Step 1 - Searching For Stocks

5-Step Investing Formula Online Course Manual
Step 1: Searching for Stocks
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THE 5-STEP INVESTING FORMULA
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Section Contents
SECTION 3
Using a Prebuilt Search ......................................................................... 5 Navigating the List of Stocks ................................................................. 7
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Course Overview
INTRODUCTION SECTION 1 Getting Started Logging into the INVESTools Investor Toolbox Support Links Workshop Review Account Information Subscription Renewal Technical Support Contact an Instructor SECTION 2 Introduction to Investing Tolerance for Risk Setting Goals Asset Allocation Tax Exposure Brokerage Firms Introduction to the 5-Step Investing Formula THE 5-STEP INVESTING FORMULA SECTION 3 Step 1: Searching for Stocks Using a Prebuilt Search Navigating the List of Stocks SECTION 4 Step 2: Industry Group Analysis Top-Down Analysis Big Chart AutoAnalyzing All Stocks in a Group Best & Worst Industries List SECTION 5 Step 3: Fundamental Analysis Phase 1 Phase 2 Price Pattern Volatility Zacks Report Market Guide News AutoAnalyzer
SECTION 6 Step 4: Technical Analysis Technical Indicators Moving Averages MACD Stochastics Volume Support & Resistance Buy Signals Money Management Sell Stop Orders How Many Shares to Buy Sell Signals Insider Trading SECTION 7 Step 5: Portfolio Management Creating a Portfolio Managing Your Portfolio Paper Trading Account BONUS SECTION SECTION 8 Bonus Topics TurboSearch Index Tracking Stocks / Exchange-Traded Funds Dow Jones Industrial Average The Diamonds (DIA) S&P 500The Spider (SPY) NASDAQThe Qs (QQQQ) SECTION 9 Introduction to Options Advantages/Risks of Options Leverage Call Options Put Options Covered Calls SECTION 10 Appendix Phase 2 Stock Scoring Form Phase 2 Quick List for Zacks Report and Market Guide Investment Tracking Record SECTION 11 Glossary
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Searching for a stock is the first step to systematic investing. Knowing how to look for stocks puts you in control of your investing. Good investors are not controlled by their investments; instead, they control their investments. You, too, can do this using prebuilt search tools to find positive stocks quickly and easily... making it a cinch to be consistent and in control of yo ur investing. Experts in both investing and technology have put together the Investor Toolbox prebuilt searches to find specific stocks according to certain criteria. These searches are also backtested, which is a process of looking at historical results generated over time. Only searches that have performed well are posted. The Investor Toolbox offers over 50 different prebuilt searches to help you find potential investment candidates. Each prebuilt search looks at all the stocks in the database using specific screening criteria and displays the top 25 stocks that most closely match the criteria of the search you choose. With a simple click of the mouse, you can easily find 25 of the best stocks from the entire database in just a few seconds.
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Using a Prebuilt Search

To use the Investor Toolbox prebuilt searches, follow these three steps:
Step 1: Click on the Searches tab located on the Investor Toolbox main toolbar.
The main search page will appear with more than 50 different prebuilt searches to select from, as seen here. One of the first questions people often ask is, Which of all these searches should I run? Because there may be some confusion as to which search you should use when you first start out, we put together a list of our instructors favorite searches. Each instructor offered a search that he/she has found good success with to put in the list. These searches are listed at the top of the page. You can click on the notepad icon for an indepth description of a particular search.
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When you click on a search notepad icon, a screen comes up describing that particular search in detail. It tells you exactly what criteria the search is looking for and how it works to find investments. Caution: Dont get too caught up in how the searches work. How they are built is not important. What is important is finding good, solid stocks.
Step 2: To perform a search, click on one of the prebuilt searches. For the purpose of this example, well use Great Earnings, Sales, C.F. Growththis search looks for companies with great earnings, sales, and cash flow growth. The computer then searches its database of over 12,000 stocks to find the top 25 stocks that best meet the criteria of the search you selected.
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The top 25 stocks are displayed on the search results page, as seen to the right. Note: Dont just buy the first stock on the list. Statistically speaking, the 25th stock is as good as the first because it is still one of the best stocks out of 12,000 found by the search. Also, just because a stock appears in the search results does not mean its one you want to invest in. Its not unusual to eliminate many of these stocks as you go through a more rigorous analysis (described later). You are looking for the best of the best, not just a good stock that matched search criteria. When looking at the search results table, if a stock symbol has four or more letters, the stock is traded on the NASDAQ or the over-the-counter exchange. If the stock symbol is less than four letters, it is traded on the New York Stock Exchange or the American Stock Exchange. When you click on any of the symbol links listed on the search results page, a graph of that particular stock comes up.
Step 3: Scroll down the page to see the entire list of the top 25 stocks that meet the criteria of the search you selected.
Navigating the List of Stocks

