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How to Use the Hot Stocks Digest
Don't be fooled by the elegant simplicity of the Hot Stocks Digest. As you can see, it is clear, concise and easy to use. Yet it generates enormous profits when followed correctly and with proper discipline.
Our Alpha(α)-RSM System is designed to ferret out those stocks that have a high alpha as well as high relative strength & momentum. Alpha is that measure of the return that is not explained by the general market.
For example, if the S&P500 has an average monthly return of 1.5% and a stock has an average monthly return of 8.5%, then the stock has an alpha of 7%. This 7% is the excess return that the stock generates over the general market.
Once we have selected our list of almost 1000 high alpha stocks, we run them through our proprietary mathematical models that rank them based on their relative strength and momentum.
We want to buy only those high alpha stocks that also have high relative strength and are going up at the present time. We have no interest in stocks that are going sideways, or worse, are going down.
The "30 Most Attractive Hot Stocks" are then presented in each weekly issue of the Hot Stocks Digest. You should use this list to pick and choose and build your own personal portfolio.
Each weekly issue of the Hot Stocks Digest will show you the BEST candidates for buying long in the prevailing market conditions. You must determine your own exit points if you purchase these stocks. We suggest using a 50% target and a 25% trailing stop for each position.
Example : Let's say you purchase a stock at $40. Your target sell price will then be 50% higher or $60 and your initial stop will be 25% lower or at $30. As the stock rises, your stop price will also rise with it. That is why it is called a trailing stop. If the stock rises to say $48, your trailing stop will then be $36 (which is 25% below $48). Similarly if the stock rises to $56, your trailing stop will then become $42 (which is 25% below $56). When the stock hits $60, you can exit and lock a 50% gain.
We suggest entering your 50% target limit sell price and the 25% initial stop as soon as you purchase the stock. Then continue raising the stop price as the stock rises in price. Remember, the trailing stop price can only go higher, not lower.
Once you reach the 50% profit target, you can either chose to exit your entire position or take profits on half and let the other half ride with a trailing stop in place.
Options : You may also purchase call options or bull spreads on these stocks.
You'll get the Hot Stocks Digest every Monday morning via e-mail or you can retrieve it through our internet website. When you start trading using our recommendations, you'll discover the Hot Stocks Digest gives you greater control over your profits.
You don't have to be a mathematical genius to see the enormous advantage in these type of stocks. That's why I am so excited. For the next several years, these explosive investments will post the biggest gains! But again, you have to know which ones to buy.
Obviously, not every stock is going to do well. In fact, most of them aren't worth your trouble. I can't stress this point too much. To achieve both high gains and safety, you must invest only in the highest-quality stocks.
Can we expect 50% plus returns every year? It would be great, but it just isn't realistic. But you can still make 100% returns or double your money every 3 years. That is why we need to fully invested in the best high-alpha, high-RSM growth stocks, when the reward/risk ratio is high.
Many investors, particularly those with less than 5 years experience with their own money in the market, have unrealistically high expectations regarding returns. This is perhaps the biggest source of frustration for newer investors.
Over a 10-year period, stocks will be up only about 65 percent of the time on average. The rest of the days are spent drifting sideways or falling. These negative periods can last months or even years. The good news is that our asset-allocation systems will keep us out of the stocks when risk is high or odds are not in our favor.
Successful investing requires a mental determination and emotional commitment to stay invested for at least one market cycle, which usually lasts four to six years.
Often investors lack the stamina to hold out through high period of volatility. They bail out, usually at the worst possible moment, forgetting that the extraordinary returns generated by small-cap stocks will eventually compensate them for the risk or volatility.
Don't Fall in Love with Your Investments
Most investors say they want to be rich, but their actions show that they would rather be right. Pride and defense of the ego are very powerful human motivations. But they can be deadly when it comes to investing.
There is only one report card when it comes to your investments. It all comes down to profit and loss. In the end, it doesn't matter whether you are right or wrong, but how much money you make. The ultimate test of your success as an investor is where your portfolio is today… not where you hope it will be next year.
There are countless stories of traders and investors who have lost fortunes (many of them recently) because they couldn't bring themselves to cut their losses. These investors were not only invested in their positions financially. They were also invested emotionally.
This is one of the biggest investment mistakes that people make. And it is intricately tied to our ego. We have an innate desire to be "right". Too often we equate taking a loss with "being wrong".
Investment success is not just about your big ideas and whether you are right or wrong about the positions you take. How you manage your investments once you have taken a position is just as important. Risk management and capital preservation are the keystones of successful investing.
The best way to take your emotions out of your trading and investing is to plan ahead and then follow your plan religiously. You should determine a stop loss point and a trailing stop for every position you take. If those points are hit, you sell. No questions asked. Having a pre-determined sell strategy in place is the only reliable way to take your emotions out of your decisions.
You can always re-enter those positions later if conditions warrant such action. But it is almost always a bad idea to hold on to a losing position that has breached your stop. The takeaway lesson here is not to become wedded to your investments or your investment thesis.
Please remember... patience and discipline are the two most important cornerstones of successful investing. Don't expect miracles or think you'll get rich overnight. Also, don't let the day to day market volatility and ups and downs bother you. That is all part of investing in the stock market. Focus on the longer-term. Look at the bigger picture. Think where you want to be 5, 10 or 20 years from now.
Generally, the longer you can leave your money in the market, the more risk you should be willing to take. You also need a proven investment strategy. Without a plan, investors often jump from one idea or philosophy to another.
