From:
Way-West and North of Jewfish Creek

Dear Friend & Subscriber,

This month I'm going to teach you how to beat the stock market.

Actually, that's an understatement. With what I'm going to teach you in this issue, you will be able... if you so choose... to go out and slaughter the market.

There are a zillion different ways people use to try and buy and sell stocks at a profit. I want to begin here by explaining to you two of them that are as opposite as opposites can be. What I'm talking about is people who invest for the long term and people who are extremely short term investors.

Long Term Investors: These people, in my opinion, have got to be almost brain dead. Let's say you want to assemble a nice portfolio of solid, blue chip stocks that... 20 years from now... you can cash in to pay for your child's college education. How could you even begin to make an intelligent selection of companies to invest in?

Do you realize how different the world is now from what it was 20 years ago? Or 10 years ago? Or 6 months ago? Or, how much the world has changed just since yesterday?

Ten years ago, the most coveted piece of office equipment in the world was an IBM Selectric Typewriter. Nowadays, you couldn't give them away as paperweights.

Speaking of IBM, for years it was thought of as the bluest of the blue chips. In January of 1987 you could have bought it for around $87.00 a share. Six and a half years later, in June of 1993, it was down to under $20.00. That must have been a gut-wrenching feeling for all those long term, blue chip only investors, dontcha think?

Today, you can buy IBM for about $104.00 per share. So, I guess it's a "safe" blue chip again, right? Heck, IBM's heavy into technology and... since technology changes so slowly these days... how could it now drop to $20.00 like it did five years ago... or... even fall to $43.00 like where it was just 36 months ago? It's a joke. The stock market is a roller coaster no matter how solid a company may seem today. Not only that, even if you had bought IBM five years ago at $20.00 and sold it today for $100.00, it would still be chump change as far as profits go... compared to... what I am going to teach you in this issue.

BUT, KNOW THIS: Things are not just changing fast now, they are changing almost at the speed of light. Making ANY long term investment in the stock market is truly a "sucker's play."

Who could have predicted Russia would now be a capitalist country? Would, 10 years ago, you have ever believed network television would broadcast a steady barrage of jokes about the shape of the penis of the President of the United States of America? Who could've possibly believed O.J. Simpson would be found "not guilty." (I still can't wrap my mind around that one!) Who could have believed a young woman who accompanied me to the Cannes Film Festival... and stunned... even the "we've seen everything" Paparazzi... when she walked into the ocean until her T-shirt was soaked and then took it off with a flourish, turned around and walked calmly back to the beach... would now... be married to a stuttering, insecure Episcopalian priest? Who could have predicted the company I started with a 1-page letter in 1968 would have been sold last month for 90,000,000 dollars? Who could have forecast... that... so many people you were certain were deeply in love five years ago would now be divorced? How fast did that last "cutting-edge" computer you purchased remain "cutting edge"? (Truth be told, it was out-of-date before it was out-of-the-box!) Who would have guessed... that... whether it was legal or not for the President of the United States to lie under oath and obstruct justice... would depend... on how the economy is doing? How many companies considered "blue chip" now were virtually non-existent 20 years ago? Ten years ago? Five years ago? How many companies considered "blue chip" 20 years ago are totally unknown today?

Some people have invested for the long term and have profited from that endeavor. Perhaps a "buy and hold" mentality was viable 20 years ago. But now, as they say, "change is the only constant." In fact, today it is not just change that is constant, it is...

Blitzkrieg "Paradigm" Change!

Anyway, if you are a "buy and hold" "invest for the long term" type of investor, you and I are definitely NOT on the same page.

Extremely Short Term Investors: At the other end of the spectrum are the "day traders." These guys stay glued to every tick of the market... and... are often in and out of a stock or stock option in less than five minutes. The best-of-the-best is a guy named Martin "Buzzy" Swartz who is considered Wall Street's champion trader. There's a book out about him now called PIT BULL published by Harper Collins Publishers and you can learn about it by calling 1-800-331-3761. It's locator ID is ISBN 0-88730-876-7. He's very successful (at investing) and he's got more mathematical formulas than Einstein. Near the end of the book he summarizes an average day in his life. Here's my extremely hyphenated version of his typical schedule:

Yes indeedy, happily, for him, the fight never stops. He says markets move around the globe like the sun. Main ones in the U.S. are open from 9:30 a.m. to 4:00 p.m., but there are after-hours markets for bonds, stocks, futures and more. The S&Ps which are his bread and butter, trade forever. The S&P pit on the Merc closes at 4:15 p.m., but then it reopens on a computer system called GLOBEX at 4:45 p.m. (Hey, that 30 minutes of down time might be a great opportunity to clean out his plumbing for one more time each day. Imagine how happy that would make his dear, departed Grandad!) In any case, GLOBEX trades all through the night until 9:15 the next morning and then the Merc pit opens up at 9:30. That means there are only forty-five minutes a day when you can't trade the S&P futures. Plus, to help produce more volume, GLOBEX now opens at 6:30 on Sunday night!

