Guide. Zacks Investment Research, Inc 10 S. Riverside Plaza, Suite 1600 Chicago Illinois 60606

Transcription

1 Guide Zacks Investment Research, Inc 10 S. Riverside Plaza, Suite 1600 Chicago Illinois 60606

2 Contents Introduction 2 Section 1: The Mental Aspect 4 Section 2: Getting the Most Out of the Insider Trader 5 Section 3: Follow the Leader 6 Section 4: How to Read Insider Trader Alerts 7 Section 5: How to Read Insider Trader Daily Summary 9 Section 6: Virtues of Money Management 10 Section 7: Tying it All Together 11 1

3 Introduction: Congratulations on getting started with Zacks Insider Trader. This top secret service allows select Zacks customers access to the best stocks that insiders are buying for their own portfolios. When the insiders get greedy, so will we. Insiders are defined as officers, directors and owners that hold more than 10% of company stock. Many people think only of CEOs and CFOs when they think of insiders, but insiders can also be the General Counsel, the head of Human Resources or the Vice President of Operations for Latin America. Insider trading is perfectly legal as long as the insiders report their activity to the SEC. This is done by filing a Form 4 form with the SEC within 2 business days of the transaction. Because of these strict rules, it s possible to see, in a timely manner, what those in the know are doing with their stock and their money. Since corporate insiders are generally believed to know more about the future direction of their company and thus the possible future direction of their stock, tracking insider activity has proven to be both insightful and profitable. In fact, studies have shown that insider trading can outperform the market. We ve all heard about celebrity CEOs like Michael Dell of Dell Computer buying big chunks of stock in their companies and how the stock has taken off afterwards. But most investors never hear about the non-celebrity CEOs and top ranked officers when they buy their stock. After all, who cares when the top lawyer at a little known mid-cap company buys 500 shares of company stock? We do! For many insider buys, the results are the same; outsized gains. Of course, not all insider activity is statistically important, but certain types of insider transactions have proven to be highly predictive. And these are the ones that the Zacks Insider Trader focuses on. We of course start off with our time tested Zacks Rank to put the odds of success in our favor right from the start. Then we add our Insider Trader analysis. We do this by looking at the number of insiders buying the stock and the accumulation period. Was it a swarm buy, with several insiders buying, or a single massive buy by the CEO? Sometimes the sheer size of a single 2

4 insider purchase is enough for us to get on board. And with a holding time of anywhere from several weeks to several months, our goal is to do this again and again as insiders are forced to show their hand. You ll see you don t have to be an insider to profit like one. Before you begin, please be sure to read the rest of this guide as it will help you get the most out of this service. If at any time you have questions or comments, please feel free to contact us. We want to hear from you. Thanks again and good trading Sincerely Tracey Ryniec Editor, Insider Trader Stock Strategist- Zacks.com 3

5 Section 1: The Mental Aspect It is important to realize how much investment success is related to what goes on between your ears. There are so many ways to get distracted and to question yourself while trading. You must be in the right frame of mind and have reasonable expectations to achieve success with this or any investment service. So be sure to pay attention to the tips in this section carefully; they will get you headed in the right direction. NOBODY IS 100% PERFECT First of all, there will be losing picks, but if we cut them out early to minimize losses and maximize gains on winners, then we can achieve phenomenal results. A little known fact is that the Zacks Rank, even with its 26% annual return, is only right 56% of the time. We are extremely confident that over time we will produce substantial returns, but it is important that you learn to take the losing picks in stride. COMPOUND YOUR RETURNS The Insider Trader uses a system that identifies insider accumulation of a small subset of stocks to achieve its vast outperformance. Companies with officer accumulation tend to experience exceptional gains. However, while there will be some big winners, it is having consistent smaller gains that will really add up over time. This is what we call the beauty of compounding and how it works to an investor s advantage. Albert Einstein is said to have called compound interest the eighth wonder of the world and this is a prime example. So don t get discouraged when you are only seeing small gains on each respective trade, because that is exactly what this product is designed to do. TIMELINESS INCREASES ROI Let me ask you a question. Would you rather make 10% or 20% on a trade? Yes, it s a trick question. The missing piece of the puzzle is how long each trade was held. So now let s say that the 10% gain was made in 3 months time, which computes to a 46% annual return. On the other hand, the 20% winner took 2 years to achieve and is really only good for a 10% annual gain. This example solidifies the power of timely stock trading that we will harness with this service. Most often we will only be holding on for a few months and stringing together a 4

6 series of smaller winners. But from time to time we let winners run longer. DON T CHERRY PICK You should only subscribe to this service if you intend to fully investigate and act upon these opportunities. The best results from this service can be obtained by following every recommendation, with properly proportioned amounts invested in each selection. Picking and choosing among the selections is rarely successful and is a leading cause of dissatisfaction amongst subscribers. Section 2: Getting the Most Out of Insider Trader It is our job to provide you with timely and profitable stock picks, but there are steps that you can take to ensure your success with Insider Trader. Here are a few things you can do to get the most out of the product. 1. Read this guide carefully This guide is your friend. It has valuable information on how to use the product and succeed with the assistance of Insider Trader. It gives you step-by-step instructions on how to receive alerts and what to do when you receive them. It has important money management tips. 2. Have a working address This is necessary to receive trading alerts. Make sure you can access your in a timely fashion because acting on trades is essential to success. The Daily Summary will be sent at 8:00 p.m. EST, which summarizes the positions as well as what happened on Wall Street during that trading day. Intra-day trading alerts, while rare, will typically be sent within the first hours of the trading day. Unfortunately, many Internet service providers have software programs that filter 5

