Page 311 - How to Make Money in Stocks Trilogy

188 A WINNING SYSTEM

never performed and ultimately got into financial trouble. Levitz, mean-
while, appreciated 900% before it finally topped.
As steel industry pioneer Andrew Carnegie said in his autobiography:
“The first man gets the oyster; the second, the shell.” Each new business
cycle in America is driven by new innovators, inventors, and entrepreneurs.
If our government really wants to create jobs and not welfare packages,
the most powerful way would be to provide strong tax incentives for the first
two or three years to people who want to start new, small entrepreneurial
businesses. Our data show that in the last 25 years, small businesses in
America were responsible for creating 80% to 90% of all new jobs. This is a
significantly higher percentage than that shown in government data, where
new jobs are not accounted for in a realistic, comprehensive manner.
For example, the Small Business Administration defines a small business
as one with fewer than 500 people. Yes, when Sam Walton started Wal-Mart
and Bill Gates started Microsoft, each company had maybe 30 or 40 people.
A year later they had maybe 75, the next year 120, then 200, then 320, then
501. From that point on, they were no longer considered to be small com-
panies. But over the next 10 or 15 years, one of them created more than a
million jobs and the other 500,000 jobs. Those jobs were all created by a
dynamic entrepreneur who started a brand-new company, and they should
be recognized and counted as such.
We have a huge database on all public companies. In the past 25 years,
big business created no net new jobs. When a big business buys another
company, thereby instantly padding its payrolls, it doesn’t create new jobs.
In fact, it usually consolidates and lays off people in duplicative positions.
Many such companies also downsize over time. Our inefficient, bureau-
cratic government needs to start counting all jobs created by new or small
businesses during their first 15 or 20 years in business.

How to Separate the Leaders from the Laggards:
Using Relative Price Strength
If you own a portfolio of stocks, you must learn to sell the worst performers
first and keep the best a little longer. In other words, always sell your mis-
takes while the loss is still small, and watch your better selections to see if
they progress into your big winners. Human nature being what it is, most
people do it backwards: they hold their losers and sell their winners, a for-
mula that always leads to bigger losses.
How do you tell which stock is better and which is worse? The fastest
and easiest way is by checking its Relative Price Strength (RS) Rating in
Investor’s Business Daily.