The 10 Rules You Must Follow to Beat the Market

Copyright © 2016, by Mike Turner. All rights reserved.

No quotes or copying permitted without written consent.

Published by:

Eagle Products, LLC

300 New Jersey Ave. NW #500

Washington, DC 20001

844/818-9444

Email: CustomerService@TurnerTrends.com

Website: http://www.turnertrends.com/

IMPORTANT NOTE: This special report is for information and educational purposes only

The Top 10 Rules You Must Follow

to Beat the Market

Introduction The following 10 rules for investing are my gift to you. A single investing misstep can

cost you thousands of dollars in losses and I want to help you avoid such setbacks. The

rules are intended to guide you in making profitable investments, while minimizing risk.

Stay disciplined in following these rules for investing. I want you to avoid needless

mistakes and let you keep and grow your money to help you meet your personal financial

goals. These tips are as relevant for fledgling investors as seasoned ones, as well as those

in between.

Rule 1: Think Like a Fundamentalist My list of fundamentals is relatively short. Your list may be more comprehensive, which

is perfectly reasonable. There are two extremely important aspects of reviewing a stock's

fundamentals, however, which should be included in any fundamental analysis of a stock:

1. Give more weight to Rate of Growth over various time-frames. The more recent

the increase in growth, the better.

2. When attempting to select a stock from a group of equities under consideration,

ONLY compare the fundamentals of one company to another within a single

industry. It does little good to compare the fundamentals of a Technology stock to

the fundamentals of an Energy stock.

Here is the list of fundamentals that I consider most important in the review of a

company's relative strength:

Fundamental Objective Max

Score

Qtr/Qtr Revenue Growth Quarter Performance Top-Line Year over Year 15

Qtr/Qtr Earnings Growth Quarter Performance Bottom-Line Year over Year 15

Year/Year Revenue Growth Yearly Top-Line Performance 10

Year/Year Earnings Growth Yearly Bottom-Line Performance 10

Multi-Year Revenue Growth 5-Year Top-Line Performance 8

Multi-Year Earnings Growth 5-Year Bottom-Line Performance 8

Relative PE Ranking PE Comparison within Stock’s Peer Group 6

Return on Equity Measure of Quality of Operational Management 5

Yield Dividend 5

Institutional Holding A Measure of How Large Institutions Like Company 6

Stock Price Too Expensive or Too Cheap to Entice Investors 4

Relative Fundamental Ranking All of the Above Compared to Stock’s Peer Group 8

Total Points 100

To just look at a company's current fundamentals (i.e., Current Profit Margin) and draw a

conclusion about the health of the company, without looking at how much the company's

Profit Margin has increased over time, is completely missing the reason for looking at

fundamentals. As an investor, I want to buy GROWTH. I am not looking to buy status

quo. I can get status quo in a CD.

Rule 2: Avoid Expensive Stocks Unfortunately, many investors look at the price of a stock and draw a conclusion about

whether or not it is an expensive stock. Common sense seems to dictate that the more a

stock costs per share, the more expensive it is. Nothing could (potentially) be further

from the truth. It is entirely possible that the $5 stock is many times more expensive than

the $400 stock. Here's why...

One of the very best ways to determine whether one stock is more expensive than another

stock is to compare the two stocks' price-to-earnings (P/E) ratio. The P/E ratio is the ratio

of a company's current share price compared to its per-share earnings.

For example, if a company is currently trading at $43 a share and earnings over the last

12 months were $1.95 per share, the P/E ratio for the stock would be 22.05= ($43/$1.95).

The P/E is sometimes referred to as the "multiple," because it shows how much investors

are willing to pay per dollar of earnings. If a company were currently trading at a

multiple (P/E) of 20, an investor would be paying $20 for $1 of earnings.

But... the key here is HOW you use one stock's multiple, or P/E ratio, in comparison to

another. P/E ratios are not absolute. They are, rather, only slightly relative to the average

P/E ratio of the entire S&P-500. They are very relative when comparing the multiple of

one stock to another in the same industry.

It does little good to compare the P/E ratio of an ISP (Internet Service Provider) company

to the P/E ratio of a healthcare provider company.