Hmn? Seems to me this man is missing something. He makes lots of money but something seems wrong. I'm trying to focus on it. It's right there at the edge of my consciousness. If only I could grab hold of it. Oh wait! I've got it! Here's that teensy little flaw which seems to have eluded him:

He Doesn't Have A Life!

Should you read his book? Yeah, probably if you are fanatically interested in the stock market. He's got some excellent insight and strategies. However, compared to what I'm about to share with you, it amounts to manufacturing a watch several times a day just so you'll know what time it is.

Those are the two extremes: The long-term investor and the day-traders. Then, there's the vast middle area of investors who trade a few times a month, based on the advice of their brokers (none of whom understand the stock market), advice they get from magazines, newsletters, newspapers, friends, relatives and so on. Financially speaking, this is sort of like "dabbling" in brain surgery as a part-time hobby.

None of these mindsets work for me. What I want is to invest in only those stocks which offer me a legitimate chance of going up 50% or more in one day... and... I want to do it in such a way that I myself, can legally do something which will make it likely to happen. Do you think it would be difficult to figure out how to do this?

Actually, it was a piece of cake.

Here's a true story which'll help you understand the first part of it: My second wife Nancy and I once spent weeks analyzing all the data for five years' worth of races at the Ascot Racetrack in Northeastern Ohio. (I think it's gone now.) We did a "mathematical regression analysis." In other words, we worked backwards to find out what factors were most influential in determining whether a horse was likely to be a winner in any particular race. Then, we had to determine which factors indicated whether we should or should not place a bet on any certain horse.

The results were surprising. You know what the first thing you should handicap is, if you want to make a living betting on horse races? Aw, you'd never figure it out for yourself so I'll just go ahead and tell you:

The First Thing You Want
To Handicap Is The "Crowd"
That Attends The Different Racetracks!

What you want is, to place your bets at a track with the highest percentage of people who are illiterate about horse racing. How do you find this out? Easy. You just study the Racing Form and find out which tracks have the lowest percentage of favorites who win races.

Think about it: If you had to make your living playing poker, what is the best advantage you could have? Better cards than the other players? That's impossible. In the long run, all card players will receive exactly the same percentage of good hands, bad hands and mediocre hands. No, you don't necessarily want the best cards. What you really should want (at least it's what I would want) is all the other players to be...

Dumb, Stupid
Rich Guys!

The next thing you want to do if you are going to play the ponies for a living... is... eliminate those horses almost certain not to win. Here's a major secret on how to do that: Except in high-stakes races, eliminate all horses who haven't ran a race in 21-days. Why? Because the owner isn't running the horse to win. To do so would be risking injury to the horse. What the owner is really doing is running the horse to limber him up so the horse will be able to run full-out in an attempt to win the next race. Then, you factor in the "speed rating" and... HOLD IT! The purpose of this newsletter is not to teach you how to win at the races; it's just to illustrate a point. Namely: By spending weeks (they didn't have electronic calculators back then) Nancy and I were able to figure out what really counted if you wanted to make money at the races... and...

We Never Had A Losing
Day At The Track In Ten Years!

But truly, it's a dreary way to make money. If you're really playing to win, it's tedious drudgery and takes all the fun out of it. Nowadays, if I ever do go to the track, I simply bet on the horse which most resembles my Aunt Silvie. Don't make any money but at least it's fun.

Anyhow, let's get gazockaling on beating the stock market. Now, here's the first rule I made for myself: BUY ONLY STOCKS LISTED ON ONE OF THE THREE MAJOR STOCK EXCHANGES.

The reason for that rule? Simple: You see, I realize I'm never going to make any money by buying stocks. I'm only going to make money when I sell my stocks. And, when I'm ready to sell, I want to make damn sure whomever wants to buy can easily find quotes and other details of the stocks I want to sell. In other words, I have no interest (at least, currently) in messing around with any stocks... unless... they are listed in the Wall Street Journal.