The search results table consists of ten columns made up of the following information: Select: Allows you to quickly view charts of selected stocks or automatically add selected stocks to a portfolio. Symbol: The ticker used to represent a company. Each symbol is a clickable link that takes you to the stock chart. Name: The company name.
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Group: The stocks industry group symbol. This symbol is a link that takes you to a chart of that industry group (discussed later in more detail). Options: Signifies whether or not that particular stock offers options. It is a clickable link that takes you to the options available for that company, if applicable. Price: The current stock price, per share. Phase 1: The undervalued filter of the stock, which is used in fundamental analysis (to be discussed). MG-Zacks Combined Score: Automated fundamental score (discussed later). Price Pattern Score: Automated price pattern score (to be discussed). Volatility: Automated volatility score (to be discussed later).
Stock Symbol Once youve selected a stock to look at we will use Corinthian Colleges (COCO) for the purpose of this exampleclick on the stock symbol link. This brings up a one-year stock graph for that company. Note: In the right-hand corner above the stock graph are arrows next to stock symbols. These symbols are the previous and next stocks in the list of stocks returned from your search. The arrow links allow you to click to the next or previous stock graph on the list. You can continue through the list of 25 search results by clicking forward or backward on the arrows next to the symbols. The graph is always a 12-month graph by default, with the most recent month appearing on the right side of the graph.
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Below the chart are the time span buttons, which you can use to change the time frame of the graph. For example, when you click one of these buttons, you can bring up a one-month (1-M) or five-year (5-Y) graph of a stock (as well as the other time frames noted). On the one-year chart, each bar of data represents one full day of trading (the high, low, and closing price of each day). If youd like a better view of a recent buy or sell signal, you can magnify the signal by using the one-month, three-month, or six-month view. On these charts, each bar still represents one full day of trading. The buy and sell signals will appear exactly the same on each of these charts. This is an example of the one-month graph for COCO.
If you use the one-day, five-day, or tenday charts, each bar represents just a few minutes of time. This information gives you day-trading signals, which are different from the buy and sell signals on the onemonth to one-year charts.
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If you click on the five-year or ten-year chart, each bar of data represents a full week of trading. These charts provide longterm buy and sell signals that are at least five times longer than the signals on the one-year chart. If you are more interested in the buy-and-hold strategy, these signals are more appropriate. This is an example of the five-year graph for COCO.
The indicators are automatically applied to a chart. To remove these indicators, click on the Basic Chart link in the menu on the left-hand side of the page. Looking at a chart without the indicators is not a necessity, but the capability is there if you want it.
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The interactive graph is a powerful charting tool developed for our more advanced students. It is not something covered in detail in this class. To bring up an interactive graph of the stock, click on Interactive Chart in the left-hand menu.
This chart includes additional tools for basic and more advanced technical analysis, including trendlines, historical on-screen data and other customized features.
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Interactive graphs also allow you to use candlestick charting and other tools, if you prefer.
Industry Groups To look at the industry groups of the stocks in your search results, go back to the search results page and go over to Groups in the fourth column. All industry groups consist of three letters that identify the industry group. If you click on the industry group symbol (.EDU in our example), it brings up a graph of that industry group. The period in front of the symbol notates its an industry group. Note: The period must be included when you manually enter the industry group symbol into the Quote field; otherwise the system tries to find the stock EDU instead of the industry group. The basic function of the industry group chart is to tell you which way the group is moving and if institutional money (such as mutual funds) is moving into the stocks in that group. If this is happening, the group will generally move up. Industry group movement often affects stock movement, so look to see which direction the industry is moving. You want to invest in stocks with uptrending groups, as this shows support for continued upward movement in the stock.
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There are times when youll find an excellent stock opportunityeverything about it is great, except its industry group. You almost always want the stocks industry group moving upward, as this shows that institutional investors are entering the industry group stocks a key ingredient to significant moves in stocks. Back on the search results page, click on the industry group of our example stock (COCO), which is .EDU. The graph for .EDU will appear. In our example, the industry group is clearly trending upward.
Options Back on the search results page, click on the Options link. Note: If this column is blank for the stock youre looking at, there are no options available for that stock.
