1. Lesson 11 Why Learning from Your Mistakes is Vital
Investor Education Series
Lesson 11 Why Learning from Your Mistakes is Vital
The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks. This is not a prospectus; no effort on our part with respect to sale or purchase of any securities is intended or implied. Any chart appearing in this material is for educational purposes and is not, and should not be construed as a recommendation or rating to buy or sell any security. It is possible that at this date or some subsequent date, the officers, directors and/or shareholders of Investor’s Business Daily, Inc. or their affiliates own securities or buy or sell securities listed in the following pages, or those not mentioned.
© 2011 Investor’s Business Daily. All rights reserved.
Investor’s Business Daily, IBD, CAN SLIM and corresponding logos are registered trademarks owned by Investor’s Business Daily, Inc.

2. Improve Your Results by Improving Your Records
 Tracking Your Buys
 Tracking Your Sells
How to Do a Profitable Post-Analysis
 5 Questions to Ask
 What You Must Fix
- The most serious mistake you can make - Other common errors

3. “ ” It’s what you learn after you know it all that counts.
- John Wooden, Legendary Basketball Coach ”

4. All investors make mistakes.
Successful investors learn from them.
Learn from your mistakes by doing a
regular post-analysis of all your trades.
The “One That Got Away”
Pay special attention to any stocks that made huge gains AFTER you sold them. (See slide 27)

5. Improve Your Results by Improving Your Records
Keeping — and regularly reviewing — good records is essential to your success.
Shows what you’re doing right
Identifies any bad habits that must be fixed
Reinforces your buy and sell rules when you need them most – at the time of your trade

6. Tracking Your Buys Print out daily and weekly charts for every buy
Print out IBD Stock Checkup for every buy
Write down key info and notes (See next slide)

7. Key Info & Notes
On the charts, IBD Stock Checkup or separate document, note the following:
Basic info: date of purchase, # of shares purchased, cost per share
Current Outlook in The Big Picture  Confirmed Uptrend, Uptrend Under Pressure or Market in Correction
CAN SLIM® checklist  Use Stock Checkup to note pass, neutral or fail ratings for earnings, sales growth, return on equity, fund sponsorship, etc.
Notes on company/stock  Ex: New innovative product; emerging industry trends, etc.
Any Yellow Flags  Ex: Neutral or fail ratings in Stock Checkup for sales growth, profit margins, etc.
Primary reasons for buying  Ex: Breakout from cup-with-handle on heavy volume
Target sell price  Ex: 20% - 25% above ideal buy point (See Lesson 6)

8. Bought @ 124.98 (About 1% above 124.10 ideal buy point)
Example Buy: Chart Printouts
(About 1% above ideal buy point)
Netflix (NFLX) Weekly Chart 8/13/10
Double-bottom
8/10/10 Bought 100 shares
Purchase price: Ideal buy point:
Target sell price: (25% above ideal buy point)
Current Outlook: Confirmed uptrend Reasons for buying: - Breakout from double bottom on huge volume (246% above average) - Solid fundamentals (see Stock Checkup)
Innovating by pushing movie/TV “streaming” as alternative to DVDs - Announced deal with Epix to stream movies from Paramount, Lionsgate & MGM starting Sept. 1.
Will expand library of online films, which should make streaming more popular.

9. Example Buy: Chart Printouts
Netflix (NFLX) Daily Chart 8/10/10
Relative strength moving sharply up at breakout
Huge volume at breakout
 Shows institutional interest

10. Example Buy: IBD Stock Checkup Printout
Leading stock in group
A- Accumulation/Distribution Rating means heavy buying by institutional investors over last 13 weeks

11. iii Example Buy: IBD Stock Checkup Printout
Market in confirmed uptrend
Passing ratings for most CAN SLIM® criteria
Top 40 industry group ranking
Yellow Flags
Estimates revised down
Less than ideal sales growth & pre-tax margin
iii
Pass Neutral
Fail

12. Tracking Your Sells Print out daily and weekly charts for every sell
Print out IBD Stock Checkup for every sell
Write down your reasons for selling (See next slide)

13. Reasons for Selling
On the charts, IBD Stock Checkup or separate document, note the following:
Basic info: date of sale, # of shares sold, share price, % gain/loss
Current Outlook in The Big Picture  Confirmed Uptrend, Uptrend Under Pressure or Market in Correction
Notes on company/stock  Ex: Bad earnings report; other leaders in group breaking down, etc.
Primary reasons for selling  Ex: reached 20% target sell price; fell 7% below your purchase price; gapped below 10-week line on heavy volume, etc.