Believe it or not, that rule alone eliminates hundreds of thousands of stocks. Here in America, aside from the three major exchanges, you can buy OTC (Over-The-Counter) stocks, "pink sheet" stocks (ask your broker if you're interested) and stocks from all sorts of other sources. You can also buy stocks listed on the Toronto Exchange and all the European and Asian Exchanges.

Let's leave all that up to Buzzy. For the time being at least, let's you and me keep it simple and easy. That OK with you?

There are three major stock exchanges here in the U.S. The best known, of course, is the NYSE or New York Stock Exchange. There are approximately 3,500 stocks actively traded on this exchange.

Then, there's the NASDAQ Exchange on which approximately 5,600 are actively traded.

Finally, there's the AMEX or American Stock Exchange which has approximately 760 actively traded issues.

In Section C ("Money And Investing") of the Wall Street Journal, there is a summary of what the stock market did on the previous day of trading. It's called "Stock Market Data Bank." This tells you what happened yesterday on the Dow Jones Averages, Standard & Poor's Indexes, the Russell 1000, the Russell 2000, the Russell 3000, the Value-Line Index and something called the Wilshire 5000. It tells what were the most active issues, how many issues advanced, how many declined and how many stayed the same. It reveals the "Volume Percentage Leaders", "Volume Percentage Losers" and it gives a breakdown of trading in NYSE stocks on a 1/2-hourly basis from 9:30 a.m. (East Coast Time) when the market opens until 4:00 p.m. (East Coast Time) when it closes. This is all valuable info... so...

Let's Ignore It!

However, one part of this "Stock Market Data Bank" reveals what stocks had the highest percentage increase in price ("Price Percentage Gainers") and what stocks had the greatest decrease in price which is aptly titled "Losers."

All I was interested in when I started my research was the column which gave out the info on the "Price Percentage Gainers." Not only that, out of all the gainers, I was only interested in those stocks which had gained 50%... or more... the previous day. I wanted to know what made this small, elite group of stocks different from all the thousands of other stocks traded... which did not... make that kind of spectacular gain.

Here's what my preliminary research seems to indicate. Of all stocks which gained 50% or more in one day of trading...

Less Than 2%
Were Stocks Listed On
The AMEX Exchange

Guess how I eliminated my first sizable group of horses? (Oops, I mean stocks.) Simple. I decided to ignore the AMEX. Mushing on, I discovered...

Only 9% Of The
Top Gainers Came From
The NYSE

I decided to ignore the NYSE also... because... the plain fact of the matter is...

89% Of All Those
Big Gainers Came From
The NASDAQ

Now, let's talk about price. Of all stocks that gained 50% or more in price in one day, NONE of those stocks were "penny stocks" which had a price of less than $1.00. And yes, Virginia, there are stocks which sell for less than one buck on all three exchanges... even the NYSE.

Here's the rest of the breakdown:

Stocks priced at $1.00 to $1.99 represented 9.8% of the big gainers.

Stocks priced at $2.00 to $2.99 represented 9.4% of the big gainers.

Stocks priced from $3.00 to $3.99 made up 3.7% of the big gainers.

Stocks priced from $4.00 to $4.99 made up 2.1% of the big gainers.

Stocks priced from $5.00 to $5.99 made up 3.2% (a little statistical anomaly there) of the big gainers. Finally...

All Stocks Priced
$6.00 Or More Represented
Only 4% Of The
Big Gainers

So, Buckwheat, here's what I've decided so far: I'm only going to bet on stocks listed on the NASDAQ priced from $1.00 to $2.99... because... those stocks represent 19.2% of all the big gainers... and... these two selection criteria have enabled me to eliminate having to examine 98.5% of all stocks listed on all three of the major exchanges.

But, my friend, we ain't done yet. Not by a long shot. Just because a stock is priced between $1.00 and $2.99 and listed on the NASDAQ doesn't mean it makes the cut. Nope, all we've identified here is the "preliminary pool" of stocks we are even willing to look at. There are numerous other hurdles even these stocks have to overcome before they qualify as a "pick."

The first of the next hurdles is volume. If a stock has a very thin daily volume, just the fact you invest in that stock will make it skyrocket in price.

Conversely, if the daily volume is too high, way too much of a mountain of money has to be moved to effectuate a 50% or more jump in price. Don't make the mistake of thinking all low-priced stocks represent shares of tiny, small companies. That's not true at all. On Wall Street, a company's size is determined by its capitalization. If you take 100% of all of the shares of stock in a given company, and then multiply the number of those shares by the price of each of those shares, the number you come up with will be the "capitalization"... or... the stock market's opinion of the financial worth of that company. For example: If a company's shares are currently selling for $2.50 each and, the company has a total issue of 20,000,000 shares, that company has a total capitalization of FIFTY MILLION DOLLARS!

