Insider Profit Trader TRADING MANUAL

Transcription

1 Insider Profit Trader TRADING MANUAL 1

2 The Insider Profit Trader Trading Manual I remember when I finally got what successful investing was all about. It was the late 1990s; I was a financial journalist in those days. I was prepping for a trip out to Omaha, Nebraska, to cover Warren Buffett s Berkshire Hathaway annual shareholder meeting. So I started reading everything I could find on the guy. I started with the shareholder letters that Buffett publishes every year a great investing resource, filled with easy-to-understand nuggets about the importance of looking deep into a business for what others missed. So when I met someone who thinks the way Buffett and I do, I told my publisher: We need this person on our team as soon as possible. And that s how investment expert Brian Christopher joined my team here at Banyan Hill. Over the past year, we ve collaborated on a proprietary three-tiered strategy for targeting insider trades. We re proud to bring you this research in our new service, Insider Profit Trader. While I bring my years of investing expertise to this service, Brian is the heart and soul of our project. He selects every trade, and he and our team spend every single day monitoring developments in the Insider ProfitTrader portfolio. There are about 500 trades every month that come across our desk. But we only want the best trades. So Brian and our team narrow these down to the best of the best, until we re absolutely certain that each trade has the best chance at being profitable. I ve asked Brian to explain the strategy we follow in Insider ProfitTrader, as well as everything else you can expect from us over the next year. And with that, I ll hand it over to Brian Jeff Yastine Navigating Market Dangers I used to be a turnaround consultant. Basically, I provided financial consulting and analysis services to struggling or bankrupt companies, along with their attorneys and lenders. These services varied. I would value a company or division advise attorneys who had questions about the meaning of financial statements run the accounting and finance division of a company. My clients varied, too. 1

3 I worked with companies with billions of dollars in sales and those with a few million. I even worked with individuals in financial trouble. I helped to rehabilitate companies, but sometimes they were too far gone. That s one of the things that stuck with me from working in this space I ve seen people suffer more than they deserved to. I ve seen pension benefits get watered down. This was usually because when the business cycle turned down, management hadn t squirreled away enough for a rainy day. I ve worked with people who put all their eggs in one basket. That s just a saying until you see its grim effects. One gentleman I respected almost died when the employer stock he had pinned his and his wife s retirement hopes on dropped suddenly. Victor wasn t young. I never learned his exact age, but he was more than halfway through his working career when I met him. Never fat, he became gaunt as the stock price fell. Eventually, he was admitted to the hospital to address the debilitating effects of the stress. I ve never forgotten him. The company eventually recovered and so did Victor s retirement plan. He is still with us, but I imagine that experience cut some time off his life. It s stories like his that drive me. It s the main reason I do what I do. I want to help you grow your hard-earned wealth. I want to help you avoid Victor s mistake: placing all your hope in one stock soaring higher, only to sacrifice your health and peace of mind in return. I want to help you find reasonably priced stocks with minimal downside, but with the potential to go much higher. And with Insider Profit Trader, Jeff and I aim to do exactly that By the end of this report, you ll know how we use our Insider Profit Trader system to pinpoint what stocks insiders are pouring into and which of those are poised to move much, much higher. We ll then show you how we re going to make massive gains from them by using our three-tiered strategy. Our trading manual will show you the ins and outs of trading with our system, so you ll be able to survive and prosper no matter that the market does in the coming years. Making Money With Insider Profit Trader As Jeff and I often talk about in our Banyan Hill articles, following insiders into trades can be incredibly lucrative. Everyone no matter their age, net worth or investment experience can profit from legal insider trading. Now, I m not talking about anything illegal. I m not talking about non-public information. I m talking about the kind of information you can gather from studying what insiders have made publicly available. Yet, many don t know it s out there. See, when it comes to legal insider trading, company executives have to report all their trades to the Securities and Exchange Commission (SEC). They file what s called a Form 4, which reveals exactly how many shares of stock they re buying. It s a massive signal. (Anyone can access this information, simply by going onto the SEC website.) 2

