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pristine.com
THE PRISTINE PROFIT PLAN (PPP)
(A simple approach which will render it mathematically impossible to lose money)
RULE NUMBER 1: NEVER LOSE MORE THAN 8% ON ANY STOCK
What is the trader/investor's most valuable commodity? His/her initial capital, of course. What should be of paramount
importance is the preservation of your starting capital. This is your life. This is what will keep you in the game, and it is foolish to
do anything that will jeopardize it. That is why you should never be willing to let a position go against you by more than 8%. If
you have entered the trade properly, and your timing was precise (our suggested entry points take care of this concern), the
issue SHOULD NOT decline by more than 8%. Otherwise, something has gone amiss and the trade should be eliminated with
no questions asked. But what if it's a blue chip company? What if the earnings are still positive? Frankly, these are the
rationalizations of an amateur. The earnings of a company don't put money in your pocket. Neither does the color of the
company's chip. There is only one thing that can put money in the bank and that's a RISING STOCK, not a declining one.
Remember, all stock are bad, unless they go up. Cut your losses at 8% and move on.
RULE NUMBER 2: ALWAYS TAKE PROFITS (AT LEAST SOME) AT 20% - 25%
Once a stock you own rises by 20% or more, it is foolish not to pull at least some off the table. This really boils down to
common sense. Stocks have a tendency to advance 20% to 25%, then decline before they take off again (if they are going to
take off again at all). I am in the habit of comparing my daily and weekly profits to the CD purchaser. I constantly ask myself,
"How long will it take for the average 1 year CD to produce the gains that I have in this stock right now?" This question is an
excellent way to keep your feet firmly fixed on the ground of financial reality. It also does a good job of tempering greed, one of
the biggest enemies of every trader. It would take the purchaser of a 1 year CD paying 6% more than 8 years to match a 20%
stock gain. Nearly all of you have witnessed many of our stock selections rise 20% or more over several days. But more
important than all of this is the mathematical magic that the combination of Rule 1 and Rule 2 brings into being. If your are
disciplined enough to cut losses at 8% while taking profits at 20% - 25%, you can't possibly lose money over time as this law
of mathematics cannot be broken. With these two simple rules, you can lose three times and win only once and still not get into
financial trouble. Now, if you can't produce 1 winning trade out of every 3, you don't belong in the market. Of course as
subscribers this shouldn't be your problem. I know two traders who sell only on the basis of Rule 1 and 2. The stocks that they
buy will either be sold at an 8% loss, or they will be sold at 20% or above. That's it. That's their only sell rules, and they are
both rich, I might add. But I will show you how to do even better.
RULE NUMBER 3: ONCE A STOCK RISES BY 6% TO 8%, MOVE YOUR SELL POINT TO BREAK EVEN
This additional sell rule is not employed by my friends mentioned above, as they operate on a do or die approach. Either
their stock produces a 20% gain, or it produces an 8% loss. I don't believe you should be so fatalistic. Allowing a winner to fall
back into losing territory is just not smart, no matter what the reason. It is hard enough being right in the stock market without
allowing the winners to turn into losers. So after a stock has demonstrated it's ability to move in the desired direction, you
should take further action by raising your sell point to break even. This will have the effect of taking ALL of the risk out of the
trade. At that point you can literally put your feet up on the coffee table, lean back and watch, as there is no initial capital at
risk. I can not begin to tell you how psychologically important this rule is. Once a trader realizes that money can no longer be
lost, a tremendous calm and clarity begins to pervade his mind. A sense of power and control evolves as he adopts the frame of
mind of an employer who has now hired an employee (the stock) to do all the work. Once you're up 6% or more, decide never
to be down in that position again.
RULE NUMBER 4: ONCE A STOCK RISES BY 10%, PROTECT 3% OF YOUR PROFITS
This rule should be self explanatory after Rule 3. There are some who might ask, "Why just 3%?" And it's a good
question. So let me explain. At Pristine, we have one very simple goal for our personal and managed accounts. We strive to
produce a 3% gain every month. Now it should be obvious to you that we supersede this goal by leaps and bounds as we are
already up over 100% year to date. So why so small a goal? Well, in reality this goal is not as small as one might think, despite
the ease with which we appear to top it. If you can produce a monthly gain of 3%, your annual return will be in excess of 45%.
Now, if you can produce gains in excess of 45% annually on a consistent basis, Wall Street would be sleeping outside your
door (we step over them every day, smile). Let's take the scenario a bit further by asking, "What if you produced an average
3% gain on all of your stock trades?" We certainly wouldn't have to worry about your financial condition. That's for sure. So
are you starting to understand why we will not let that 3% get away from us when we have at least a 10% gain? Go do likewise
my friends. I promise you won't be sorry. Nickels and dimes do add up.
RULE NUMBER 5: ONCE A STOCK RISES 15%, PROTECT 10% AND TARGET YOUR 20% PROFIT
POINT
You now know the rationale. The higher a stock continues to rise, the greater the probability of a decline. So with this in
mind, we tighten our stops and only give the stock a 5% margin of movement. It is at this point that we experience a lot of sells
as many of the stock selections fall back a bit. But in most cases, the 10% gain is produced over several days. The average
mutual fund produces gains in the area of 7% yearly. So why should we be disappointed? Besides, there is no rule that says we
can't repurchase a stock after selling it. We do this all the time. Now a good portion of your selections will not stop you out at
10%. These are the stocks which tend to be the future leaders in the market. Once you have a 15% gain and you have moved
your stop to protect 10% of your profits, determine the exact price at which you will sell at least 1/2 of your position. This step
that I am mentioning now is one of the hallmarks of a professional. At this point he comes to the market every day knowing
precisely where he will exit. When the price reaches his sell spot, he leaps into action unfettered by indecision and confusion.
There are no rationalizations, no waiting for another 1/4 point, no delaying, just action. We favor the approach of selling only
half of your position, especially with those stocks which have run to this level in less than 2 weeks. Rapid movement of this
nature indicates very strong demand and the likelihood that it will carry is very great. The remaining half can stay in as long as
the stock stays above it's 50 period simple moving average (sum of last 50 closing prices divided by 50).
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