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By Tom DeGrace

@Tom DeGrace

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1. Introduction……………………………………….…………………….3 2. Stock Market History………………………….……………………….4 3. Investment Types…………………….………………………………...5 4. Famous Investors Pave the Way For System Investing…………. 11 5. Investing Rules to Avoid Getting Yourself in Trouble………..….16 6. Nifty 50……………………………………….…………………………..19 7. Trading Secrets & Clues …….…………………………………….…..20

@Tom DeGrace

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Hi there, This is Tom DeGrace from I started a blog to help people become better investors in the stock market.

My background is that I have over 10 years experience in investing

and also specialize in mathematical formulas, which I learned from my years as a computer programmer. Check out my blog here Follow me on facebook Follow me on Twitter Copyright & Disclaimer All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, mechanical or electronic, including photocopying and recording, or by any

information storage and retrieval system, without permission in writing from the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. The information herein is based on the experience and opinion of the

author/publisher. The author/publisher and his distributors and associates are not accountable

for individual outcomes as a result of the information presented herein. The publishers disclaim any personal liability, loss or risk incurred as a result of the use of any information or advice contained herein, either directly or indirectly.

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Stock Market History If you have watched the stock market for long period of time, you

realize that it can be very unpredictable. One day bubbles flourish, things could get any better and then the next day it seem like the sky is falling. Wouldn't it be simpler to invest if there was some sort of system that would take the guessing out of investing?

Now I'm not going to kid you, there is no foolproof system out there. However in creating my system what I did is put the

mathematical odds that turn the tables hugely in our favor.

Before I get into how the system works, lets take a look back at some historical data for the stock market. Stock Market Return from 1900 to 2000

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Just $1,000 invested in 1900 would be worth over $19.8 million by the end of 1999.

At 15% average return per year, it only takes 30 years to turn $15,000 to $1 million. So as we can see history is on our side when it comes to overall market returns.

Investment Types Investment types are investments such as cash, stocks, commodities, collectibles, real estate and business. In choosing which Investment type fits into your own personal investment goals can have a major impact on your retirement plan. Each investment type comes with its own risks and rewards. Here we try and talk

about the major types of investments that each has a global market value of over 1 trillion dollars. Investment Type Cash Cash investments generally refers to investments where cash is

invested usually for a fixed interest rate return. The advantage with cash investments is that there is relativity low risk compared to investing in assets. The differences in which type of cash

investments includes the rate of return received the liquidity of the investment. Cash investment types include CD’s, bonds, money markets and FOREX investing. Government bonds, CD’s and money

markets carry the lowest risk and pay usually a fixed amount over a period of time. Mortgage backed securities and corporate bonds @Tom DeGrace

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have a higher risk of default in which you could lose a substantial amount if the secured asset loses value. FOREX investing is buying currency on the foreign exchange markets which is done either to speculate that a currency may go up or to hedge in case your country’s currency declines. Risks

A risk of cash investments is inflation in which case your cash loses its buying power as inflation rises. There is also a small risk that a currency could collapse and lose a huge amount of value over a short period of time.

Investment Type Stocks Stock investing can includes investing in things such as stocks &

options. You will need an online brokerage account in order to buy & sell stocks on the stock market. As a shareholder of a company, you in effect own a piece of that company and benefit from the

company increasing in value. The value of company goes up as the company grows both sales and earnings. Generally as the economy grows, company earnings increase and the stock market goes up. As the economy falls and enters a recession, the stock market goes down. When determining the value of one stock over another, most look at the P/E ratio (price to earnings), growth and its tangible book value. A common belief is that a stock trading at a fair market value is

trading at P/E ratio that is even or less than its growth rate. Example if Microsoft was growing at 15% per year, then a P/E of 15 or less is @Tom DeGrace