14. Example Sell: Selling to lock in gains
Hansen Natural (HANS)
Weekly Chart 6/3/11
Sold on way up to lock in gains
6/3/11 Sold 225 shares
Sell price: Purchase price: 59.98
Gain/Loss: 20%
Current Outlook: Market in correction Reasons for selling: - Hit target gain of 20% - With market in correction, wanted to protect gains
- Other leaders in group dropping below 10-week line

15. Example Sell: Selling to lock in gains
20% gain
Hansen Natural (HANS)
Daily Chart 6/3/11
Up for 8 days in a row; 16 out of last 20.
Might be due for pullback
Wanted to lock in gains, especially with market in correction

16. Example Sell: Defensive selling Acme Packet (APKT) Bought @ 77.42
Daily Chart 5/4/11
Sold intraday as stock dipped below 50-day line on heavy volume
- Down 7% from buy point
5/4/11 Sold 100 shares
Sell price: Purchase price: 77.42
Gain/Loss: - 7%
Current Outlook: Uptrend under pressure Reasons for selling: 7% sell rule

17. Your Discipline Pays Off
Writing down your reasons for every buy and sell
will force you to think through each trade before you make it.
Makes it much easier to do an effective and thorough post-analysis.

18. How to Do a Profitable Post-Analysis
Review your biggest winners and losers at least once a year

19. 5 Questions to Ask as You Review Your Trades

20. Was the overall market in a confirmed uptrend when you bought the stock?
Don’t fight the market. Always check the Market Pulse in IBD’s The Big Picture before buying a stock:
Confirmed Uptrend: Best time to buy stocks
Uptrend Under Pressure: Proceed with caution
Market in Correction: Don’t buy stocks
See Lessons 1 and 2

21. Did the stock have all the CAN SLIM® traits when you bought it?
Review the pass, neutral and fail ratings in the IBD Stock Checkup you printed at the time of your purchase.
Preparation Pays Off
For best results, ask these questions before you buy!

22. Did you buy at a proper buy point?
Did you buy too late – after the stock was over 5% above the ideal buy point?
Did you buy too early – trying to “anticipate” a breakout?
Was volume at least 40% - 50% above average at the breakout?
Was it a late-stage base?  3rd and 4th stage bases are more risky.
Were there flaws in the base?  Ex: Wide and loose action; excessive distribution (selling) in base, etc.
How to Improve Your Chart-Reading Skills
Study chart examples in How to Make Money in Stocks
Watch IBD TV videos at investors.com/IBDtv
Read Investors Corner on Investors.com
Attend an IBD Workshop at investors.com/workshops
Regularly attend your IBD Meetup group

23. Did you follow sound sell rules?
Did you sell too late?
 Did the stock drop more than 7% - 8% below your purchase price?
 Did you miss key warning signs? Close below 10-week line on huge volume New high on low volume from late-stage base breakout Climax top…etc.

24. Did you follow sound sell rules?
Did you sell too early?
 Did the stock make a huge run after you sold it?
Important!
If you bought a big winner, but didn’t handle it properly, you must find out why – and make a specific rule to prevent that same mistake in the future. Learning to handle top growth stocks is key to making big profits. See slide 27
22 Sell Rules to Increase Profits
Having trouble selling? See IBD’s exclusive series at:

25. Did you continually weed out laggards and focus your money on your best-performing stocks?
To maximize your returns, you want your biggest gainers to be your biggest positions.
 Did you hold losing positions and sell your winners?
 Did you miss opportunities (e.g., pullback to 10-week line) to add to your strongest positions?
Free Online Course: Managing Your Portfolio
Under the “Education” tab on Investors.com.

26. Identify and fix your 1 or 2 most serious mistakes.
What You Must Fix
Identify and fix your 1 or 2 most serious mistakes.
Preventing just 1 or 2 crucial errors can help significantly improve your future results.

27. The Most Serious Mistake You Must Fix
Getting shaken out of a stock that later goes on to a huge gain.
You must learn to identify which stocks have that potential and how to handle them.