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Clicking on the options link for a stock brings up the option quotes table for that stock. The table lists all available options (both calls and puts) for the stock. Information on stock options is covered in detail in the INVESTools Investor Education Basic Options course; however, we will cover some of the basics here. An option is a contract that gives the buyer of the option the right to buy or sell a stock at a set price before the option expires. Think of it as a lease-to-own on a house: lets say you pay cash (premium) to the owner of a house and receive a contract that allows you to buy the house at the set price (strike price) of $150,000 before the contract expires (expiration date). If you pay $2,000 for a lease-to-own contract, it gives you the right to buy the house for $150,000 anytime you want as long as you do so before the contract expires. During the term of the contract, suppose some large multimillion-dollar homes are built on your same street, increasing the value of your house to $200,000. You have a contract that has intrinsic value of $50,000 (200,000 - 150,000 = 50,000). At this point there are three things you can do with your contract: 1. 2. Nothing: let it expire. Exercise it: buy the house for $150,000 and then sell it for $200,000, for a $50,000 profit (minus the original premium of $2,000). Sell it: sell the contract to someone else for $50,000, giving that person the right to buy the house for $150,000.
3.
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Option contracts work in a very similar way: 1. They have an expiration date set at 11:59 a.m. the 3rd Saturday of the expiration month. Since the markets are not open on Saturday, most traders refer to the expiration as the third Friday of each month, as that is the last day contracts are traded on the open market. They have a strike price, which is the price at which you agree to buy or sell the stock. They have a premium, which is the amount of money exchanged to buy and sell the option contract.
2.
3.
Key Points of an Options Table Looking at the options table for COCO, the stocks current price ($56.69) and its change for the day (-$0.59) appear in the upper right-hand corner. On the left-hand side of the table are the call options. You want to buy call options if you expect the stock to increase in value. On the right-hand side of the table are the put options. You want to buy put options if you expect the stock to drop in value. Separating the calls and puts on this table is the expiration date column (October) and the strike prices of the available options. Other key facts about options: Each option contract controls 100 shares of stock. Option quotes are displayed on a per-share basis. To calculate the true cost of one option contract, multiply the quoted option price by 100. The last day to trade option contracts on the open market is the third Friday of the month indicated.
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You do not have to hold an option until the expiration date; they trade every day in a similar manner to stocks. An important difference between a stock and an option is that an option expires after a certain length of time. As a result, if the underlying stock price does not move as you expected, the option you hold will expire worthless.
Now that we have the basics of an option, lets look at an option trade versus a stock trade. In this example of CTSH, the stock has been moving steadily higher since early June. In mid-August, the stock shows three green arrows, one on the 30-day moving average, one on the MACD, and one on the stochastics. The stock also trades in an uptrending industry and scores well in Phase 2. In other words, during this time, the stock is giving a buy signal (which you will learn about in detail later in the course). If we wanted to, we could buy the stock at its current price of $30.20 or we could buy an option on the stock instead. In our example of CTSH, well look in the options table at the October options. We want a strike price that is close to the current price of the stock, like the October $30 call option listed. The ticker symbol for the October $30 call on CTSH is UPU JF. It is trading at $1.80 x $1.85. If we buy it, it would cost us $1.85 per share or $185 per contract (remember, each option contract controls 100 shares). So to control 100 shares of stock costs only $185 using a call option versus actually buying 100 shares of the stock, which would cost $3,020.
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Once we buy UPU JF, we have the right to buy 100 shares of CTSH for $30 anytime before the option market closes on the third Friday of October. Our goal, however, in buying an option is not to buy the stock, but instead to sell the option and make a profit. Looking at CTSH four weeks later, it reaches $39 per share and starts to decline in value, just as the MACD and stochastics are showing red arrows. At this point it looks as if the stock is starting to pull back. Even though the stock is still in an uptrend, it is starting to show signs of weakness. This is a point at which many option traders consider selling the option they previously bought. At this point, the option ticker symbol UPU JF is trading at $7.40 x $7.60 and can be sold for $7.40/share.
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The difference between the option trade versus the stock trade can best be seen in the comparison table. To purchase the option would have cost $1.85/share versus $30.20/share for the stock. The option has much less money at risk. Even with 1/15th the investment, you would have made almost exactly the same amount of money with the option as you would have with the stock. The return on investment, however, was dramatically different. The option returned 300%, while the stock returned 18.7% over the same time frame. The one drawback to this option trade versus the stock trade is that the option is a timed investment and is good only until the option market closes on the third Friday of October. You can, however, choose an option with a longer expiration if you believe it will take longer for the stock to make its upward move. The more time you buy in an option contract, the more expensive it will be but also the more conservative it will be. Options provide leverage, which is a double-edged sword. Used correctly, leverage can be an investors most powerful ally; used incorrectly, it can be an investors worst enemy. Education is the difference. Options have been used for years to both reduce risk and exposure in the market and accelerate returns. As you progress with your investing education, you will want to learn more about this area of the market an area many of our students have cited as incredibly profitable.