4 FORM 4 You may not send a completed printout of this form to the SEC to satisfy a filing obligation. You can only satisfy an SEC filing obligation by submitting the information required by this form to the SEC in electronic format online at (City) (State) (Zip) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C OMB APPROVAL OMB Number: Expires: August 31, 2018 Estimated average burden hours per response 0.5 Check this box if no longer subject to Section 16. Form 4 or STATEMENT OF CHANGES IN BENEFICIAL OWNERSHIP Form 5 obligations may continue. See Instruction 1(b). (Print or Type Responses) 1. Name and Address of Reporting Person* 2. Issuer Name and Ticker or Trading Symbol 5. Relationship of Reporting Person(s) to Issuer (Check all applicable) Director 10% Owner (Last) (First) (Middle) 3. Date of Earliest Officer (give Other (specify 4. If Amendment, Transcaction Required title below) below) Date Original to be Reported Filed(Month/Day/Year) (Month/Day/Year) (Street) 6. Individual or Joint/Group Filing (Check Applicable Line) Form filed by One Reporting Person Form filed by More than One Reporting Person Table I Non-Derivative Securities Acquired, Disposed of, or Beneficially Owned 1. Title of Security 2. Trans- 2A. Deemed 3. Trans- 4. Securities Acquired (A) 5. Amount of 6. Owner- 7. Nature of (Instr. 3) action Execution action or Disposed of (D) Securities ship Indirect Date Date, if Code (Instr. 3, 4 and 5) Beneficially Form: Beneficial any (Instr. 8) Owned Direct Owner- (Month/ (Month/ Following (D) or ship Day/ Day/Year) Reported Indirect Year) (A) or Transaction (s) (I) Code V Amount (D) Price (Instr. 3 and 4) (Instr. 4) (Instr. 4) Reminder: Report on a separate line for each class of securities beneficially owned directly or indirectly. * If the form is filed by more than one reporting person, see Instruction 4(b)(v). Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. (Over) SEC 1474 (11-11) When insiders tip off that it s time to buy a stock, they really mean it, and if you invest along with them, the profits can be massive. Often, these insiders are getting into the stock just when Wall Street gives the company up for dead. Take Weight Watchers, for example. The media was criticizing the company because it was having trouble growing sales like it had in the past. But it was still profitable and had a plan. Even before shares bottomed below $4 per share in July 2015, Director Denis Kelly began buying. He purchased 1,000 shares in May of that year. Not a huge purchase, but a sign of things to come. Kelly s insider knowledge gave him the fortitude to keep going. He bought another 10,000 shares in August, then 5,000 in March 2016 and 10,000 more in May Soon after, Weight Watchers began to surge. Folks who bought on Kelly s first big purchase in August 2015 would have seen a 1,641% gain at the top! These insider purchases preceded the eventual stock price jump. That s exactly what I watch for. But there are thousands of companies and even more executives. Surely there s a way to narrow down these buys to ones signaling massive gains to come. This is where Jeff s and my three-tiered strategy comes into play. 3

5 Weight Watchers International, Inc. $120 $100 $80 Denis Kelly filed Form 4 here $60 $40 $20 $0 8/2015 2/2016 8/2016 2/2017 8/2017 2/2018 8/2018 In effect, this strategy allows us to slip inside the boardrooms of all 3,600 publicly listed U.S. companies And this system allows us to pinpoint the insider buys set up to offer the easy, fast, consistent profits. With our three-tiered strategy, you ll be able to follow insiders like Denis Kelly to massive gains. Our 3-Tiered Strategy: How We Pick Our Stocks Insiders buy millions of shares every day. So how do we boil these down to the next big win? We use our proprietary three-tiered strategy. Basically, when Jeff and I recommend a stock, we do three things: 1. Vet the Insider Purchase. Company insiders are the key to our success. C-level executives, board members and 10% owners have unmatched insight into their own company. So we want to watch what they re buying. So for the first tier of our strategy, we look to make sure the insider is using his or her own money to buy company stock. Insiders like C-level executives are often given stock as a perk, such as options or through restricted stock issuances. We don t want to include those. Our standard is that insiders must buy their stock the same way you and I buy shares with their own hard-earned money. Why? Insiders plunking down their own money to buy their company s stock means they have a strong conviction that the stock will go up. We also look for cluster buying. Let s say three to five insiders are making purchases around the same time. That s a big indicator that a stock is poised to rise. And the last thing we look for is big or infrequent purchases. If an insider is dumping a few grand into a stock, it s not a big deal. But if they re dumping in hundreds of thousands, or even millions, of their own, that s a massive buying signal. There are some stocks out there that see more selling than buying. Tech stocks commonly see this because stock options are an important part of the compensation structure. So, when we see insider buying at these companies, we pay attention. 4

