 Quick List for Zacks Report and
Market Guide
Investment Tracking Record
SECTION 11 Glossary

TurboSearch
In this section we want to show you how to
automate the search and research process,
including automating prebuilt searches,
industry group criteria, and Phase 1 and
Phase 2 scores.
INVESTools Investor Education aims to

educate investors on how to manage their
investments in a more systematic and
repeatable way. Thus, the Investor Toolbox
is devoted to helping put the information
investors need at their fingertips and to
make organizing that information as easy as
possible.
The TurboSearch tool is a powerful

resource that allows you to focus on
the results, not the process. It helps you
quickly find what to invest in without
having to spend much time doing research
to find stocks that fit the profile.
To use this tool, click on the “Searches” tab

in the Investor Toolbox main toolbar.
T his brings up the main Searches page.
From here, click on one of the two

TurboSearches (both are found in the left-
hand navigation menu under the “Search
Engines” heading):
1. TurboSearch Bullish (upside: buy

stocks and call options)
2. TurboSearch Bearish (downside:

put options)
The search you choose depends on your

investment strategy. For this example, we’ll
use “TurboSearch Bullish.”
This brings up the TurboSearch page with

all bullish searches on one page.

TurboSearch lets you select one, a few,

or all of the prebuilt searches to run at
the same time. You can also place various
restrictors on the results so that the system
brings back only those stocks that match
your criteria. Essentially, the computer does
all the tedious work for you and lets you
focus on the results.
With TurboSearch you can use hundreds of

different combinations to find stocks that
fit your investing style. You can restrict
the Phase 1 score, Zacks, Market Guide,
volatility, and price pattern, as well as apply
industry group restrictions.
Let’s do an example using TurboSearch

Bullish, putting some restrictions on the
search:
1. Click on the “Check All” button

near the top of the page. This
selects all the searches to be run.
2. Scroll to the bottom of the page to

use restrictions.
3. In the “Big Chart” section, click

on the drop-down menu and select
“Current Rank” with a minimum
(MIN) of 60. This means all
resulting stocks are in groups
that are at least yellow on the Big
Chart.
4. In the Phase 1 and Phase 2 section,

select a minimum of 2.75 for
the Zacks (at least a B-); select a
minimum of 2.75 for the Market
Guide; and select a minimum of
2.50 for price pattern.
5. Click on the “Submit Search”

button.

Note: Be careful not to choose too many

criteria, as more is not always better. The
more restrictions you request, the fewer
results you get.
Once the results appear, click your mouse

in the “Select” box for each stock that has
a MG-Zacks combined score of 3.25 or
higher.
Once you’ve selected the stocks, you

can compare or add these stocks to a
watchlist portfolio. To do this, select either
“Compare” or “Add” in the first drop-down
menu at the bottom of the page.
If you choose “Compare,” you are cross-

referencing the selected stocks with the
stocks already in an existing portfolio
(selected using the second drop-down
menu). This brings up two tables alongside
each other, one with the selected stocks
and the other with the stocks in the existing
portfolio. Uncheck any stocks already in
the portfolio to avoid duplicate listings and
then you can add the rest to the chosen
portfolio.
In this example, let’s choose to “Add”

the stocks to a new portfolio. First select
the stocks you want to add (those with
a combined MG-Zacks score of 3.25 or
higher), and then select “Add” in the
first drop-down menu and select “New
Portfolio” in the second drop-down menu.
Click on “Do It.”

All of the selected stocks are automatically

added to a new portfolio. Now, name that
portfolio, click on “Save Portfolio” to save,
and then look at the thumbnail charts to see
if any of the stocks are giving buy signals.
Please note that the stocks you select from

the search results may not be giving buy
signals at this time. However, watch these
stocks and wait for them to pull back in an
uptrend within the next few weeks and give
buy signals.
TurboSearch Summary
TurboSearch makes it easy to search for
and research stocks, finding the best of the
best. This tool allows you to run several
searches at once, bringing back just a few
stocks out of the entire database of stocks
that meet the criteria and restrictions you’ve
set.
In the search results, it lists the stocks, as

well as their Phase 1 and Phase 2 scores…
making it a completely automatic process.