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Price The stock price is listed in the Price column of the table. This price is updated throughout the day on a 15-20 minute delayed basis.
Phase 1 The Phase 1 score, used for fundamental analysis purposes, is listed in the next column. For COCO, the Phase 1 score is 5/2. Phase 1 scores are explained in greater detail in the chapter entitled Fundamental Analysis.
Phase 2 Scores Also listed are the automated numerical scores for Market Guide-Zacks, price pattern, and volatility, which will be discussed in great detail in this course. You can also click on selected stocks to import directly into a portfolio of your choosing (dont forget to save the stocks once added) and View Selected Symbols as Chart Thumbnails.
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In addition, you can sort the search results by any of the headings listed: Name, Group, Phase 1, MG-Zacks, etc., by clicking on that column heading. In this example, they are listed according to the MG-Zacks scores.
Select From the search results table you can also select stocks to put in a portfolio to watch. To do this, select the box next to the stock(s) you want to put in a watchlist portfolio. Once youve selected the stocks, click on the Copy selected symbols into a portfolio link. This will save those stocks in a watchlist portfolio, which you will need to title.
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Step 1 Summary
The prebuilt search tools in the Investor Toolbox make it quick and easy to find potential investments from a database of over 12,000 stocks. A computer-based search tool is unemotional, bringing back the best-ofthe-best stocks many youve never heard of. The results match the criteria in the particular search youve chosen. This will help you to be more rational in your decision-making process and more effective in your investing. No matter how good a system you have, it wont work if you dont follow these three important investing characteristics: 1. 2. 3. Discipline: follow the system. Patience: wait for signals. Controlled emotions: trust your own analysis and take input, but dont be overly swayed by the opinion of others; do the right thing for the right reason and know why youre doing it.
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2005 INVESTools Inc. All rights reserved. Neither INVESTools or its subsidiaries nor any of their respective ofcers, employees, representatives, agents or independent contractors are, in such capacities, licensed nancial advisers, registered investment advisers or registered broker-dealers. Neither do they provide investment or nancial 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 afliates 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 afliates hereby disclaim any and all warranties, express or implied, including warranties of merchantability or tness for a particular purpose or use. Neither INVESTools nor any of its subsidiaries or afliates 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 INVESTools nor any of its subsidiaries or afliates be liable for any indirect, special or consequential damages, including but not limited to lost time, lost money, lost prots 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 use of our products or services. In the event that liability is nevertheless imposed on INVESTools or any of its subsidiaries or afliates, such parties cumulative liability for damages under any legal theory shall not exceed the amount of fees you paid for the particular product or service. This warranty addresses specic 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 prot 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 of any principals and employees of, as well as those who provide contracted services for, INVESTools or any of its subsidiaries or afliates may not be indicative of futur performance. Securities used as examples presented in this manual or the Investor Toolbox Web site are used for illustrative purposes only and do not constitute a recommendation to buy or sell individual securities. They should be considered speculative with a high degree of volatility and risk. Trading securities can involve high risks and the loss of any funds invested; trading options can result in the loss of more than the original amount invested. No part of this manual may be reproduced in any form, by any means, photocopying, electronic or otherwise, without written permission from the publisher.
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Step 1 - Searching For Stocks

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5-Step Investing Formula Online Course Manual

Step 1: Searching for Stocks

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

Step 1: Searching for Stocks

Using a Prebuilt Search ......................................................................... 5 Navigating the List of Stocks ................................................................. 7

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

Using a Prebuilt Search

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

Navigating the List of Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks

2005 INVESTools Inc. All rights reserved.

THE 5-STEP INVESTING FORMULA

Step 1: Searching for Stocks