When I am trying to select a stock based on its fundamentals, I first DO NOT consider the

stock's P/E ratio. I only begin to look at the P/E ratio when I am narrowing down my

selection between two stocks of the same industry. Then, and only then, do I consider the

stock's P/E.

My rule is: When all other fundamentals are equal between two stocks of the same

industry, the one with the lower P/E can be considered less expensive than the one with

the higher P/E.

My goal is to not buy stocks with P/E's in the upper 20% of their peer group of maximum

range of P/E. This is NOT a hard and fast rule, but more of a rule to follow when two

stocks are equal in every other way, and you need to select only one. In that case, I'd

select the stock with the lower P/E ratio.

I do have a corollary to this rule. Also avoid "cheap stocks".

Cheap does NOT equal inexpensive. I consider penny stocks and most stocks under $5 as

too cheap to consider in my portfolios.

Rule 3: Trade Like a Technician Once I have selected WHAT stocks I may want to own, the next step is to determine if

the timing is right to buy one or more of those stocks.

In other words, I select what stocks I may want to own based on each one's best-of-breed

fundamentals, but I don't execute a buy on any of those stocks until my TECHNICAL

ANALYSIS confirms a Buy Signal.

There are many ways technically to review a stock to buy/sell/short/cover signals. There's

the Elliot Wave theory; the Candlestick theory; the Dow Theory; and on-and-on-and-on...

Basically, performing a technical analysis on a stock involves evaluating it based on the

assumption that market data, such as charts of price, volume, and open interest, can help

predict future (usually short-term) market trends. Unlike fundamental analysis, the

intrinsic value of the security is not considered. The assumption is that by using a

technical analysis on a stock, one can accurately predict the future price of a stock. This

is done by looking at its historical prices and other trading variables.

TurnerTrends has its own, proprietary, technical analysis theory that I follow in my

assessment of stocks. I also use a technical analysis for determining the appropriate stop

loss to set for each stock.

The TurnerTrends technical analysis provides the following “triggers:”

Buy Signal - This is when the closing price of a stock during a given week rises

sufficiently above our moving average trend-line by a predetermined percentage.

Stop-Loss Calculations - These calculations set a sell price below a long position that

incorporates a stock's historical volatility and a statistically accurate time-base

formula to estimate the maximum expected movement in a stock's price over the

upcoming week.

Sell Signal - This is triggered when the price of the stock meets or falls below the

stock's then current stop-loss setting.

Short Sell Signal - This is when the week-ending closing price of a stock finishes

sufficiently below our moving average trend-line by a predetermined percentage.

Cover Signal - This is triggered when the price of the stock meets or moves above its

then-current stop-loss setting.

But I go a step or two further in my technical analysis that I believe is crucial to timing

when it is the best time to get into or out of a stock.

In addition to performing a technical analysis on individual stocks, I also do a technical

analysis on each stock's Industry and Sector.

This analysis must support the decision to buy a stock. If I buy a stock, my technical

analysis of the stock's Industry must conclude that the Industry is in a technical "Bull-

Mode".

I also want to see the stock's Sector showing a bullish tendency; again, by analyzing the

Sector using the TurnerTrends technical analysis system.

But, as important as it is to know when to buy a stock; it is even more important to know

when to sell that stock.

I use a negative change in a stock's Industry chart to provide me with a leading indicator

of a potential future sell-off in the stock. When I see a stock's Industry begin to taper off

or turn negative, I will move that stock's stop loss into what I call my "Aggressive Stop

Loss Strategy." This is a strategy designed to capture the maximum amount of

accumulated paper profit while letting the stock continue on its upward path, until such

time as it does reverse and trigger my stop loss. Aggressive stop-loss settings are nothing

more than a stop loss set very close or tightly to the current price of the stock.

So., I select what stocks to buy on fundamentals and when to buy them based on

technicals. And I only exit a position in a stock based on my technical analysis.

Rule 4: The Money Rule There is one statement that I hear over-and-over-and-over when I talk to investors: "It is

far easier for me to know when to get into a stock than to know when to get out!"

It might surprise you to know that I ALWAYS know when to get out of a stock. I never

have to guess. And I don't believe you should have to guess either.