6 2. Look for Financial Strength. We use several factors to assess a company s financial strength score. We rank all the companies with insider buying using these criteria. Two major ones are the enterprise multiple and free cash flow. To calculate the enterprise multiple, we begin with the company s enterprise value which is a measure of the company s total value. This is calculated as the market capitalization plus debt, minority interest and preferred shares, minus cash. The company is worth the value of its debt plus its equity. The market cap, minority interest and preferred shares reflect the total value of a company s equity. We then take the enterprise value (EV) and divide it by earnings before interest, tax, depreciation and amortization (EBITDA). This is EV/EBITDA. The lower the multiple, the better. A lower number means the company is generating more earnings compared to its total value. If you are familiar with the price-to-earnings (P/E) ratio, it s the same concept. We prefer to buy companies that generate a lot of profit relative to their price. Free cash flow is a measure of how much cash a company has after deducting expenditures like major equipment purchases. We look at free cash flow compared to price (or market cap). We also want to see a growth in free cash flow compared to the prior year. If, after we review the enterprise multiple, our free cash flow metrics and our other metrics, the stock doesn t show promising growth, we move on to the next opportunity. 3. Measure the Stock s Velocity. In Insider Profit Trader, we re looking for stocks that are heading higher. So we look at velocity which is how we know the stock is a great trade right now. To determine a stock s velocity, we look at its Relative Strength Index (RSI). More specifically, we look at RSI 9, where nine simply represents the number of days. Now, the RSI is a momentum indicator that shows how a stock is moving. RSI is calculated over many time periods. While we will look at others, we ll mainly focus on RSI 9. It helps us find stocks that are moving up right now. RSI 9 helps us time our trades: It lets us know when to get into a stock. It can also alert us when momentum is fading and it s time to exit the trade. So now you see our process. After Jeff and I are tipped off by insider buying at a particular company, we put it through our other two tiers financial stability and velocity to see if it s a worthy trade. If it is, we ll shoot you a trade alert to get into the company right away. How We ll Use This Strategy to Grab Gains Now that we ve covered the main goal of Insider Profit Trader to bring you the little-known trades insiders are making to attain massive gains let s turn our attention to the mechanics of getting there. Here are the main things to know when buying and selling our trade recommendations Buying Our Shares How to buy our companies: Our trading frequency won t be the same from month to month. You will typically receive 12 to 24 new buys a year about one or two a month. These will come in an alert, packed with information about the insider buying that triggered the trade, the company s financial health and its velocity. Jeff and I do all the research for you so that you ll be fully 5

7 confident in our trade. And if you don t always have access to your , you can opt to receive our text alerts, which will notify you that a trade has just landed in your inbox. (You can sign up for that service here.) Each trade alert will come with simple directions in bold for the action to take. In every action to take, I ll give you the name of the company, the stock exchange, the stock s ticker symbol and the limit price. (See the section below titled Using Limit Orders to learn more.) Here s an example of a fictional stock trade: Example Only: Action to take: Buy Insider Profit Trader (NYSE: TPOF). Use a limit order to make sure you pay no more than $11. Below is an example of the price chart (or buyzone ) I ll include in each alert, so you can understand how much to pay for the stock. It shows both the high and low end of the price you should pay for your shares, as well as the percentage difference between the current price and the higher/lower choices. Insider Profit Trader (NYSE: TPOF) BUYZONE Less Middle Very Cheap Cheap (Current Price) Expensive Expensive $9.00 $9.50 $10.00 $10.50 $ % -5.00% 5.00% 10.00% Use the buy-up-to price based on your preference. Simply follow these instructions by entering the trade with your broker and you ll be all set. It s that simple. And don t worry about having to watch your trades around the clock: We ll touch on our trades in our weekly updates so you never have to worry. Always make sure to check our model portfolio to see if the stock is currently rated a buy or hold. If there s a drastic move above or below our buy price, we ll update you in a special note or in our weekly update. How much to buy: The biggest mistake you can make when executing one of our trades is picking one recommendation and betting everything you have on that ONE company. We urge you not to bet the house on a single stock. That s an easy way to lose your money in one fell swoop. Instead, you should diversify and own a series of different holdings in your portfolio to limit your exposure to any one company. Insider Profit Trader helps with that because our system is industry agnostic. We aren t looking for stocks from a particular sector just solid values. We also recommend an easy-to-follow concept to help ensure you don t get too overweight on a single name. It s called the 10/100 approach. Let s say you have $1,000 in your Insider Profit Trader account. If you use our approach, you should spend a maximum of $100 on each stock you buy. If you have $100,000 in your Insider Profit Trader account, you would spend a maximum of $10,000 per stock. Even if we have more than 10 trades in the portfolio, you can still follow this basic idea. The whole idea here is to spread your bets. We don t want to allocate too much capital to a single trade. Using limit orders: It s important to get in the habit of using limit orders, rather than market orders. This applies to buys and sells. 6

