Page 777 - How to Make Money in Stocks Trilogy

66 HOW TO MAKE MONEY IN STOCKS SUCCESS STORIES

showed that most winning stocks should be sold after they are up 20 to 25%,
because at that point, many stocks will pull back and form another base or
area of consolidation or even top.
Lee tended to hold onto his stocks too long and gave back much of his
gains prior to following this simple sell rule. Lee learned the only time you
would hold onto a stock longer is if it makes a 20% move in 2 to 3 weeks
after breaking out, in which case the stock must be held for at least 8 weeks.
That’s because market history shows that stocks like those tend to go on to
make massive moves after moving higher so quickly.
One stock that evoked the 8-week hold rule for Lee was Crocs in 2007.
Lee says the market environment in recent years has not led to the “big
trades” that previous markets offered, but he had a “barn burner” with Crocs
in 2007, netting a gain of 140%.
Lee said he became aware of the stock because it appeared in an IBD
New America article in October 2006. A few months after the stock made its
IPO debut, it was mentioned in The Big Picture column and was a leader up
in volume in the Market Pulse section of the paper.
“Before investing in the stock,” says Lee, “I visited a local Macy’s store
and found that Crocs had its own special display section in the shoe depart-
ment, so clearly the shoes were selling well.”

• KEY POINTS •

• Sell most stocks for a 20 to 25% gain, unless they go up
20% in 2 to 3 weeks, in which case, hold for 8 weeks.
• Read The New America article to find potential winning
IPOs.

• Visit a store and check out the merchandise a company is
selling.

Learning to Profit from IPOs

In 2004, Mike Scott considered himself a “newbie” when it came to invest-
ing. He wanted to own Google but at the time didn’t understand IPO bases,
so he missed the September 2004 breakout. He bought the stock when it
gapped up in April 2005. (A gap-up occurs when a stock makes a sharp move