The reason that I never have to guess when to get out of stock is because I have a clear

set of rules that govern my exit strategy for every stock. This exit strategy is unique to

each stock because it is tied to the stock's historical volatility and the current money-flow

either into or out of the stock's Industry.

I have developed a formula for measuring one standard deviation of normal volatility,

which mathematically tells me how much a trade can move against me and still be in an

uptrend. We call this value an “Expected Move” (EM). It basically means that we know,

with mathematical certainty, how much a stock’s price can move and stay within one

standard deviation of normal volatility, based on the prior 12 months of total volatility of

the stock (or exchange-traded fund).

In addition, we know that stocks tend to move from negative trends to positive trends and

back, over time. We also know how to measure a stock’s “Trading Zone,” which can be a

“Buy Zone”, a “Hold Zone” and an “Overbought Zone”. When a stock or ETF is in a

bearish trend, the Trading Zones can be “Short Zone,” “Bearish Hold Zone” and

“Oversold Zone.”

Based on the above knowledge about our database of more than 6,000 stocks and

exchange-traded funds, we know how and when to set downside exit strategies (stop-loss

settings) for each trade, based on its Expected Move and Trading Zone.

In a Buy Zone, my stop is 1.5 EM below the Friday closing price. In a Hold Zone, my

stop is 1 EM below the Friday closing price. In an Overbought Zone, my stop is 0.75 EM

below the Friday closing price. I do the same (in the opposite direction) for short trades.

The key take-away is this… We buy fundamentally strong stocks when they first enter a

Buy Zone and we set our stop immediately at a price that is low enough to avoid normal

volatility, but high enough to get us out of the trade if it has moved from a bull-trend to a

bear-trend.

Each stock and ETF in the TurnerTrends Tools database provides subscribers with a

weekly updated stop-loss setting. An important side-note is this: I never lower a stop loss

for a long buy position unless there has been a dividend or distribution that requires a

recalculation of historical pricing trends. Stops for long positions only move up. Stops for

short positions only move down. Stops are set on a weekly basis and are good for the

upcoming trading week.

Rule 5: Never Marry a Stock I like to say that you should never marry a stock because you won’t like the divorce!

This is meant to be both funny and deadly accurate. Too many investors get into a stock

because they love the company or the stock has made them a lot of money. They just

can't bear to sell it. They got into the stock for all the right reasons, and perhaps, nothing

has fundamentally changed with the company. But, when the stock's price begins to cycle

lower, instead of capturing their unrealized gains; they hang onto the stock. Sometimes

they hang onto a stock until they have lost all they had ever made and much, much more.

They were “married” to the stock; and, they did not want to get a divorce (sell it). So,

they waited and waited as the stock's price sank lower and lower. Finally, at the bottom

(usually), they sell the stock because they could not stand the pain any longer; at which

time, the stock immediately began to move back up in price. This story repeats itself

over-and-over-and-over. It should never be your story.

I have a few sub-rules that, if you follow, you can be sure to not even get engaged, much

less married to a stock. Here are those sub-rules:

1. Don't override your stop-loss strategies. If your stop-loss strategy says sell, then

sell. If it says cover, then cover. Don't look back. For most investors, the cost of a

trade is only $5-$10... why not get out of that stock when your stop loss tells you

to; and then put that money to work in a much more attractive position?

2. Never lower a stop loss unless there is a reason for it (e.g., dividend or

distribution). Don't let your emotions tell you, "It's different this time." It is

almost NEVER different. Follow your rules; not your emotions.

3. Never, never average down. I have heard advisors and investors say, “Great... my

stock is now cheaper. I'll just buy some more and average down my cost." The

only time I will ever buy a stock at a lower price than my originating purchase is

when I have decided to build my position out of 2 or 3 trades, over several weeks.

Then, at the start of the buy-in, I decide what my lowest price will be before I say

I made an error in the stock. However, it is rare that I will add to a position when

the price has moved against me... very rare.

Remember... “Hope is not an investment strategy!”

Rule 6: Watch the Insider Buying

Here's an important axiom: "There are many reasons for Insider SELLING; but there is

only ONE reason for Insider BUYING.