Hey, that doesn't sound like such a small company, does it?

WRONG! At least, according to the stock market. As far as Wall Street is concerned, a company worth $50,000,000 or less is..

A "Micro" Cap

Moving up from 50 million to 200 million, we have a group of companies, each of which is considered...

A "Small" Cap

Ain't that something? A company worth as much as 200 million fungolas is still only "small potatoes" as far as Wall Street is concerned.

Moving right on up the ladder, we have those companies worth somewhere between 200 million and 1.5 BILLION! Think that puts it at the top of the pile? Not a chance. If a company is only worth a measly 1.5 billion ($1,500,000,000.00!) it is still only considered...

A "Mid" Cap

You wanna run with the big dogs? Want to be considered a serious company? Well, as long as your company is worth more than 1.5 billion, you are then considered...

A "Large" Cap

Get this: Some of these companies are so damn big, the daily trading volume of their shares is 2-1/2 billion dollars or more!

Also remember: Not all of a company's stock is available for purchase on the stock market. Let's say a company is made up of a total of 10,000,000 shares... but... the people who run the company believe in it very strongly... and... they want to make sure they maintain control. There might be only 3,000,000 of those shares available for "outsiders" to buy from one of the stock exchanges. Those 3,000,000 shares, by the way, are called "the float." In other words, "the float" is the number of shares available for public purchase.

Small companies, of course, have the greatest potential for share price appreciation. Recently, Pfitzer, a massive company, made front-page news all over the world because it has just secured FDA approval to market a potency pill taken orally just like an aspirin and, in just 30 minutes, it makes it possible for pathetic guys like me to once again have a "woody."

By the way, since I haven't been able to depend on getting an erection for so many decades now, you know what I started doing about 10 years ago? I started carrying a small polaroid camera with me at all times... and... if I get even a momentary erection, I take an instant photo of it and write the date on the back of the photo. That way, just in case it's the last one I ever get, I'll have a record of it.

Plus, those photos save me a lot of embarrassment. Let's say I'm on a date (blue moons are more frequent) and things start getting hot and heavy. But, my little soldier won't stand up and salute and the woman I'm with starts to make fun of me and saying cruel things like, "Hah! You're supposed to be such a stud and you can't even get it up!"

It used to be dreadfully embarrassing for me. But, not anymore. Nope, now all I have to do is whip out my dated polaroid and show it to my date, smile smugly and say, "Oh yeah? Well, guess what? I used to be able to get it up and here's PROOF!"

Tell you what guys. That one sure takes the starch out of those smug, cold-hearted "only-after-one-thing" mean-spirited floozies! (By the way, my doctor says there is still hope for me if any of my readers cared enough about me to send a beautiful, hot, sexy, caring woman down here to help me with this problem. I told him it would never happen. I explained all I do is write newsletters like this one which help my subscribers get rich and none of them really care about me.)

I'll tell ya, it's a cold world out there.

But anyway, when the news of Viagra (the potency pill) hit the media, the stock of Pfitzer jumped up only about 10%. Why? Simply because Pfitzer's stock was already selling in the $90 to $100 range per share and the company is so strongly capitalized, even the best of news can only create a relatively small (by my standards) increase in the stock price.

But, what if a much smaller company with stock selling at $2.50 per share had announced it had come up with Viagra and had obtained FDA approval to market that product? We can't know precisely but, it's almost certain (assuming we're talking about a solid little company) the price of the stock would have skyrocketed from $2.50 to... at least... $7.50, $9.00... $11.00 or even more per share. It's very simple: It's much easier to double the value of a company worth a mere $50,000,000 (a "micro" cap) than it is to double the share price of a company worth $50 billion dollars. It's also much, much easier for a $2.50 stock to double in price than it is for a stock that's already selling for 90 fungolas or more.

If you are at all active in the stock market, you are already aware of the success of a small group of stock market experts (they really are) who have an informative website and write books on a how a "Motley Fool" should invest in stocks. I recommend their material since it's very informative. Here's an eight item checklist they use to select stocks worthy of further examination:

All in all, this is a good checklist. My criteria are a bit different but, not too much. However, there's something I consider much more important than all of this put together. Namely:

I Want The Companies I
Invest In To Be "Newsworthy"!