Index Tracking Stocks/

Exchange-Traded Funds (ETFs)
Index tracking stocks are a great way to diversify your portfolio as you invest
in the market. Instead of investing in just one stock, index tracking stocks
allow you to invest in a group of stocks, much like a mutual fund but with
more control.
Index investing has been around for a long time. Many financial advisors
believe index tracking stocks are the way to invest, as you are basically
investing money into a vehicle that mirrors the movement of the overall
market. Thus, you’re not investing in a bunch of individual stocks... but in a
single vehicle that performs comparably to stocks in the market without the
risk of one stock. Index tracking stocks carry most of the same benefits as
mutual funds, but with few of the downside factors.
Most novice investors put their money in mutual finds. That money is then
given to a mutual fund manager who pools the money with other investors
to buy individual stocks... hoping the overall collection of stocks purchased
will beat the average return of the overall market. While mutual funds have
been set up to mirror the performance or track the returns of the stock market
average, very few of them actually meet it like index tracking stocks can.
An index share/indexing tracking stock is basically a trust set up for the

purpose of owning stocks. The American Stock Exchange, one of the major
stock exchanges in the United States, developed this concept. The trust
actually buys the stocks that make up the index average. The most popular
indexes people can invest in using index shares are the Dow Jones Industrial
Average, the NASDAQ, and the S&P 500. The trusts then sell shares to
individual investors, who can buy them just like regular stock—you can buy
as little as one share at a time.
Index tracking stocks are also referred to as exchange-traded funds (ETFs)

and include such stocks as the Fortune 500 companies’ stock or the Russell
2000 index. A great place to get more information on how to invest in these
funds is found at www.amex.com under their “ETF” link.
The risks associated with investing in index tracking stocks are similar to
those risks associated with owning stock, as they are, for the most part, the
same thing... but more broadly diversified.
There are several benefits to an index tracking stock:
1. Closely tracks the broad market indices
2. One-stock diversified portfolio
3. Lower commissions and fees

4. Instant order execution
5. Earns dividends
6. Stop-loss orders (sell orders)
7. The same characteristics of a stock
Closely Tracks the Broad Market Indices

Because the trusts have such a close relationship with the individual indexes,
they are easy to follow and their performance has a better chance of mirroring
the indexes than if you put your money in a mutual fund.
One-Stock Diversified Portfolio

One of the biggest advantages of index shares is the diversification they offer.
It’s important to have a well-diversified portfolio—owning different kinds
of stocks —should one particular stock or industry group suddenly post big
losses. Index shares offer diversification with just one stock. You can buy a
$100 share of an index that gives you the diversity of owning the 100 or 500
different stocks making up that index.
In a sense, these index shares can create a one-stock portfolio. You get a well
diversified portfolio by holding and tracking a single share. That’s a powerful
benefit with index tracking shares.
Lower Commissions and Fees

Index shares are very affordable. You can use an online broker to do a trade
for as little as $10. However, with most mutual funds, there is either a fee
associated with the fund or a fee may be assessed when you get out of the
fund; sometimes there are also hidden fees that are deducted from the equity
of the account every year.
With index shares, the fees are straight forward. Whatever commission your
broker charges to buy and sell a share of stock is what you pay to get in
and out of an index tracking stock. This makes it a great way to trade while
substantially reducing your investing costs, as it’s only one stock you’re
moving in and out of. Also, there is no cost to stay invested.
Instant Order Execution

While you can’t get in or out of a mutual fund during the middle of the trading
day, you can do this when you’re invested in an index share. To buy or sell your
mutual fund shares, you can’t get in and out of the trade the day you place the
order. Even if you place the order when the stock market first opens, your order
is not filled until a closing price is established at the end of the trading day. You
have to wait the whole day to get in or out of nearly all mutual funds.
Because index shares trade just like a stock, you’re in and out of the market
almost instantly—in the same amount of time it takes to execute a basic stock
trade. As fast as you an sell 100 shares of IBM you can buy or sell an index
share.