Insiders buy their company’s stock for one reason and one reason only: they expect it to

be a great, long-term investment.

Too many investors think that tracking insider selling will give them some insight into an

expected weakness in the company’s future. Actually, selling ahead of bad news on the

company becoming public is against the law. In reality, I don't care about insider selling.

There are just too many legitimate reasons why an “insider” would need to sell stock,

other than “knowing something bad is about to happen to the company.”

But, the only real reason for insider buying is because the insider knows or thinks

something good is in the company’s future.

In the chart below is a green shaded area with small circles that say, “IB.” These IB

(Insider Buying) markers give you a quick view of how frequent and how large the

insider buying transactions are, over time.

I would NOT buy a stock just because of a strong history of insider buying, but when I

am trying to decide between two stocks that are equal in all other aspects, this one piece

of information could sway my choice to go with the company with the greatest insider

buying.

Remember… It is the insider buying that matters; not the insider selling.

Rule 7: Institutional Ownership My approach is to buy stocks that have the propensity to move higher in share price. I

look for all of the indicators that I can find that will make that propensity greater and

greater. One such indicator is institutional ownership.

Financial institutions such as banks, insurance companies, hedge funds and pension trusts

own the vast majority of shares of stocks around the world. As an example, the largest

public mutual fund that only owns shares of companies in the Standard & Poor’s 500

Index -- the Vanguard Index Trust 500 Portfolio -- has less than $50 billion in assets. In

contrast, the world’s financial institutions are estimated to hold more than $600 billion

worth of S&P 500 stocks.

These financial institutions have the best investment research in the world. They

regularly visit the management team of companies in which they buy shares.

Consequently, they are considered to be the "smart money" that everyone talks about.

When these institutions decide to invest in a company, the move is generally considered

very positive regarding the firm’s future prospects.

But... there is a downside to institutional ownership...

When too many of the shares outstanding (the number of shares that have been issued by

the company and held by the insiders and the investing public) are owned by institutions,

there is very little market pressure that can be put on the shares to boost their price. I am

looking for the propensity for increasing share price. If 98% of all the outstanding shares

are owned by a few large institutions, there are very few shares left to trade on the open

market. Thus, there is no trading and no change in price.

So, too much ownership by institutions tends to limit the growth of a stock's share price.

But... I also do NOT like to own shares of a company where few, if any, institutional

ownership is present. As mentioned above, major institutions are on the look-out for good

companies to have in their portfolios. That means if a stock has very little or no

institutional ownership, it probably indicates the institutions already have reviewed the

strength and merit of the company and decided to pass. In other words, they have not

given the company a good seal of approval. Not having a good seal of approval is almost

like having a bad seal of approval... not quite... but almost.

Therefore, I have three sub-rules regarding institutional ownership of a company:

1. Avoid stocks with less than 5% institutional ownership.

2. Avoid stocks with more than 95% institutional ownership.

3. Look for stocks with 30% to 60% institutional ownership... I call this my “Sweet

Spo”' of institutional ownership.

Rule 8: Diversification Diversification will save you from major losses and potential ruin when all else fails.

You can do your research and select only those stocks with great fundamentals...

You can be the best reader of technical charts and time your entry points exquisitely...

You bought only those stocks that are in the sweet spot of institutional ownership...

And, your stop-loss calculations are meticulously derived and rigorously followed...

But you ignored diversification and had 50% of your portfolio in real estate investment

trusts (REITs) and 50% in oil. The market suddenly reverses on you and all of your

wonderful paper profits go away in a flurry of downgrades and market consolidations.

This scenario happens to investors all the time. Diversification could keep this from

hurting your investment success.

You NEVER know when the market is going to reverse and turn against you. But, rarely

does a reversal occur in every industry and every sector at the same exact time. Way

more often than not, market sell-offs occur in pockets of stocks... certain sectors and/or

industries. Likewise, even in a bear market there will be some stocks in some industries

that are moving upward in price. Money is always flowing from one industry or sector

into another.

The key is never to have all (or even a large percentage) of your holdings in any one

sector or industry.