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warranted. The exception to this rule is that stocks with even no growth usually trade at least 6-10 times earnings. This is because

the average inflation rate is 4% and stocks usually trade at least 2x the inflation rate. Other things you might want to consider in

choosing stocks are growth potential, market leadership, earnings to debt ratio, competition and stability of earnings. You can pick your own individual stocks and or buy a basket of stocks in an ETF or mutual fund. Some investors also may buy a fund that tracks a popular index such as the DJIA, NASDAQ or the S&P 500. Risks A big risk to stock investing is that if a company goes bankrupt, the stock value will go to zero and you the investor will end up with nothing and the remaining company assets are sold with the

proceeds going to bondholders. If the company emerges from

bankruptcy, the bondholders then become the new owners of the stock. Diversification can help shield investors from losses if one company’s stock goes bankrupt. No Company in history has ever

gone bankrupt that has had no debt so buying companies with low or no debt is a good idea. In a single year an overall stock index such as the Dow or S&P 500 can lose over 50% of its value.

Though the benefit to owning stocks is that since 1900 the stock market has produced an average return of 10% per year. Also by owning stocks, you are hedging against inflation which can erode the value of money over time.

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Investment Type Commodities Commodities is a physical substance that can include energy, food and metals. Commodities tend to go up in times of high inflation and when the economy is growing rapidly. Commodities can also go up or down inversely to supply and demand when investors

speculate to future trends or as different commodities go in and out of favor. Since commodities can move up rapidly sometimes over

50% in a single year for some, timing can be essential for capturing short-term gains. Gold is a very popular commodity that people

invest in. Gold however isn’t used much in manufacturing and only a limited amount of the gold produced is used in jewelry. Risks A large part of price movements of gold is driven solely by the demand of investors. You can invest in commodities yourself by

buying an ETF, hedge or mutual fund. You can also buy futures to speculate on the future price movements of commodities. Investment Type Collectibles Collectibles can include almost anything of value from baseball cards to antiques to paintings. A collectible is a tangible asset which value varies due to the demand by collectors. The less supply of the individual collectable, the more value it has. So to protect from

oversupply, one would need to make sure the creator of the asset whether an artist or manufacturer is no longer producing copies or variants of the collectable.

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Risks Some risks while owning a collectable is that it could become

damaged over the course of time which could lower the value. Also there is a risk of the item being stolen so you would need to keep it in a safe place or have insurance to cover the item. When selling a

collectable, it may not be easy to find a buyer for niche collectibles and auction houses can charge fees as high as 20% to sell the item for you. Investing in collectibles can help hedge you against inflation. Investment Type Real Estate Real estate investing is investing in things such as land, residential and commercial property. Land investing is based on the

fundamental that there is only so much land available and demand will continue to increase over time. However while holding land

there isn’t any cash being generated and you will still have to pay for the taxes every year. A common real estate investment is rental properties. The investment strategy here is to rent the property to a tenant for a fixed price hopefully covering the cost to hold the property. The

major benefit to investing real estate is that you can earn fixed rate return often exceeding the return rate of bonds while at the same time protecting yourself from inflation. Risks The risk with real estate investing is that the value of real estate could fall or there could be some event that would happen that @Tom DeGrace

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would cause you to invest money into the property to keep it functional such as the foundation cracking or a roof leaking. Also owning real estate may require some of your personal time that could be spent doing other things. By using leverage, you can

increase your returns however if you can’t afford to make your mortgage payments, then you would lose all your equity if the bank were to foreclose on the property. There is an option to own a REIT (Real Estate Investment Trust) which by law pays out 90% of it’s earnings to investors in the form of dividends. A REIT is as easy to buy as a stock though as with

stocks, the value can move up and down with investor demand. Investment Type Business Rather you are stating your own business or investing in someone else’s business, this type of investment has its own risks and rewards. The different ways to invest in a business may include

starting your own business, buying a piece of some else’s business or owning a fund that specializes in investing in new businesses such as venture capital funds. When starting your own business, there likely needs to be both time and money invested up front before you are ready to sell a product or service to customers. Risks You may lose 100% of the money invested if you can’t make a profit above what your fixed labor, marketing and operating costs are.

When owning a piece of someone else’s business, you may not see a

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return on your investment unless there is either an agreement to provide dividends or if the company goes public.

