Contents Introduction 2 Section 1: The Mental Aspect 3 Section 2: Getting the Most Out of the Surprise Trader 4 Section 3: Follow the Leader 5 Section 4: How to Read Surprise Trader Alerts 6 Section 5: How to Read Surprise Trader Daily Summary 7 Section 6: Virtues of Money Management 8 Section 7: Tying it All Together 9 1
Introduction: Congratulations on getting started with the Surprise Trader! Several years ago, when we first set out to create the Surprise Trader concept, we knew it was not going to be an easy task. And quite frankly, we were a bit discouraged knowing that some analysts and statisticians have spent their entire careers on just such a strategy, without achieving the results they had hoped for. It was a great challenge and our initial testing had us wondering if we would really be able to do it. Our dogged determination soon morphed into the realization that either one of two things was going to happen: 1) we ll finally be able to make that long awaited breakthrough, or 2) we ll at least discover that the Surprise Trader concept just cannot be done. Of course, since you re reading this now, it s clear that we indeed made that breakthrough! And it was even more satisfying than we had imagined. In our testing we identified two key items that not only give us an advantage at predicting which stocks should surprise, but also tell us the precise time to get in BEFORE the earnings announcement to maximize any price movement ahead of the report and of course be properly positioned for the surprise pay off when their earnings are finally released. While we re all sworn to secrecy on the exact specifics that make this a blockbuster, what we can tell you is that we re keying in on two little used metrics: The most accurate consensus and the most accurate estimate. These two key components are applied to our famous Zacks Rank, the Zacks Industry Rank, and specially identified valuation markers to make the Surprise Trader one of our most exciting Trading Services yet. It s important to note that this strategy is not optimized for cherry-picking, and it is no getrich-quick scheme. There will be losers amongst our winners. So prudent money management will be an important aspect of this service. But we couldn t be more excited to bring you the Surprise Trader, and we are confident that our system will achieve impressive results, one earnings surprise at a time. Before you begin, please be sure to read the rest of this guide. It will help you get the most out of this service. If at any time you have any questions or comments, please feel free to contact us. We want to hear from you. Thanks again. And good trading. Sincerely, Eric Dutram Editor, Surprise Trader Earnings Surprise Strategist Zacks.com 2
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% average 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 Surprise Trader uses a system that identifies those rare few stocks that are poised to beat earnings estimates. Companies that have positive earnings surprises tend to produce 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 So 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. Whereas 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 be holding on for a week or so and stringing together a series of smaller winners. But from time to time we let winners run longer or hold trades for as short as a few days when necessary. 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. 3
Section 2: Getting the Most Out of Surprise 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 Surprise 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 Surprise 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 email address This is necessary to receive trading alerts. Make sure you can access your email in a timely fashion because acting on trades is essential to success. The Daily Summary email 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 out emails you want to receive, like Zacks Surprise Trader Daily Summaries. To get optimal delivery of our emails 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 http://www.zacks.com/surprisetrader 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. 4
Section 3: Follow the Leader With Surprise 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 email with the daily summary or intra-day signal Read the email to determine appropriate action Place trades through your broker with the appropriate % allotted Follow the emails 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 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. 5
Section 4: How to Read Surprise Trader Alerts This strategy will often 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 for a buy alert or a red ball for a sell. Company Name = The name of the company that is being added to or sold from the Surprise 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 Long/Short = Denotes whether the stock is to be purchased or sold short Surprise Trader Portfolio Commentary = As part of the alert, Eric will explain his rationale for the addition. You will learn his 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. 6
Section 5: How to Read the Surprise Trader Daily Summary The Daily Summary provides a wide array of details for Surprise 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 emailed to you at 8:00 p.m. EST. In regards to the price added for the portfolio, Zacks uses the average of the price at the open and the closing price on the day the stock is deleted. 7
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 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 Surprise Trader picks. Only allocate that portion of your capital that can be comfortably devoted to speculation. This portfolio will typically hold 5-7 positions during earnings season, and sometimes fewer than 5 positions during the off-season. 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 be a home-run in the end when the phenomenon of compound interest works its magic. EVER-PRESENT CLICHÉ RINGS TRUE The Surprise Trader will have many recommendations coming at you per quarter. 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. 8
Section 7: Tying it All Together It is our goal at Zacks to enhance your trading results via the Surprise Trader service. This booklet touches upon the details of the service and provides several useful tips to realize the vast potential that Surprise stocks hold. We feel it is our job to let you know that we are here to help you get the most out of Surprise 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 Email 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 emailing us: 1.888.775.8348 (outside the US, 1.312.265.9309) surprisetrader@zacks.com 9