Page 881 - How to Make Money in Stocks Trilogy

140 HOW TO MAKE MONEY IN STOCKS SUCCESS STORIES

to pick them up. He says, “All the hardcore stock jocks showed up on
Saturday mornings at the plant to get their charts early. You felt like you
were part of a secret club.”
One of the biggest technical indicators that Kevin learned to pay atten-
tion to on charts was the RS (Relative Strength) line. Kevin learned that
what was important was the slope of this line. If the line was upward sloping
and hitting new highs, it meant that the stock was outperforming the S&P
500. Conversely, if the line was downward sloping and drifting into newer
lows, the stock was underperforming the major indexes. He was looking for
the truly big growth stocks that were far outperforming the major indexes,
so this indicator was something he would continue to focus on as he looked
at charts.
Early in 1991, Kevin recognized that a new bull market had begun. He
was able to use the CAN SLIM Investing strategy in “full bloom.”
Companies like Microsoft soared as people gobbled up its state-of-the-art
software. Home Depot experienced blistering growth by coming out with a
chain of innovative home improvement stores offering discount prices.
Cisco Systems became an earnings juggernaut by developing technology
used to link groups of individual computers together. In each case, these
companies had carved out a whole new market.
In the spring of 1993, Kevin would learn a big lesson. He had bought
Microsoft out of a base, but the breakout failed, and the stock fell 10%.
Kevin didn’t sell. Microsoft dropped some more and was down 15% from
where he bought it. Kevin held onto the stock and kept telling himself what
a really great company Microsoft was and that it would recover. He finally
sold the stock after it was down 20%. Kevin realized he had not adhered to
the CAN SLIM sell rules. Since then, Kevin relies on technical analysis
alone to sell a position, and he has never sold a stock with more than a 7 to
8% loss except for the rare news-related gap-down.
He also realized that there are two problems in hanging onto losers. First,
you can take a potentially devastating hit to your account if you allow a small
loss to grow into a big one. Second, you can tie up your money in a laggard
stock instead of selling a losing stock and putting your money into a winner.
This is particularly important at the beginning of a new bull market.

Taking Advantage of New Technology
By 1995, it seemed obvious to Kevin that the Internet was going to change
the way investors could get quotes and other information, but everything