The major benefit to owning a business is that the returns can be almost unlimited. There are many cases of an $10,000 investment

turning into over 1 million dollars in less than 10yr time. A business is also a hedge against inflation. Summary As we see, there are a large variety of investment types to choose from that has its risks and rewards. . The greater the return, the

greater the risk. You need to decide what your long-term goals are in order to which investment type you want. So Why Choose Stocks as an Investment Type? Well for one thing stocks have outperformed all other asset classes. To get rich over the long-term, your returns on investment need to

beat the #1 enemy of wealth building, INFLATION. If you are earning a 4% yield on a 10yr bond and the inflation rate is 3% on average, then you are only netting a 1% per year return. At that rate your

investing efforts would be similar to a dog chasing its own tail, a lot of effort and getting nowhere.

Famous Investors Pave the Way for System Investing Benjamin Graham was wiped out of all his assets during the Great

depression of 1929.Inspite of this, the partnership firm survived by

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selling out all the personal assets of partners. Ben recollected his strength and was back on his feet. During these ups and downs he had learnt some valuable lessons. He shared these with the world

through the books he wrote. Simultaneously he took up lecturing in Columbia University which was a partnership that continued for a very long time. In 1934, He along with David Dodd came up with the book, Security Analysis. It is considered as the bible for those who are seriously interested in investing since the day it has been penned. He came up with his second book in 1949 The Intelligent Investor, which

Warren Buffet the second richest man in the world considers as the best book ever written on investment. He got his first lesson of investment from this book.

The partnership between Graham and Newman continued till 1956.Their firm never gave losses to its investors and earned an annual return of 17%.He had seen business and investment markets travel from the depths of Depression to the heights of recovery. To

his readers and keen learners he has left an incomparable legacy in the form of his books and its theories. Graham retired from writing

and lecturing at Columbia in 1956. Benjamin Graham died in 1976, with the reputation of being the “Father of investing(value)�. Benjamin Graham coined the idea of Mr. Market. As per Graham, Mr. Market is a lunatic partner in your firm who offers to sell his share and buy your share in the business daily offering some price. That price depends on his mood that may fluctuate, so one day

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increasing the price and the other day decreasing it or not offering anything at all. This rise and fall in prices gives the investor an

opportunity to purchase and sell the shares. If you are a careful and a rational investor then your decisions shall not be based on the mood of Mr. Market. The lesson behind Mr. Market parable is

obvious. The investor has to make his own decision based on the net worth of investment and not price fluctuation. He has

summarized this very aptly “Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market.” In his words “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.

Operations not meeting these requirements are speculative.” Before making any investment decision, He studied the Balance sheet of the company and its history of past 7 years. His fascination for numbers led him to come up with the “Theory of Value investing” in 1934. It is based on the assumption that two values are attached to a company. The first is the market price – the value of the company

on the stock exchange. The second is a company’s business value. Margin of safety is the difference between the market value and the business value. The stocks should be sold when the market price

gets close to the business value. This concept became very popular and is relevant even in today’s time.

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He also likes companies that pay out dividends and are in good financial shape. Graham looked for companies that are trading

below their historical P/E average and trading below 1.2 times book value. Benjamin always tried to buy stocks that were trading at a discount to their Net Current Asset Value. He suggested buying

stocks at 2/3rd of Companies net value and selling them as they approach their net current assets. Clearly it should suit the investor to buy shares when “Mr. Market” displays more insanity then

otherwise. By religiously following the Graham’s principles, its no surprise that Warren Buffett has become second richest person in the world.