Earns Dividends
Many of the stocks within an index tracking stock pay dividends—the
stockholder’s share of the profits. Many of these companies distribute these
dividends on a quarterly basis to everyone who owns shares in that company.
When you own shares of an index tracking stock, you participate in the
dividends earned on the stocks making up that index. You are given your
portion of the profits or dividends as they’re distributed. Each of the index
stocks—the Spider, the Qs, and the Diamonds (to be discussed)—pays
dividends on a regular basis, either quarterly or monthly.
Stop-Loss Orders (Sell Orders)

Another big advantage of index tracking shares is that you can use place sell
orders with them—a safety net to get you out of a position when the value
drops. Unlike mutual funds, you can set a sell order on index shares to protect
yourself from a big loss in that index. Thus, when the index shares hit a
predetermined low point (stop-loss), the stock automatically sells so you don’t
lose more money.
All the Characteristics of a Stock

Index tracking stocks carry all the characteristics of stocks because they
are stocks—everything from the trade, to the tracking, to similar risks and
rewards.
Primary Index Tracking Stocks

If you want the benefits of owning stock without the volatility risks, you can
easily diversify your portfolio over many companies or industries with just
one stock purchase—using index tracking stocks.
The primary index tracking stocks are:
• DIA (The Diamonds)

Dow Jones Industrial Average
• SPY (The Spider)

S&P 500
• QQQQ (The Qs)

NASDAQ 100
These are just three… there are others. In fact, there will eventually be an
index tracking stock for nearly every sector, in addition to many international
markets (WEBS).

Dow Jones Industrial Average—

The Diamonds (DIA)
The Dow Jones Industrial Average is called the Diamonds and is based on the
Dow index; its ticker symbol is DIA.
The Dow is the most widely followed of the stock market indexes. A share
of this index is based on 1/100th of the Dow Jones Industrial Average. Thus,
if the Dow Jones Industrial Average closes at 10,000 points, one share of the
Diamonds is worth $100.
Below is a chart of the tracking stock of the Dow Jones Industrial Average
(DIA) index. As you can see, it looks just like a regular stock chart. You can
forecast this index tracking stock using the same tools and indicators you use
to forecast a regular stock.

S&P 500—The Spider (SPY)

This is a chart of the S&P 500 tracking stock, also called the Spider (symbol
SPY).
You don’t have to invest in the whole stock market; you can invest in one
part of it using the Spider—drug companies, transportation companies, banks,
brokerage firms, utilities, etc. The S&P 500 was developed to do this.
What they’ve essentially done is divide up the 500 stocks in the S&P into nine
industry groups, with an index share for each of them.
The nine industry groups are:
1. Basic Industry: big industrial companies that manufacture basic

materials—Dow Chemical, Union Carbide, ALCOA, Weyerhaeuser,
lumber companies, etc.
2. Consumer Services: entertainment companies and consumer

companies—Time Warner, Disney, McDonald’s restaurants, etc.
3. Consumer Staples: drug companies—Merck, Pfizer, Procter & Gamble,

etc.
4. Cyclical and Transportation: retail companies—Wal-Mart, Home

Depot, Gap stores, General Motors, Ford, etc.
5. Energy: giant industrial and oil companies—Exxon Mobil, Chevron,

Schlumberger, etc.
6. Financial: banking and financial service companies—Citigroup, Morgan

Stanley, Merrill Lynch, AIG, Wells Fargo, etc.

7. Industrial Select: big industrial companies—General Electric, Tyco, 3M

Worldwide, Corning, Honeywell, etc.
8. Technology: computer companies—Microsoft, Cisco Systems, Intel,

Oracle, etc.
9. Utilities: phone and power companies —Verizon, Qwest

Communications, BellSouth, Duke Energy, etc.
NASDAQ —The Qs (QQQQ)

This is the NASDAQ, the Qs—also called the “Cubes” because it is based
on the NASDAQ 100 index, which ends in the letter “Q.” The ticker symbol
for this index share is QQQQ. This index share is based on 1/40th of the
NASDAQ 100.
The interesting thing about this stock is the ability to play it using options.
With it you can buy calls and puts, sell puts, and sell covered calls at any time.
This allows you to diversify your portfolio with over 100 companies, yet still
benefit from options trading (discussed in greater detail in the options course)

Program Summary
Make the goal now to become better at working your money to make money.
Use the training you’ve received to think more like the pros do as you invest.
This investing program has been designed to help you find good investments
in a more logical, consistent, systematic, and repeatable way. Take advantage
of the Investor Toolbox to more quickly and easily find and research better
potential investments and benefit from the reults.