28. Bought on cup-with-handle breakout
AOL Daily Chart
12/3/98
Example scenario:
Bought on cup-with-handle breakout

29. AOL Daily Chart 12/3/98 Maybe you sold here to lock in a 20% gain
Buy Point
Or maybe you sold here to protect your gains

30. 428% gain in less than 6 months
AOL Weekly Chart
12/4/98
428% gain in less than 6 months
Buy Point
If you sold here (see previous slide), look at the huge gains you would have missed!

31. Any rules that could have kept you from selling too soon?
AOL Weekly Chart
12/4/98
Buy Point
Any rules that could have kept you from selling too soon?

32. Remember the 8-week hold rule? (See Lesson 6)
AOL Weekly Chart
12/4/98
Buy Point
Remember the 8-week hold rule? (See Lesson 6)

33. 8-Week Hold Rule
In most cases, you want to take profits at 20% - 25%, but…
If your stock gains 20%+ within 1, 2 or 3 weeks of a proper breakout, hold it for at least a full 8 weeks from the ideal buy point.
Stocks with such power could become big winners. This rule helps you hold through normal volatility so you don’t sell a possible big winner too soon.
See Lesson 6 for more details and examples.

34. 8-Week Rule Triggered - Up over 20% within 3 weeks
AOL Weekly Chart
12/4/98
Buy Point
8-Week Rule Triggered - Up over 20% within 3 weeks

35. Up 73% after 8 week holding period
AOL Weekly Chart
12/4/98
Found support at 10-week line, helping you hold for even bigger gains
Buy Point
Up 73% after 8 week holding period

36. Letting a small loss become a big one.
Other Common Mistakes
Letting a small loss become a big one.
The Fix:
Always sell if a stock drops 7% - 8% below your purchase price.
If you have trouble pulling the sell trigger, use stop-loss orders.
(See your broker for details.)

37. Sohu.com (SOHU) Weekly Chart (5/13/2011)
Buy Point = 90.58
Closes week below 10-week line on heavy volume  Closes at bottom of range
Drops 8% below buy point

38. Why hold and risk an even bigger loss?
Sohu.com (SOHU) Weekly Chart (5/13/2011)
Why hold and risk an even bigger loss?
Drops 8% below buy point

39. Protect yourself by cutting losses short.
Sohu.com (SOHU) Weekly Chart (5/13/2011)
If you take a 28% loss, you need a 39% gain just to break even.
If you take an 8% loss, you only need a 9% gain to break even.
Protect yourself by
cutting losses short.
You can always buy
back the stock
if it rebounds.

40. Ignoring the overall market direction when buying a stock.
Other Common Mistakes
Ignoring the overall market direction when buying a stock.
The Fix:
Only buy stocks when the market is in a “confirmed uptrend.”
See the Current Outlook in IBD’s The Big Picture

41. Keep the odds in your favor: Don’t buy stocks during a correction.
CF Industries (CF) Weekly Chart (7/6/11)
5/23/11 Broke out on volume 95% above average
Current Outlook at breakout: Market in correction
Couldn’t buck overall market downtrend: Soon fell over 8% below buy point
Keep the odds in your favor: Don’t buy stocks during a correction.

42. Buying breakouts from late-stage bases.
Other Common Mistakes
Buying breakouts from late-stage bases.
The Fix:
Learn how to count bases and focus mostly on 1st and 2nd stage patterns.
Later-stage breakouts can work, but are more risky. Be ready to sell at early signs of trouble.
Free Online Course: Counting Bases
Under the “Education” tab on Investors.com.

43. Qualcomm (QCOM) Weekly Chart 12/24/04
Already up 122% in 15 months
Qualcomm (QCOM) Weekly Chart 12/24/04
Base #3: Cup-with-handle
Base #2: Base-on-Base
Base #1: Double-Bottom with handle

44. 3rd-stage faulty base breakout failed immediately
Qualcomm (QCOM) Weekly Chart 4/15/05
3rd-stage faulty base breakout failed immediately
Stocks don’t go up forever! Reduce your risk: Focus on 1st and 2nd stage bases.

45. Holding a stock because the fundamentals look good.
Other Common Mistakes
Holding a stock because the fundamentals look good.
The Fix:
When selling, focus on correct reading of the chart action.
Earnings and other fundamentals often still look good as a stock declines.
Use early warning signs in the chart to decide when to sell.