Warren Buffet Warren Buffett is the most successful investors our living times and is one of the very few billionaires who have amassed wealth majorly through investing in stocks. Warren Buffett is bestowed with titles

like “The Oracle of Omaha” and the “Sage of Omaha”. Warren Buffett continues to shine bright as an Investor, Businessman and

Philanthropist. With a net worth of US $37 billion in 2009, Warren Edward Buffett is ranked as the second richest man in the world,

just after his good friend Bill Gates who had the net worth of $40 Billion. Warren Buffett is known as the Father of Value Investing and the Investment Industry takes inspiration from his unique style of investing. According to Buffett, the essence of value investing is to buy stocks at less than their intrinsic value giving an investor fair @Tom DeGrace

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amount of Margin of Safety. Warren Buffet set a goal never to lose money irrespective of the market conditions. He is always prepared to take calculated risks as he always does the planning beforehand. According to Warren Buffett “Noah did not

start building the Ark when it was raining”. Buffett prefers to invest in simple and understandable businesses, checks out a company’s track record for ROE (Return on Equity) and tries to predict the growth of the company in next ten years. He prefers to invest in companies that generate high ROE without much debt. One of his principles was to invest in good companies when they have a temporary problem or when the stock market is low and creating bargain prices for outstanding businesses.

He does not care about the switching nature of the stock market. For e.g. – the stock of the Coca Cola Company had gone up fivefold the prior six years and over five-hundred fold the previous sixty

years when Buffett bought stocks worth $1 billion in Coca Cola. He earned four times the money he invested and the profit still continues to come in. In 1976 he purchased a very important

position in GEICO when the stock had fallen down from $61 to $2 and the basic opinion was that the stock was definitely going to zero. Warren Buffett avoided Pharma or Dot Com Companies for he never

invests in business that he is unable to understand or falls under his circle of competence. He says that an investor should carefully study

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the facts and figures, value the company’s future outlook, and purchase when everything is in their favor. They should not try to predict the direction of the stock market, the economy, interest

rates, or elections. The investors should concentrate only on a few

holdings. This way, the investors can be more careful and thorough in their research. And it helps to eliminate the risk factor. The Buy and Hold Investment strategy of Buffett has been appreciated by investors all over. The concept is to buy an outstanding business and hold it for years. This helps to achieve returns which are commensurate to the economics of Business.

Warren Buffett prefers to invest in companies which can provide their own management. Berkshire tries to work with the same

management which was there before its purchase. The only area which is to the concern of Buffett is capital allocation and

compensation of top managers. Otherwise managers are free to operate as they like. But Buffett also welcomes any matter on

business environment which his managers want to discuss with him. It is indeed the strength of Buffett’s Principles that makes him so successful in the investment industry.

Investing Rules to Avoid Getting Yourself in Trouble Rule #1 NO CRUSHING DEBT!!!!

I have seen it a million times, an investor sees a once great company trading at what appears to be a bargain price, so he buys the stock. @Tom DeGrace

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The company is often very well known, such as At&T, AOL, Xerox and Tyco, and it may even still be growing both earnings and revenue.

But these are companies that are at risk, and they will have to continue to sell off assets just to stay afloat. And don’t expect them to get anywhere near the market value in a distress sale. And, even

worse, in bankruptcy these assets go for only 20 cents on the dollar. After a bankruptcy, typically all common shareholders receive nothing and ownership of the company goes to the debt holders.

The debt holders can decide either to sell off assets to repay debt or to take the company public again. If you can add 1+2=3 then you should be able to read a balance sheet. And it doesn’t hurt to check the SEC reports such as the 10Q. The fact is that no company with zero debt has ever gone bankrupt. The general rule we like to use is to buy stocks that have their interest expense to income ratio at less than 25%. Rule #2 Margin Trading is a Fools Game The key to successful investing is having available cash to choose the next best investing opportunity that comes along. When you get into debt, you begin to lose your options and get trapped into your original investments. Remember that all stocks can crash, and the

odds are, if you are high in margin, you will soon have a margin call in which you could lose 75% of your money. As a general rule,