© 2005 INVESTools Inc. All rights reserved. Neither INVESTools or its subsidiaries nor any of their respective officers, employees, representatives, agents or independent
contractors are, in such capacities, licensed financial advisers, registered investment advisers or registered broker-dealers. Neither do they provide investment or financial
advice or make investment recommendations, nor are they in the business of transacting trades. Nothing contained in this manual constitutes a solicitation, recommendation,
promotion, endorsement or offer (buy or sell) by INVESTools, or others described above, of any particular security, transaction or investment.
Warranty disclaimer: The content included in this manual and the Investor Toolbox Web site is provided as is, without any warranties. Neither INVESTools
no any of its subsidiaries or affiliates make any guarantees or warranties as to the accuracy or completeness of, or results to be obtained from using, any of its
products or services (including any content therein). INVESTools and its subsidiaries and affiliates hereby disclaim any and all warranties, express or implied,
including warranties of merchantability or fitness for a particular purpose or use. Neither INVESTools nor any of its subsidiaries or affiliates shall be liable to you
or anyone else for any inaccuracy, delay, interruption in service, error or omission, regardless of cause, or for any damages resulting therefrom. In no event will
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lost profits or lost good will, whether in contract, tort, strict liability or otherwise, and whether or not such damages are foreseen or unforeseen with respect to any
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legal rights; you may also have other rights, which vary from state to state. Some states do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation or exclusion may not apply to you.
The principals and employees of, as well as those who provide contracted services for, INVESTools have not promised, represented or warranted that you will earn a profit
when or if you purchase securities. It is recommended that anyone trading securities should do so with caution and consult with a broker before doing so. Past performances
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5-Step Investing Formula

Online Course Manual

© 2005 INVESTools Inc. All rights reserved.

SECTION 8 Bonus Topics

Index Tracking Stocks / Exchange-Traded Funds (ETFs) .......................8

Dow Jones Industrial Average—The Diamonds (DIA).................11

S&P 500—The Spider (SPY) .......................................................12

NASDAQ—The Qs (QQQQ) ........................................................13

© 2005 INVESTools Inc. All rights reserved. page 2 of 15

INTRODUCTION SECTION 6 Step 4: Technical Analysis

THE 5-STEP INVESTING FORMULA

SECTION 5 Step 3: Fundamental Analysis

© 2005 INVESTools Inc. All rights reserved. page 3 of 15

INVESTools Investor Education aims to

The TurboSearch tool is a powerful

To use this tool, click on the “Searches” tab

T his brings up the main Searches page.

From here, click on one of the two

1. TurboSearch Bullish (upside: buy

2. TurboSearch Bearish (downside:

The search you choose depends on your

This brings up the TurboSearch page with

© 2005 INVESTools Inc. All rights reserved. page 4 of 15

TurboSearch lets you select one, a few,

With TurboSearch you can use hundreds of

Let’s do an example using TurboSearch

1. Click on the “Check All” button

2. Scroll to the bottom of the page to

3. In the “Big Chart” section, click

4. In the Phase 1 and Phase 2 section,

5. Click on the “Submit Search”

© 2005 INVESTools Inc. All rights reserved. page 5 of 15

Note: Be careful not to choose too many

Once the results appear, click your mouse

Once you’ve selected the stocks, you

If you choose “Compare,” you are cross-

In this example, let’s choose to “Add”

© 2005 INVESTools Inc. All rights reserved. page 6 of 15

All of the selected stocks are automatically

Please note that the stocks you select from

In the search results, it lists the stocks, as

© 2005 INVESTools Inc. All rights reserved. page 7 of 15

Index Tracking Stocks/

An index share/indexing tracking stock is basically a trust set up for the

Index tracking stocks are also referred to as exchange-traded funds (ETFs)

There are several benefits to an index tracking stock:

1. Closely tracks the broad market indices

2. One-stock diversified portfolio

3. Lower commissions and fees

© 2005 INVESTools Inc. All rights reserved. page 8 of 15

4. Instant order execution

6. Stop-loss orders (sell orders)

7. The same characteristics of a stock

Closely Tracks the Broad Market Indices

One-Stock Diversified Portfolio

Lower Commissions and Fees

Instant Order Execution

© 2005 INVESTools Inc. All rights reserved. page 9 of 15

Stop-Loss Orders (Sell Orders)

All the Characteristics of a Stock

Primary Index Tracking Stocks

The primary index tracking stocks are:

• DIA (The Diamonds)