Where Wealth Begins. Learn to Build a Portfolio PRESENTED BY: DENNIS W. WILBORN

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1 Learn to Build a Portfolio PRESENTED BY: DENNIS W. WILBORN

2 Disclaimer U.S. GOVERNMENT REQUIRED DISCLAIMER COMMODITY FUTURES TRADING COMMISSION FUTURES AND OPTIONS TRADING HAS LARGE POTENTIAL REWARDS, BUT ALS O LARGE POTENTIAL RISK. YOU MUST BE AWARE OF THE RISKS AND BE WILLING TO ACCEPT TH EM IN ORDER TO INVEST IN THE FUTURES AND OPTIONS MARKETS. DON T TRADE WITH MONEY YOU CAN T AFFORD TO LOSE. THIS IS NEITHER A SOLICITATION NOR AN OFFER TO BUY/SELL FUTURES OR OPTIONS. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR T O THOSE DISCUSSED IN THIS TRAINING. THE PAST PERFORMANCE OF ANY TRADING SYSTEM OR MET HODOLOGY IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS H AVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESU LTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN E XECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF AN Y, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PRO GRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. ALL MATERIALS PRESENTED ARE FOR TRAINING PURPOSES ONLY. TRADER S SHOULD PAPER TRADE ANY NEW METHOD PRIOR TO RISK OF PERSONAL CAPITAL.

3 Last month Lee Tanner presented his Model Portfolio based on trading IBD Quality Stocks from the IBD 50, Leaderboard, Sector Leaders Points Lee Made that Resonated: 1. Stay Fully Invested 100% Margin 2. Trade a Solid System that will take you in and out off the market at the Right Time 3. True Wealth is generated by working a Portfolio Building Plan Strategy I, and doing it again and again and again! 4. Patience, Persistence, Discipline, Confidence, Compounding 5. Some Stocks Work, Some Don t Fire the ones that don t

4 I was convinced that one of my weak spots was the ability to stay with a winner and build a portfolio! I had the tools but had not spent the time to develop my wisdom in this area! I wanted to know: o What would be required to build a portfolio o What should I expect o What about the rules o How can I simplify & clarify What if I applied Lee s concepts to trading my system on a smaller account? How would it have done in 2015? The following is what I learned in back testing and applying what was learned.

5 Conditions 1. Define Trading Capital 2. What Stocks 3. Define Rules 4. Test 5. Analyze & Refine Where Wealth Begins

6 Conditions Where Wealth Begins 1. Define Trading Capital~Bill O Neil Challenge: $5000 Marginable In the mid-60 s Mr. O Neil started with $5000 of saved and borrowed money at the beginning of a Bull Market and turned it into over $200K in a year. Can this be duplicated? It provides an good starting point.

7 Conditions Where Wealth Begins 2. What Stocks~~IBD 50: First list of 2015 I ve been studying the 1st IBD 50 (100) list of the year since Each year it has outperformed the Indexes by a significant percentage. It s where the Big Fish Swim! What about 2015?

8 Conditions Where Wealth Begins 2. What Stocks~~IBD 50: First list of 2015 Preliminary analysis of the first list of 2015 again shows the IBD 50 was the place to be to find great stock! First two data points.

9 Guidelines for Picking Stocks A Start Start Picking from the IBD 50, Sector Leaders, or custom MarketSmith screen. Annual Earnings Growth +25%, Quarterly Earnings Growth +25%, +50% if better, +75% is better,.. Quarterly Sales Growth +20% Accelerating Earnings and Sales Growth ( Very Attractive) Something NEW Do and Grade a Stock Checkup, Pick Grade B or better Full and Proper Base, describe the base. A/D Rating C or Better EPS Rating 95 RS Rating 95 RS Line headed up and making a new high. Composite Rating 95 U/D Volume Ration 0.9 ROE 17% PTM 18% ROE + PTM 30%, 40% or even 50% Read IBD articles, particularly New America. Visit the company website Concisely state the company business and what is new that is driving growth Lee Tanner Presentation to BAMM Nov

10 Conditions Where Wealth Begins 2. What Stocks~~IBD 50: First list of 2015 By limiting candidates to only the 1 st IBD 50 of the year, it also limited some of the other big winners that showed up on Leaderboard, MarketSmith or Sector Leaders. But this limitation also helped to reduce the potential of Cherry Picking great stocks after the fact!

11 Conditions Where Wealth Begins 3. Define Rules~~Both Trading and Stock Picking to assure no cherry picking! Rules covered three areas: 1. What to Buy Candidates from the 1 st IBD 50 of How much to Buy Determined by $5000 Account 3. When and how to Buy ATTS Rules 4. When to Sell Lee s rules with some modifications

12 Conditions Defining Rules Where Wealth Begins 2. How much to Buy Determined by $5000 Account

13 Conditions Defining Rules 3. When and how to Buy ATTS Rules Trigger: Close above 8 day EMA Entry: Pullback Approaching the 8 day EMA within cents Buy ½ position of full margin rounded down to full position ending with zero or five Preferably ending in zero makes the math easier! Add 2/3 of remaining shares when up 2.5% from Entry Price Add last 1/3 of remaining shares when up 4.5% from Entry Price Do Not Buy and Hold the Week Before Earnings!

