Page 854 - How to Make Money in Stocks Trilogy

Black Belt Testing: Life-Changing Moments in Investing 119

bined with the right chart action. These were stocks that had at least double-
digit earnings numbers and were breaking out of areas of price consolida-
tion on big volume.
Mike also began to read all of the books Bill O’Neil had on his recom-
mended reading list: How I Made $2 Million in the Market by Nicolas Darvas,
The Battle for Investment Survival by Gerald Loeb, My Own Story by
Bernard Baruch, and Reminiscences of a Stock Operator by Edwin Lefevre.

The Life Changer
In May 2003, Mike was reading an IBD New America article and learned
about a stun gun called Taser. He realized that this could be a big winner
because of the development of a nonlethal weapon that would improve a
police officer’s options to capture and detain suspects. He bought Taser
(TASR) in September 2003 and sold it in October for a 105% gain in 30 days.
This was a very exciting moment for Mike; he had done well with Garmin
and now had a triple digit gain with Taser. His confidence was soaring.
But Mike was frustrated as Taser continued to rocket higher—another
couple hundred percentage points—and he realized he had sold too early,
though IBD analysis hadn’t indicated this. His heart sank, but, realizing his
mistake, he started looking for a proper new entry point. In December
2009, the stock formed a series of rare high tight flags. This is when a stock
has a fast advance of 100 to 200% in 4 to 8 weeks. Then a stock moves side-
ways for 3 to 5 weeks before making another run. High tight flags are very
rare and only seen in the market’s biggest winners. After this formation,
stocks usually make a massive move upward.
Mike bought the stock back again. His position was significant as he pyra-
mided into the stock and added to his position. Then Mike did something that
is hard to do: he sat tight with a volatile stock. When a stock gyrates and is a
bit of a wild thing in daily price swings, it can be difficult to sit with. This will
test your nerves, but it’s where a set of rules comes into play. You sit with a
stock that has proven itself to be a true market leader. Taser never went below
its buy point, so Mike held onto it, despite some wild price fluctuations.
Then he saw some climax activity in the chart. The stock had gone up a
tremendous amount, and Mike realized that this might be a dangerous time.
He knew from his studies that all stocks top out at some point. On April 19,
Taser was due to report earnings after the close. Lawsuits and bad news
were beginning to creep up, and there were other yellow flags, such as