Jumping around from one investment program to the next can be detrimental to your wealth building efforts. Once you have found a good system, like the Hot Stocks Digest, try it for at least 2 years before passing judgment on it.
Don't expect to make money each and every week. When faced with the inevitable down periods, don't lose patience and throw in the towel. Hang in there. Wait for the right opportunities, because sooner or later, they will surely come.
We at Hot Stocks Digest hope to make your investing profitable and enjoyable.
Frequently Asked Questions
Q. When is the Newsletter Published?
A. The Hot Stocks Digest is published every Monday morning and is available on our web site by 6:30 a.m. eastern time. The e-mail is sent around the same time. The prices in the newsletter are as of the last business day of the previous week, usually a Friday.
Q. Do I buy at the market or at the price listed in the newsletter?
A. When you get the newsletter and decide to buy a stock, just buy it at the market or at the ask price. In some cases you will get a worse fill than the price listed in the newsletter and in other cases you will get a better fill. Over time, your fills should average out.
Q. How do I use the list of top 30 stocks ranked in order of attractiveness based on relative strength?
A. Use the list of 30 most attractive stocks to pick & choose and build your own personal portfolio. Each weekly issue of the Hot Stocks Digest will show you the BEST candidates for buying long in the prevailing market conditions. You must determine your own exit points if you purchase these stocks. We suggest using a 50% target and a 25% trailing stop.
Q. How do you select stocks?
A. Our rigorous stock selection process incorporates both fundamental and technical criteria. Every week, we screen thousands of stocks looking for the handful that have the potential for spectacular stock price increases. We are looking for emerging companies poised for enormous growth or established ones that are about to make major advances. We want companies whose products are in such demand that they can't make them fast enough. Ones with entrepreneurial leadership that is taking advantage of technological breakthroughs to create new, super-fast growing businesses.
And we want to find them before they're discovered by the financial media and hordes of investors. So we can buy them ahead of the pack and take full advantage of the run-up in their stocks. We set very strict risk/reward guidelines and whittle the possibilities down to a handful of companies with superior balance sheets and liquidity and little or no debt.
Then we take this short list and subject it to a rigorous proprietary system based on cutting-edge computerized technical analysis. This system ranks the stocks according to their short-term momentum and relative strength. We list the top 30 in every issue of the Hot Stocks Digest.
Q. Are these stocks risky?
A. On an individual stock basis, these small and mid-cap stocks are quite volatile and most people would characterize them as being very risky. That is why you must diversify over at least 10-15 stocks, preferably more.
If you have 25 stocks in your portfolio and if 5 of them lose 25% each, your total portfolio loss is only 5%. Furthermore, its quite possible that some of the other stocks in the portfolio will go up thereby making up for the small loss. That is why it is imperative that you diversify your holdings over a number a stocks.
Q. My stock is up 250%. Should I sell?
A. That depends on your sell strategy. We suggest you maintain a 25% (or smaller) trailing stop in place at all times to lock-in the bulk of your profits.
Q. A certain stock is down 15%. Are you still recommending it?
A. Check the latest weekly list. If it is shown there, we are still recommending it. In any case, you must use a 25% or lower trailing stop on all your positions.
Q. As a new member, should I get fully invested immediately or should I invest gradually?
A. Either strategy is fine. The aggressive option is to go ahead and buy the top 10 to 20 stocks. This way you'll be fully invested instantly. The conservative strategy is buy only 1 or 2 stocks each week till you have a diversified portfolio of 20 or more stocks.
This way, it'll take you a few weeks to get fully invested. Just make sure that you divide your portfolio in the right proportion. For example, if you have $100,000 to invest and you buy 1 new stock each week, then you will buy $5000 worth of the stock and leave the rest of the $95,000 in cash.
Q. Why are you recommending or buying XYZ stock?
A. The answer to a question like this is always the same -- "because our computer models rank it as an excellent buy at this time".
Q. I expect the market to have a correction. Should I sell my stocks?
A. That is certainly your choice to make.
Q. Can I call you with questions?
A. We are not in a position to give personalized investment advice. Everything you need to know is contained in the newsletter. The purpose of the newsletter is show the best of the best hot stocks in America today. The newsletter subscription price does not include telephone consultation. We would like to spend our time researching new investment opportunities rather than answering questions that pertain to just one individual. You should consult a financial planner for your specific needs. However, if you have a question of a general nature that other people may also be interested in, please e-mail it to us at support@HotStocksDigest.com and we will try to answer it right away.
Disclaimer: Nothing in this newsletter should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Neither Hot Stocks Digest nor Wealthquest International Inc., or any of its owners, officers, employees or associates will be liable for damages, including losses, loss of profit or any consequential damages resulting from the use of or the inability to use this service. The Hot Stocks Digest is intended for experienced, sophisticated investors who are thoroughly familiar with all the risks, cost, mechanics, tax, and legal consequences of investing. Use or misuse of any information included in the Hot Stocks Digest specifically exempts anyone affiliated with the Hot Stocks Digest from any liability whatsoever. All subscribers or users of the Hot Stocks Digest agree to take full responsibility for their investment decisions and any losses. Past performance does not guarantee future results. Investments are at your own risk. Information may contain factual, mathematical, or typographic errors and therefore should be verified. Profits are not guaranteed and losses are possible. If you are unwilling or unable to comply with or agree to any of the conditions of this disclaimer, you may cancel your subscription at any time.
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