8 Market orders, as you may know, are buy or sell orders that are executed immediately at the market price. Limit orders, on the other hand, are orders to buy or sell at a specific price. Limit orders are crucial in Insider Profit Trader because some of the stocks we trade will be smaller and will trade less frequently. When you trade illiquid stocks, it s important to use a limit order. Otherwise, your trade can execute at a price that is much lower than the stated market price. Before I explain the importance of limit orders, let s go over some vocabulary: 1. The bid price is what an investor is willing to pay for shares. 2. The ask price is what an investor is willing to sell his or her shares at. Take a look at General Electric Company (NYSE: GE) as an example: GE is not an illiquid stock it trades more than 63 million shares per day. As such, its bid and ask prices are similar. See the two prices in the blue rectangle above? If you enter a market order for GE, it should fill for no more than $12.31 per share. However, stocks that trade fewer shares each day generally have wider bid-ask spreads (the difference in price between the bid and the ask). Take 180 Degree Capital (Nasdaq: TURN), for example. It trades 0.001% of the shares that GE does each day. You can see below that its bid and ask prices are much further apart than GE s. If you enter a market order to buy TURN, it might fill at $2.20 that s almost 3% higher than its last trade. That s bad enough, but it could fill for a price much higher than that. This can happen when a stock doesn t have much liquidity. So don t do it. Get in the habit of placing limit orders to buy AND sell shares. It ensures you will get an amount that doesn t materially reduce your expected return. Selling Our Shares How to sell our companies: A big question we get from readers is: How do I know when to sell? This is one of the reasons we know we have smart subscribers. The fact is, selling is the most important part of the equation. After all, you don t have a real or realized gain until you sell the shares. We could hold a stock for a long time if it maintains positive momentum and doesn t trigger our trailing stop-loss. But it s likely we will sell most of our positions within a year. 7

9 The simple answer is that you ll know when to sell because we ll send you a sell alert. These will be quick alerts explaining why we re exiting the position either to take profits or preserve capital. The directions will look like this: Example Only: Action to take: Sell Insider Profit Trader (NYSE: TPOF). Use a limit order to make sure you sell for at least $25. And if you ever want to look up the market price yourself, you can get it by searching for the stock symbol in Yahoo! Finance or any other financial website. Trailing stop-losses: Above I mentioned a simple answer for how you ll know when it s time to sell we ll send a sell alert. The more in-depth answer is that you ll know because we ll use something called a trailing stop-loss. These can help us lock in our hard-earned gains if the stock starts to fall. They are also critical to ensuring our unsuccessful trades don t steal too much of our hard-earned capital. A trailing stop-loss is simply a stock price that forces us to sell. We determine that price by deciding how far a stock can fall below its high before we sell it. At first, a trailing stop determines how much of our capital we re willing to risk on our position. For our stocks, the stops will vary. They are generally somewhere between 20% and 30%. This is because I like to use stops that are based on the volatility of the stock. For a stock whose prices move a lot, we want to make sure we don t get stopped out as part of the stock s normal trading. Tech and biotech stocks, for example, are often volatile. If we know a stock trades in a wide range, we don t want to set a stop that could force us to sell before the stock can move higher. As an example of how trailing stops work, though, let s consider a 25% stop. In other words, if we buy a stock for $10 per share and use a 25% trailing stop, we would sell if it fell to $7.50. We would exit the position with 75% of our capital intact. That s important because if we lose 25% of our capital, we only need a 33% gain to recover it. If we lost 50% of our capital, we d need a 100% gain to recover it. The beauty of the trailing stop is that it protects us even if the stock moves higher. Let s say the stock we bought for $10 moves up to $20. Our original stop price was $7.50. If it falls down to that level, we d lose all of our profits and more. We don t want that. So, the trailing stop-loss is calculated based on the highest price our stock achieves. At the current $20 stock price, the stop-loss moves to $15, or 25% below $20. If the stock falls to $15, we ll sell. And we ll still have a 50% gain. If we waited to sell until it fell to $7.50, we d actually have a 25% loss. That s why we always protect our capital and use stops. Regardless of the amount of work and research we do, there are always risks that can cause stocks to fall. Now, we know some of you might stress about keeping track. Don t worry. We ll publish our buy-up-to price and the trailing stop price in the model portfolio. You can track these values yourself, too, so you ll be prepared to act. We will only sell our positions, though, if the stock closes below our trailing stop. If the price simply dips below it during the day, then rises past it again, we ll keep holding on. Keep in mind that we do not suggest entering these trailing stop-losses with your broker. We suggest simply keeping them in mind. That way, you won t be thrown out of a position before we ve officially decided to sell it. 8