Here are my sub-rules that I follow to keep my portfolios appropriately diversified:

1. Never hold more than 30% of a portfolio in any one Sector, and

2. Never hold more than 20% of a portfolio in any one Industry.

This is not a complicated or difficult rule... but it will save you when all else fails!

Rule 9: Asset Allocation Closely associated with my Diversification Rule number 8, is my Asset Allocation rule.

And, in an indirect way, this rule is a byproduct of my Rule number 5 (the "Never Marry

a Stock" rule).

Within most portfolios there will be more than one position... more than one stock. So,

assuming you have a fixed amount of cash to invest into a portfolio, what is the

maximum amount to invest in any one position?

My answer to this is easy... If I only have five positions, then I would invest 20% into

each of the five positions (5 x 20% = 100%).

If I have 10 positions, my investment amount would be 10% in each position (10 x 10%

= 100%).

And so on...

The reason I said this rule is a byproduct of Rule 5 is that if you have the same amount

invested in each position, you will tend not to have more of an emotional attachment to

one stock over the other.

My corollary to this rule is my "Maximum Investment Rule." I believe it is too risky to

own fewer than five positions in any portfolio. To do so invites a significant loss if one

position suddenly plummets in price. Stop-loss settings do not guarantee a floor. It is

possible for a stock price to fall straight through a stop loss when a catastrophe occurs.

And catastrophes do occur from time to time in the stock market. So, for me, a five-stock

portfolio is the minimum... 10 is better.

Rule 10: Timing the Market The real question is, “Can you time the market?” This is another way of asking, “Can you

pick a stock's market bottom and/or market top?”

The answer is, “Not consistently!”

But you CAN increase your odds of getting in near the bottom by using my Rule number

3. AND, you can exit a stock much nearer the top by following my Rule number 10.

A LOT more profit can be captured if you know just when to start getting very aggressive

with a stop-loss setting. For that, I use the technical charts of the stock, the sector and the

industry.

The lower left chart is the technical chart of the Sector (Consumer Discretionary) of the

stock, ULTA Salon, Cosmetics and Fragrance, Inc. The lower right chart is the technical

chart of the stock's Industry (Specialty Retail, Other).

When I am making a decision about what to buy and when, I rely heavily on the Sector

and Industry charts. I believe strongly in “a rising tide lifts all boats.” In the case of a

stock, I want the Industry AND the Sector both to be in a bull-mode (green colored line),

if I am considering the stock as a buy candidate. The opposite is true if I am looking to

short a stock.

In fact, I have a 100-point scoring system I use for technically assessing a stock or

exchange-traded fund (ETF). I use 45 points for the Trading Zone; 10 points for the

Trading Volume and Trend; 20 points for the Industry Status (green or red condition); 10

points for the Sector Status; and 15 points for how long the equity has been in the Buy

Zone.

I see these kind of data every day. We post these charts for our subscribers to view in our

Stock Ratings for every one of the 6,000+ stocks that we track.

The logic behind this approach is this: If you are selecting best-of-breed stocks according

to the first 9 Rules, then it is likely your stock will be the last to succumb to a downturn

in its industry. This cushion lets you time the market for that stock and exit very near the

top to maximize your gain.

Conclusion The 10 rules offered in this special report are designed to help you profit from your

investing and to minimize any losses. The concepts are not complex and they can help

you to grow your portfolio wisely. To review, the 10 rules are:

Rule 1: Think Like a Fundamentalist

Rule 2: Avoid Expensive Stocks

Rule 3: Trade Like a Technician

Rule 4: The Money Rule

Rule 5: Never Marry a Stock

Rule 6: Watch the Insider Buying

Rule 7: Institutional Ownership

Rule 8: Diversification

Rule 9: Asset Allocation

Rule 10: Timing the Market

You may want to print out these tips and keep them near your computer to review before

you make changes in your investment portfolio. Consider them helpful tips as if I could

be with you when you are making investment decisions. You have worked too hard for

your money to take unnecessary risks with it.

Eagle Products, LLC • 300 New Jersey Ave. NW #500 •

Washington, DC 20001

844/818-9444 • www.TurnerTrends.com 10RULEBEAT-1016