Remember how I wrote in last month's newsletter... that... it is not some good or bad development which makes a stock price go up or down? Remember how I said, "It is the NEWS of some development, not the development itself, that affects stock prices?" How I also said, "Therefore, the way to win when you play the stock market is simply to know (and act on) the news before anyone else!" I also said, "I know a way to know the news even before the company CEO knows it." Remember, how in your mind, you thought ol' Guru Gary had finally gone all the way around the bend and how you thought... this ridiculous claim... couldn't possibly be true?

You piss me off. Don't you know who you're dealing with here? Haven't you yet learned to appreciate the enormity of my incredible manipulative genius? Good Lord, do I have to keep reminding you how fantastic I am every single issue? (You know, last year I was pretty hot shit but I did have one shortcoming: I was conceited. Now that I've lost that, I'm perfect!)

Oh shut up, you humorless twit. I've got a very important point to make and we can't have any clots in your mind obstacling you from comprehending what I'm about to lay upon you. I've got a question for you...

What Exactly Is News?

Many people would say it is information about something which just happened recently. That's partially true. But, it's incomplete. Did you ever hear the expression, "Gosh, that's news to me"? Here's a silly (but illuminating) example: Whenever two people "fall-in-love" it produces an actual chemical effect that lasts almost precisely 90-days. That's been true for thousands of years. But, did you know that? If not, then guess what?

That Was News To You!

You know what is so great about many of those smaller, low-priced publicly-traded companies? Not only does a low-priced stock have more "growing room," many of them remain unexamined by the big institutional investors who are insurance companies, pension funds and mutual funds. They can't afford to mess with those "little" stocks. First of all, there are more mutual funds than stocks (I find that rather amazing) and often, one day's trading in a given mutual fund is more than ten times the entire value of a small or micro cap company. Many of those small companies have spectacular "news" relatively no one knows about. Like a company called Longport which has a portable skin scanner a doctor can use to detect skin cancer in seconds... before it is visible... and without a biopsy. That technology has been around for a while but, I bet...

It's "News" To You,
Ain't It?

What is tragic about most of those great little companies is, they themselves don't know how to get their great... virtually hidden... and often lifesaving and wonderful... stories out to the public. Nor can they afford to hire someone like me (if they could even find anyone) to help them.

So, guess what? Not only do the stocks I invest in have to get through my stock price, daily volume, and all the other hurdles...

They Must Also Have
A Terrific And Mostly
Untold Story!

Plus, what they are doing must be something which will dramatically help humanity if they are successful... because... if they get past all my hurdles... then... I am going to buy some of their stock... and...

I Am Going
To Tell Their Story!

Everybody wins. Me. The company. The investors. And... humanity.

Remember the ad about the portable water filter bottle I sent you last month? Well, I had a little fun at the investor's expense... but... his invention really will save millions of lives and untold amounts of human misery. It wasn't him or the invention that was bad. It was the CEO who is an unscrupulous con man and a career criminal trying to pass himself off as DuSean Berkich. His real name is Don Berkich and he is a discredited ex-minister (are all religious leaders unethical and/or delusional?) and an ex-stock broker who was thrown out of the profession.

But anyway, that company in many ways is just what I'm going to specialize in except, from now on, I'm going to do my level best to make sure the management of the company is as ethical and "cutting-edge" as the technology the company has developed.

Do you doubt my ideas are solid? OK, then do this: Pretend every dental practice in Texas is incorporated and is a publicly-traded company. But, one of those companies has hired Sir Gary of Halbert to promote their business for them. There's an ad enclosed with this newsletter. This ad has already ran and Dr. Gleghorn has already had to hire another expert to help him handle all his new business. You read that ad and then you tell me: If you were going to invest in the stock of a dental company in Texas... which company... after you read my ad... would you invest in?

And, you know what? Everything in that ad is old news to dentists... but... YOU didn't know hardly any of it, did you?

What an insane concept: Investing in a public company based on who is going to blow their horn for them (without the company even knowing) and making sure their lifesaving candles are no longer hidden under a basket.

Curious about what companies I'm putting my money into this month? They're all listed on the NASDAQ and their ticker symbols are... OH WAIT A MINUTE! I forgot: I'm not going to start sharing this info with my readers until 30 or 60 days from now.

Anyway, why should you care? After all, what the hell do I know about the stock market?

	Sincerely,
	Gary C. Halbert

Copyright © 2003 Gary C. Halbert.  All Rights Reserved.