7 out s you want to receive, like Zacks Insider Trader Daily Summaries. To get optimal delivery of our s follow this link for quick and easy instructions. 3. Have an online trading account We are not advocating any particular company for this, but ideally lower commissions will help you achieve a higher overall return. You will make several trades a month, and high commissions can really eat into your profit margin, especially if you have limited capital. 4. Access the site To access the site, go to and enter your username and password. This will take you to the main page where you can view the portfolio, any pending trades, and the commentary. Section 3: Follow the Leader With Insider Trader, it is better not to pick and choose among the recommendations. We suggest that you follow each and every one of the picks to achieve overall success. The process to receive our trades is very simple, yet we feel it is so important that we are going to spell it out for you. Here are the four steps. Here are the four steps: Receive the with the daily summary or intra-day signal. Read the to determine appropriate action. Place trades through your broker with the appropriate % allotted. Follow the daily summaries to determine when to sell. Subscribers who realize the highest returns follow all of the recommendations, and those who do the worst try and cherry pick which buy signals to act on and which to pass on. Follow the signals and you ll maximize your opportunity for success. ACT PROMPTLY = MOST SUCCESS And if you don t beat the market, you can take advantage of our 100% Money Back 6

8 Guarantee. SPEAKING OF THE GUARANTEE... We feel that if we are not able to live up to our word and help you beat the market then we shouldn t be deemed worthy enough to take your money. So in addition to the 90-day, no hassle guarantee, there is a 100% Money Back Performance Guarantee. There are a few conditions that have to be met first, but the bottom line is that we have to perform. Click here for details. Section 4: How to Read Insider Trader Alerts From time to time, this strategy will have a trading alert during the trading day. When a Buy Alert or Sell Alert is sent out, you should receive the alert within the first hours of the trading day detailing what stock is being added or sold and the rationale behind the move. It is important that you act as soon as you can. Here is an example: Signal = The type of alert. It will be a green ball to initiate a position or a red ball to close a position. Company Name = The name of the company that is being added to or sold from the Insider Trader portfolio. Symbol = Ticker symbol of stock being added to or deleted from the portfolio. Date Added = The date on which the stock was added to the portfolio. Mkt Val % = The percentage of your allotted portfolio to allocate to this position Insider Trader Portfolio Commentary = As part of the alert, Tracey will explain her rationale for the addition. You will learn her reasoning for adding or selling the stock and the current price at which the stock is trading. Intraday alerts use the average of the price at the time of the alert and the closing price that day. Recommendations that use stops or limits will use that price for performance figures. 7

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10 Section 5: How to Read the Insider Trader Daily Summary The Daily Summary provides a wide array of details for Insider Trader each trading day. This summary may have new signals as well as the current open portfolio with daily commentary. The % allocation for each stock is also shown. This is valuable information as it conveys what our game plan is, why we are in each stock, when to get out and why, as well as any relevant news. This is ed to you at 8:00 p.m. EST. In regards to the price added/ deleted for the portfolio, Zacks uses the average of the price at the open and the closing price on the day the stock is added or deleted. 9

11 Section 6: Virtues of Money Management Money management can be the difference between realizing large gains and going broke, even if the winning percentage is the same. How can this be? The key point is that winning investors know to ride their winners and cut their losses quickly, and to stick with a plan that has proven to work in the past. Here are a few rules that you can follow to further improve your returns: First of all, don t dump your entire portfolio into these Insider Trader picks. Only allocate that portion of your capital that can be comfortably devoted to speculation. This portfolio will typically hold around 7 positions. You should be able to sleep soundly and act rationally if you are only trading with your speculative money. Keep in mind that reinvesting profits and the power of compounding are your friends in this portfolio. Those frequent singles add up to large gains in the end when the phenomenon of compound interest works its magic. EVER-PRESENT CLICHÉ RINGS TRUE The Insider Trader is a great service, no doubt. It has been said millions of times before, but it is so important it needs to be said again: Don t put all your eggs in one basket. Even if you are the most brilliant investor in the world, there will be losing trades. The key is staying in the game and building your equity over time in a systematic way. This can only be done when diversification is put to use. Not that we have to remind you, but the main point is that your capital was earned through years and years of hard work. Capital conservation sounds boring, but without it, you are fighting a losing battle. We don t want to see the money you have put your blood, sweat, and tears into evaporate due to lack of discipline. 10

12 Section 7: Tying it All Together It is our goal at Zacks to enhance your trading results via the Insider Trader service. This booklet touches upon the details of the service and provides several useful tips to realize the vast potential that insider trading can yield. We feel it is our job to let you know that we are here to help you get the most out of Insider Trader. Again, let s go over some of the important points made in this booklet. Follow Every Single Trade Small Gains Add Up To Big Results Not Every Trade Will Be A Winner Timeliness Is Of The Essence Money Management Matters Greatly Have A Working Address We Are Here To Help The last point is important as we have free customer support that should be taken advantage of. Any additional questions that you may have can be answered by just picking up the phone and giving us a call or ing us: (outside the US, ) insidertrader@zacks.com 11