Chris Gessel is executive editor and chief strategy officer for Investor’s Business Daily. He is keenly focused on content to help investors. I talked with Chris about some of his approaches to investing. I also wanted to share with you a sense of our “behind the scenes” work.
Amy: Chris, over the years what have you found are the most important things for an investor to do in order to succeed?
Chris: Many investors want to make money in the market all the time. They find it nearly impossible to step back from the market when it’s in a downtrend. Yet, the worst time to be buying stocks is when the general market is in a correction. If investors continue to buy stocks during a downtrend and lose money, they eventually give up and walk away from the market.
The secret is to stay engaged in every market, but especially while it is correcting. Yet many people, even if they aren’t losing money, become demoralized and pessimistic. I know the feeling, After weeks, months or sometimes even a year of a declining stock market, it’s hard to stay focused and positive. What’s fun about watching stocks grind lower day after day?
Over the years I’ve talked with too many investors who turn away entirely from the market during corrections. The irony is that market corrections are when the big leaders of the next cycle are shaping up. These companies are reporting strong earnings and innovations that can’t overcome the general market weakness. But they are often the first stocks out of the gate when the market turns back up.
Amy: You don’t want to miss those. Many of us have made our biggest gains after staying tuned in during corrections and finding the real leaders.
Chris: Right—and three to six months into a new bull market, those discouraged investors notice that stocks have really taken off. But now they’re late to the party and find that most leaders have already broken out and made big gains.
So stay in phase with the market. When the stock market follows through after a correction, you want to be there and take advantage of all the great opportunities that present themselves. Even in a modest rally, you can make a lot of money by following the market rules and staying on top of the current leadership.
Amy: Great advice that a lot of us live by. Once someone understands the rules of the overall market, what is the next biggest challenge for investors?
Chris: Portfolio management is absolutely essential. Once you understand the basics of CAN SLIM stock selection and investing, you need to master very specific buy, hold and sell rules.
Justin Nielsen, David Chung, and I teach the IBD Level 3 Workshop, which focuses on advanced investment strategies. The primary element of the seminar is a trading simulation where investors get to walk through buying and selling scenarios with us from a real market cycle. You learn to spot the right time to invest; find top stocks, and see how wise it is to take many 20 to 25% profits so you’re making money along the way. Not every stock will turn into a super winner, but many leading stocks in an uptrend will deliver solid 20% profits. If you get into the habit of selling and locking in those gains you’ll see real progress in your portfolio.
Amy: How do you know when you’ve found a big winner?
Chris: One very important rule to follow is the 8-week holding rule. When a stock breaks out and runs up more than 20% in less than 3 weeks, you need to hold that stock for a full 8 weeks before you make a longer-term decision. The power of the rule is that it helps you sit through short-term shakeouts and go for much larger gains.
The majority of stocks, however, won’t trigger that rule; they may go up 25% in 5 or 6 weeks. If you take your profits at that point, you’ll have banked real money and then you can reinvest it in a new breakout. And the stock that you just sold in many cases will build another base over the following weeks or months and then give you another opportunity. You’re compounding your profits. The reason this works so well is the fact that many growth stocks typically run up 20 to 25% and then consolidate and form another base.
Amy: Where can you find these stocks in IBD?
Chris: Investor’s Business Daily is loaded with new stock ideas every day. There are two features every investor should monitor all the time. The first is the IBD 50, which is published Mondays and Wednesdays. We screen for the best stocks with strong fundamentals and excellent price performance. There’s a mini chart with each stock along with a description of its base pattern, and whether it is near a buy point. These quick descriptions are how many investors hone their chart reading skills.
Another great way to find stocks is to review the names at the top of each sector in the Research Tables. These Sector Leaders come from our most demanding screen and are the result of years of research into what makes a top-tier leading stock. Very few stocks can meet all the criteria to become a Sector Leader, so those that make this list should definitely be on everyone’s watch list. Analyze their chart patterns and read as many archived stories as you can. Most of the biggest leaders stay on the Sector Leader list during prolonged market uptrends.
Amy: Can a newer investor or someone who is short on time succeed with these features?
Chris: Doing exceptionally well in any field takes some work, but IBD has a lot of resources to make it easier for investors. We have hundreds of Meetup Groups across the country where IBD readers gather each month to share ideas, use our market courses created for these groups, and help each other understand how the stock market works. We also introduced a new service in 2011 called Leaderboard. I think of Leaderboard as realtime education that also does a lot of the legwork for you. In Leaderboard, the market team scours all of IBD’s best lists to find stocks that meet most if not all the CAN SLIM criteria. Then we mark up the charts to find the bases, the buy points, when to hold and when to sell.
What is gratifying is that we see people who are brand new to the stock market succeeding, as well as seasoned money managers who take the service for a second opinion of what they are seeing in the market.
I’ve seen roaring bull markets, punishing bear markets and everything in between since I’ve been at IBD. But what is amazing is that every time we start a new uptrend, the vast majority of big winners show up in IBD’s stock screens and stories. The opportunity is there for everyone to succeed in the stock market.