10 Welcome to Insider Profit Trader! As Jeff and I told you before, we re going to work incredibly hard to give you the chance to see a triple-digit gain every 90 days. Our Insider Profit Trader system takes aim at the absolute best trades to make you rapid profits. And we re excited for you to get started. Now, don t get us wrong we re not perfect. While I would love for every single investment to be a home run, every now and then one is going to fall short. But the number of big winners is going to far outpace the losers. And I can t wait for you to start raking in those winners. In our back test, we saw gains of: 118% on Ciner Resources. 105% on Macy s. 132% on PAR Technology. 151% on Rocky Brands. 171% on Natural Grocers. 203% on AMERI Holdings. 494% on DS Healthcare Group. So please, peruse the website when you have a moment. Familiarize yourself with the model portfolio, the special report, past updates and so on. That way, you ll be all set when you start trading. Remember, you only need a basic brokerage account to make our trades. We don t recommend you use any particular broker. Just pick one that has low service fees and an interface you find easy to use. This list should serve as a good starting point: Broker Contact Information Interactive Brokers Fidelity E-Trade ETRADE-1 eoption Ally Charles Schwab TD Ameritrade And if you ever have any questions, please don t hesitate to reach out. From time to time, we will gather together the most-asked questions that we receive and answer them in your weekly updates so that you are completely confident and comfortable trading our system. You can always reach out to Jeff and me at insiderprofit@banyanhill.com. 9

11 Please note that due to the volume of s we receive, we may not be able to answer every question individually, nor can we give personalized financial advice. But we always keep your thoughts in mind when pulling together our updates. Again, welcome to Insider Profit Trader! We look forward to enjoying a long, prosperous relationship together. Good investing, Brian Christopher & Jeff Yastine Editors, Insider Profit Trader 10

12 Banyan Hill P.O. Box 8378 Delray Beach, FL USA USA Toll Free Tel.: (866) Website: LEGAL NOTICE: This work is based on what we ve learned as financial journalists. It may contain errors and you should not base investment decisions solely on what you read here. It s your money and your responsibility. Nothing herein should be considered personalized investment advice. Although our employees may answer general customer service questions, they are not licensed to address your particular investment situation. Our track record is based on hypothetical results and may not reflect the same results as actual trades. Likewise, past performance is no guarantee of future returns. Certain investments carry large potential rewards but also large potential risk. Don t trade in these markets with money you can t afford to lose. Banyan Hill Publishing expressly forbids its writers from having a financial interest in their own securities or commodities recommendations to readers. Such recommendations may be traded, however, by other editors, its affiliated entities, employees, and agents, but only after waiting 24 hours after an internet broadcast or 72 hours after a publication only circulated through the mail. (c) 2018 Banyan Hill Publishing. All Rights Reserved. Protected by copyright laws of the United States and treaties. This report may only be used pursuant to the subscription agreement. Any reproduction, copying, or redistribution, (electronic or otherwise) in whole or in part, is strictly prohibited without the express written permission of Banyan Hill Publishing. P.O. Box 8378, Delray Beach, FL USA. (TEL.: ) 11