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buying stock on margin is bad money management. The fact is that 90% of margins players get margined out. The more leveraged you are, the greater chance you have of ruin. Rule #3 Money Management One of the important things to learn about investing is how to

manage risk. Anyone who has no respect for risk is on the road to complete financial disaster. You often hear these great stories about the guy who turned a small amount of money into a million dollars. But what you don’t hear is that, years down the road, these same people are often wiped out as a result of not respecting the risks that go with investing. Learning how to pick investments that can appreciate in both good and bad times is the key to successful

investing. Keep your reward-to-risk ratio at a minimum of 2:1, and preferably 3:1 or higher. In other words, if you are risking 1 point

on each trade, you should be making, on average, at least 2 points. Rule #4 Select High Quality Companies This means no OTC stocks, no IPO's and small cap stocks. I want

companies that are proven market leaders. I exclusively only pick companies that are trading in either the S&P 500 or S&P 400. The only exception is that I will sometimes pick an international large

cap stock only if it trades on the U.S. exchange and it has a large % of their sales coming from the U.S. Example of these stocks are Sony, Nokia and HSBC.

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Rule #5 Don’t try to hit the home run on every pick Everyone wants to be the one to have their portfolio shoot up 200% in a short amount of time. Fact is, there is no way to achieve this without taking on severe risk. Have you ever heard of “The Tortoise and the Hare”? The rabbit has more speed, but the turtle has more

determination, stamina, and consistency. The rabbit may get a fast start, but the turtle wins the race.

The Nifty 50

Back some time ago someone came with the original Nifty 50. It was a group of stocks that were market leaders as well as brand leaders

for their sector. These stocks did outperform the general market for long period of time. The principle is if you pick you good companies to begin with, then you will have an advantage over everyone else. The Original Nifty 50 American Express

J.C. Penney

American Home Products

Johnson & Johnson



Avon Products

Minnesota Mining and

Black & Decker



Merck & Co.

AMP Inc.

Baxter International

Burroughs Corporation

Louisiana Land and Exploration

Manufacturing (3M)

MGIC Investment Corporation

American Hospital Supply Corp. PepsiCo Chesebrough-Ponds


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The Coca-Cola Company

Philip Morris Cos.

Digital Equipment Corporation


Eastman Kodak


Emery Air Freight

Joe Schlitz Brewing

First National City Bank



Simplicity Pattern




Texas Instruments

International Flavors and


International Telephone and


Dow Chemical

Eli Lilly and Company

General Electric

Heublein Brewing Company

Fragrances Telegraph

Procter & Gamble Schering Plough

Sears, Roebuck and Company

S.S. Kresge

The Walt Disney Company

Trading Secrets & Clues The stock market is made up of trillions of dollars of money. What makes the stock market go or down is simple supply vs demand.

There is a constant battle going on between cash vs assets. When there is fear in the markets the money moves into cash. When there is optimism, money goes into assets. Over time inflation takes hold so there is always a push in the long-run for asset values to climb higher.

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When you look at a stock's chart pattern, you can see these patterns of peaks and valleys in a stock's price. Often if you buy at the low

point at say the 90 day moving average, you can then make a profit in short period of time as the rises. Book value bottom fishing can be very profitable as long you buy stocks that don't have crushing debt or negative earnings. A private company's value is anywhere between 4-5 times earnings. A pubic

company's bottom valuation is around 7-10 times earnings. Buying stocks that a large portion of their current stock's value in book

value can give you some cushion during a market decline. Apple computer at one point was trading at $12 which was almost their cash on their books. Had you had bought low, you would have made a fortune as the stock climbed up.

Often when the stock market is rising or falling, all the news reporters look for the top story that is behind the move. It's not always the case that daily news drives the markets. Often its a trend in which the markets is trending down or up regardless of what

news is about to break. One big clue to which way the markets is going to move is to look at the 10yr bond yield. When bonds are at the low end of their moving average, it may signal that the stock

market is about to turn up. When bonds are high, it could mean that a sell-off is coming soon.

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A Little Info About My Blog The blog I run at offers many free articles on a variety of topics. I also have a membership section that is based on running an active trading portfolio of 20-30 stocks.

There is special formula that I use help maximize returns on every single stock pick that is made. I urge you to check it out. Follow me on Twitter Follow me on Facebook

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Ninja Trading System  
Ninja Trading System  

If you have watched the stock market for long period of time, you realize that it can be very unpredictable. One day bubbles flourish, thing...