How to Make Money in Stocks Summary (C16): How to Use IBD

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The author of How to Make Money in Stocks is also the creator of Investor’s Business Daily (IBD).

In this chapter, he breaks down how he uses the information from IBD to pick winning stocks.

The composite rating gives an overall score reflective of the following four individual ratings.

First look for stocks with a composite rating of at least 80, then dive deeper for each one.

The Earnings Per Share (EPS) rating calculates the growth and stability of each company's earnings over the last three years, with more importance on the most recent quarters.

The higher the score, the better.

Relative Price Strength (RS) shows which stocks are the best price performers.

Again, the higher the score, the better.

Look for stocks with rankings in both EPS and RS over 80 before their major moves.

The Sales + Profit Margins + Return on Equity (SMR) rating helps you identify companies with real sales growth and profitability.

The rating is given from A to E. Look for stocks with A or B ratings.

The Accumulation/Distribution rating measures the institutional trading activity of stocks. It is based on daily price and volume changes.

It is measured on an A to E scale. Don’t buy anything lower than a C rating.

Most information providers will tell you the stock’s trading volume for the day, but that doesn’t give you enough information.

Instead, the Volume Percent Change in IBD tells you whether the volume is unusual compared to the average.

Here is a list of highlighted sections given in IBD:

• General Market Summaries. Price and volume changes of major markets.

• IBD’s Top 10: The 10 most important news stories summarized.

• The Big Picture: A summary of market action and key developments.

• Top Stories: Two front-page stories

• To the Point: 50-ish business briefs.

• Trends and Innovations: New inventions

• Earnings: Short stories about companies that reported earnings after hours and how the market reacted.

• Leaders and Success: Highlights successful people.

• 10 Secrets of Success: Includes in-depth look at one of the secrets.

• Internet and Technology: Focuses on technology.

• Your Weekly Review: A table showing stocks with strong weekly gains.

• Inside Real Estate. Focuses on real estate.

• The New America: Highlights young companies.

• Mutual Funds and ETFs: Focuses on mutual funds and ETFs.

• Leading Fund Sectors: Tells you which sectors are in demand.

• Issues and Insights: Editorial pieces.

• Making Money: Facts, skills, and rules for the investor.

• NYSE + Nasdaq Stocks On the Move: Tells you the stocks that had the greatest increase in trading volume.

• How’s The Market?: Compares the major markets

• IBD Mutual Fund Index: The composite performance of the leading growth funds

• 197 Sub Group Rankings: A composite rating for each subgroup

• IBD Industry Themes: Keep track of industries

• The Base Reader: Analyzes various chart patterns

• The Income Investor: Editorial column

• International Leaders: Covers foreign markets

• 2500 Leading Stocks: Combines New York and Nasdaq stocks in one research table.

• You Can Do it Too: Investor testimonials.

• Stocks in the News: In a bull market, any new names on these charts are worth checking out.

• IBD Timesaver Table: High-ranking stocks that had price changes.

• Investor’s Corner: Educational column

There is also an online companion with many of the same editorials and other interactive features.

Read the next chapter here.

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