14 Conditions When to Enter Examples SWKS 1/8/15: Close above 8 day EMA /9/15: Pullback intraday approaching 8 day EMA: Enter at with a conditional order 1/9/15: Adds Start at 74.55

15 Conditions Defining Rules Where Wealth Begins Questions?

16 Conditions Defining Rules Where Wealth Begins 4. When to Sell Lee s rules with some modifications o Sell Rules fell into three categories a. Hard Sell Rules to Protect Capital b. Hard Sell Rules to Protect Profit c. Guidelines and Rules of Thumb

17 Conditions Defining Rules: When to Sell Protective Sell Rules: Sell -4% below entry price. Why not 7-8%? If -4% failure three times stop buying and study. If portfolio is down 4% for the week (no margin) to 8% (full margin), sell weak stocks to reduce exposure. Generally sell at least one full position to cut risk. Sell if a breakout did not happen or stalled out, but mostly don t use this rule unless you are sure. (Failed Breakout Sell Rules)

18 Conditions Defining Rules: When to Sell Profit Protection Sell Rules Take gains +20% to +25% above buy point, unless within the first 8 weeks. (Profit Goal Sell Rule.) Stocks surging up past the sell goal may be held using the 8-day or 8-week EMA as a selling guide. (Short tern gain extension) When profitable 6%-11% use 10%-12% cushion. Adjustable Trailing Stop (Decline from the peak sell rule) Sell on Close below the 8 week EMA Sell if it plunges below the 50-day on huge volume. Sell if it gaps down on huge volume. (Big Gap Down on Huge Volume)

19 Conditions Defining Rules: When to Sell Guideline and Clarification Sell only if written sell rule is triggered. Select a few stocks to hold for longer term, larger gains Keep a 3 to 1 profit to loss plan. (Profit-to-Loss Ratio Rule) If up 20% in 3 weeks hold 8 full weeks. (Certain-teed hold rule) Don t sell for profit taking for the first 8 weeks. During this time sell only if a protective sell rule is triggered. This is like the 25% profit goal, #2. Hold until you reach 8 weeks, and +25%. In a few cases you might hold a stock for 13 weeks before concluding it is not going to perform. (Time Goal Sell Rule) If closes a week up 60% from IP then use big cushion sell rules. (Big cushion sell rules) Probably sell if a breakout on good volume stalls and goes negative within a day or two. (Failing Breakout sell rule.)

20 Conditions Defining Rules: When to Sell Guideline and Clarification Assess risk and sell if needed before earnings, but hold if possible for the earnings report. (Earnings Release Hold Rule) Generally hold stocks that are going sideways for 13 weeks (one quarter) before dumping it, but the least performers may be sold to feed winners or buy new opportunities. If market corrects you may sell lagging positions to reduce exposure. May sell is if a stock is persistently weak after owning it for eight week. Plunged significantly (4%-5%) on huge volume (+100% or more). Sell all of a stock in a climax top. If in doubt you can scale-out. Usually sell all of a stock that has a takeover offer. Sell all or part of stock if afraid or confused.

21 Break Back in 15 Minutes

22 Conditions 4. Back Testing Where Wealth Begins Process of picking stocks Start 1 st week in January Go stock by stock and pick the first stock that provides a valid entry When the number of stocks are full, stop searching and manage each week Use Sell Rules & Guidelines

23 Conditions Testing Criteria & Tools Week 1

24 Conditions Testing Criteria & Tools Week 1

25 Conditions Testing Criteria & Tools Week 1 1/9 BITA 1/2/15: Close above 8 day EMA 1/12 1/6/15: Pullback intraday approaching 8 day EMA 1/9/15: Spikes up over 20% 1/12: Falls > 12% from high 1/6 Important to note: Must do home work daily/nightly to reset tracking spread sheet

26 Conditions Defining Rules: End of Jan

27 Conditions Defining Rules: End of Feb

28 Conditions Defining Rules: End of March

29 Conditions Defining Rules: End of April

30 Conditions Defining Rules: End of May

31 Conditions Defining Rules: End of June

32 Conditions Defining Rules: End of July

33 Conditions Defining Rules: End of Aug

34 Conditions Defining Rules: What Happened in August 8/21 100% Out of the Market!

35 Conditions Defining Rules: End of Sept

36 Conditions Defining Rules: End of Oct

37 Conditions Defining Rules: End of Nov

38 Conditions Total Gained from $5000 Start

39 Conditions % Invested Where Wealth Begins

40 Conditions S&P Correlation Where Wealth Begins

41 Conditions Analysis & Refinements Total Stocks Traded in 11 months = 11 (BITA, SWKS, NXPI x 2, AFSI x 2, NOAH, AMBA, FB, ADS, TSM x 2, AKRX, WAL) Average Hold Period = 49 Days Average Return on Sold Positions = 14.3% Highest Return = 46.3% AMBA Lowest Return = -6.8% WAL Portfolio up 327.8% by end of November This exercise is a Model Portfolio Returns simulate perfect trading conditions. This is not a promise of similar returns. The market has a mind of it s own!

42 Summary Challenge: After getting up to $10K much harder to stay fully invested Go to next higher level of stock the week after new $ Thresholds are achieved Surprises: How well system sized portfolio to match market conditions almost automatically. The Rules automatically sold at the right time so capital was available for the next upswing Managing even a small number of stocks requires diligence, patience, discipline & desire! The IBD Stock Lists are a great place to start the search Staying fully invested when its appropriate works! Focus for ATTS Strategy 1 going forward

43 Questions?

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