Page 907 - How to Make Money in Stocks Trilogy

160 HOW TO MAKE MONEY IN STOCKS SUCCESS STORIES

line along its massive run. He is mentally prepared for a pullback of 20 to
26% with a truly big winner but notes that “you have to literally sit on your
hands and stay disciplined as a stock pulls back.” He knows that the equity
curve in his hedge fund can come down 20% or more, but this is where the
professional investor must have the confidence to sit through pullbacks in
order to get the big monster moves. Jim does a lot of research on a company
before he buys shares, and this allows him to have the conviction to hold
through periods of pullbacks.

Finding the Biggest Winners
Jim is looking for the rare stocks that will make enormous moves. When he
is establishing a position in a stock, he could be investing $15 million or
more, making liquidity extremely important. Ideally, the average daily dol-
lar volume should be two hundred million or higher (calculated by multi-
plying the number of shares a stock trades by the stock’s price per share).
These are also stocks that are more likely to have institutional support from
mutual funds, banks, and pension funds. Jim says part of the “magic sauce
for finding the market’s biggest winners is high liquidity combined with
soaring earnings growth.”
Baidu went on to make a move of 1,000% from March 2009 to July 2011.
This only occurs when the stock is a complete game changer and dominates
in its field. The biggest winners have something—a product or service that
no one else has. Apple had the iPod, iPhone, and the iPad. Hansen
launched the Monster Energy Drink. eBay became a multibillion dollar
company with its online auction site, which offers a variety of goods and
services. The exciting thing is these innovative companies show up in every
new bull market cycle.

Look for a Unique Product Hitting the Market at an Opportune Time
Jim found another game changer with Netflix in 2010. Netflix knocked
Blockbuster out of business. The United States was in a recession, but peo-
ple could order movies from Netflix, stay home, and watch them without
any late fees. Noting the company’s exceptional fundamentals and innova-
tive business model, Jim bought Netflix in August 2010 and held for the big
run, selling his final shares in April 2011 and netting an $8.9 million profit.
Jim’s fund was heavily margined on May 3 going into an earnings report
for OpenTable. When the company reported earnings, the stock gapped
down significantly on huge volume. Other leading stocks began to break