46. You’d have a big loss if you waited for the fundamentals to go bad!
DryShips (DRYS) Weekly Chart 1/18/08
Let Chart Action Guide Your Selling DryShips posted triple digit earnings & sales growth even as its stock dropped.
Quarterly
EPS % Change
Sales % Change
Sep ’07
2118%
150%
Dec ’07
490%
195%
Mar ’08
286%
168%
Sell Signal: Climax top (See Lesson 6)
You’d have a big loss if you waited for the fundamentals to go bad!

47. Chasing “extended” stocks.
Other Common Mistakes
Chasing “extended” stocks.
The Fix:
Only buy a stock when it’s in a proper buying range: up to 5% above the ideal buy point.

48. So what if I bought a little late…It’ll keep going up, right?
HealthSpring (HS) Weekly Chart 1/14/11
Scenario
Your purchase price:
31.54
7% above ideal buy point
Ideal Buy Point:
Proper Buying Range:
29.48 – (Up to 5% above ideal buy point)
So what if I bought a little late…It’ll keep going up, right?

49. HealthSpring (HS) Weekly Chart 1/21/11
Drops over 8% below your buy point
- Triggers 7% - 8% sell rule
Does NOT drop 8% below
ideal buying range
- Could sit through this pullback if you bought in proper buying range

50. 66% gain in just 6 months HealthSpring (HS) Weekly Chart 7/8/11
Your shakeout

51. At the time, you didn’t know if it would go up or down.
HealthSpring (HS) Weekly Chart 1/21/11
Should you have ignored the 7% - 8% sell rule since the stock surged later?
No!!
At the time, you didn’t know if it would go up or down.
The 7% - 8% sell rule is like insurance – protecting you from potentially larger losses.

52. HealthSpring (HS) Weekly Chart 1/21/11
If you buy at a proper buy point in a market uptrend, leading stocks will rarely drop 8% below that ideal buy point.

53. Lesson 11 Key Points
Successful investors do a post-analysis of their trades at least once a year.
Keep good records of all your buys and sells  Helps you think through each trade before you make it  Makes it much easier to do an effective post-analysis.
You can significantly improve your returns by fixing just 1 or 2 of your most common, major errors.
If you sold a big winner too soon, you must find – and fix – your mistakes:  Why did you sell too soon?  What rules will help you hold on to future big winners?
Once you identify your most common mistakes, make rules so you avoid them in the future.

54. Where to Learn More
NEW! How to Make Money in Stocks Complete Investing System
 Includes How to Make Money in Stocks, Action Plan DVD, one month eIBD subscription. Plus, a free Level I seminar in city of your choice.
Free Online Courses: “Managing Your Portfolio” (See “Education” tab on Investors.com.)
Investor’s Corner: Daily investing lessons. (See “Education” tab on Investors.com)
IBD Workshops: Beginning to advanced workshops on chart-reading, buy & sell rules, portfolio management and more. (See
Learn how to spot buy and sell signals with the Market Wrap and Daily Stock Analysis videos.  See “IBD TV” tab on Investors.com

55. Coming Next Month…
Lesson 12: How to Profit by Picking Leading Stocks In Leading Sectors
You’ll learn:
aHow almost half of a stock’s move depends on the strength of its sector and industry group
aHow to use IBD’s Relative Strength Rating to identify today’s leading stocks
aWhere to easily find the top-performing stocks in the top-performing sectors using IBD
…and more!
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56. © 2011 Investor’s Business Daily. All rights reserved.
The comments expressed here are based upon study and interpretation of available data as it relates to our historical models of the best-performing stocks. This is not a prospectus; no effort on our part with respect to sale or purchase of any securities is intended or implied. Any chart appearing in this material is for educational purposes and is not, and should not be construed as a recommendation or rating to buy or sell any security. It is possible that at this date or some subsequent date, the officers, directors and/or shareholders of Investor’s Business Daily, Inc. or their affiliates own securities or buy or sell securities listed in the following pages, or those not mentioned.
© 2011 Investor’s Business Daily. All rights reserved.
Investor’s Business Daily, IBD, CAN SLIM and corresponding logos are registered trademarks owned by Investor’s Business Daily, Inc.