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Table of Contents

Special Notice 4
Chapter 1 – Introduction 5
Chapter 2 – A Primer on the Stock Market 7
Chapter 3 – So What is this Loophole? 14
Chapter 4 – How to Calculate a Fair Price Per Share 19
Chapter 5 – Why You NEVER Pay a Fair Price 27
Chapter 6 – Insider Trading that is Perfectly Legal 31
Chapter 7 – Real Examples of Loophole Profits 32
Chapter 8 – Putting it All Together. A Step-By-Step Guide 35
Chapter 9 – When to Sell 45
Chapter 10 – Further Reading 48
Bonus Chapter #1 – Risk Free Profits via The 2nd Loophole 50
Bonus Chapter #2 – How to Totally Automate ALL of This! 54

How to Hack the Stock Market

Chapter 1 – Introduction What’s more you can do it all from the comfort of your home
computer or laptop. All you need is an online brokerage account
and a live up-to-the minute intraday graph.

This is my first major information product. I am not an However, if you know how to use these simple tools and, you
accomplished author or speaker, so this product will have some have the ability to focus on the market for approximately one
flaws. If you read for style, or for literary quality, like I was saying hour each week… There is no limit to the amount of profits you
before, this may not be for you. can make.

But there are paragraphs in this report – ideas in this report In case you’re skeptical, you needn’t risk a penny in testing it
– whole chapters in “How to Hack the Stock Market” that will out. Most online brokerages allow you to use a “fake money”
have you slapping your thigh and gleefully punching the air account to test your strategies.
above you.
Allowing you to watch firsthand as this pattern occurs each and
I’m not blowing smoke when I say: This report could have you every month – And use this “monopoly money” to place live
earning thousands of dollars from the stock market - almost trades and see for yourself how easy it is.
immediately after you’ve finished reading it.
Once you’re confident – You can invest as little or as much as
Here’s why: you like exploiting this loophole.

Every 3 to 4 weeks there is a certain pattern that happens in the For example: With just $3,000 to invest you could feasibly
U.S. stock market. generate a $10,000 monthly income.

This pattern occurs every 3 weeks at most AND it only happens How would an extra $10,000 a month change YOUR life?!
to stocks listed on the NYSE and Nasdaq markets.
Of course, that’s enough to live on and then some. It actually
But when you understand this pattern you can buy shares in takes me more time to drive to my local bank and get $300
little-known companies at up to 80% off their true value. from the ATM than it does to make it using this stock market
Almost religiously after you’ve bought your shares the pattern
will reverse. The stock will climb higher and higher - Allowing Right now... I’m sure you’re skeptical as hell. You may even be
you to leisurely watch as your money doubles and triples in a thinking to yourself that you have bought the diary of a madman.
matter of weeks. But let me make you a small promise:

After that – the hardest decision you’ll need to make is when to Give me a few days.
sell and collect your handsome profit.

How to Hack the Stock Market

Study this report. – All about the inner workings of the stock market.

You will never be the same again. It probably sounds boring to you but these dusty old library
books literally kept me up at night.
Once you learn what I have to teach you... unless you somehow
lose your memory... it will be impossible for you to ever be But despite my intense passion for the stock market it wasn’t
“ordinary” again. until the age of 28 I stumbled on this stock market loophole.

It would be impossible for you to not know how to make tons of I was actually working as a janitor at the time and living in rent
money – And it will be impossible for you to forget about what control housing in California.
you read.
I hope you’ll give me the benefit of the doubt with my promise.
If you do, please read on. What’s most intriguing about this loophole – Is that no matter
how many people follow this technique. No matter how many
But if you can’t cast-aside your skepticism, please do not waste people I teach it to:
any more of your time reading any further. Unless you believe
in me - “How to Hack the Stock Market” will be worth nothing It will NEVER stop working. The loophole is literally built into
to you. the system. Wall Street will never care about plugging this gap
because the amounts are too small for them.
Anyway, before we jump into this thing with both feet... let’s get
acquainted. Maybe I should tell you a little bit about myself. A thousand here, a thousand there – To Wall Street this is like
picking up pennies from the curb. To an ex-janitor like me, or a
I was born in Cincinnati, Ohio on March 14th 1978. I grew up work at home mom – The chapters you are about to read are
with a poor but comfortable upbringing - without a Father. gold.

I was born with a mild form of Asperger’s syndrome. And this One more thing...
gave me an intense passion for numbers and patterns. At about
age 15, this passion evolved into a fascination with the stock It’s just as hard to make $100 using this loophole as it is to
market. make $10,000. I do not mean this in a negative way...

It was never about the money for me. My intense interest in I mean it in the most positive way possible.
the stock market was just a manifestation of my Asperger’s
It’s just as hard to turn one dollar into three dollars one hundred
times as it is to do it ten thousand times, so why not do it to its
I spent years of my life reading copious stacks of library books fullest? I sure do.

How to Hack the Stock Market

Chapter 2 – A Primer on patterns and levels of resistance etc.

What’s wrong with this thinking?

the Stock Market The stock market wasn’t setup over 100 years ago for shares
to be bought and sold based on fictional chart patterns and
Before we get down to the nuts and bolts of my stock market so called resistance levels. Nobody could even imagine a
loophole. I need to give you a quick primer on investing. I’m computer back then, so charting & day trading didn’t even
talking about “real” investing. Not taking punts on a stock enter their minds as a use for the stock market.
because you heard somewhere it’s “hot”. Following chart patterns is in my opinion a pseudoscience,
Investing in a stock because a friend or uncle told you to is pure and choosing to learn day trading instead of investing is akin
folly. Likewise investing because a hot stock is about to split, or to studying acupuncture instead of medicine.
because you liked the story is also a mistake. When you buy a stock you’re actually buying a fractional
In the next few pages I’m going to explain a mindset with which ownership of the underlying business. You’re buying the
to view the stock market. Don’t worry; this isn’t some Tony income stream, you’re buying the assets and you’re taking on
Robbins-esque motivational thing. I’m not going to ask you to the debt.
chant along with me, or “believe in yourself”. This may sound obvious but think about what this means.
Although I do want you to do one thing. Whenever you’re buying stock you should imagine you’re
in fact buying the entire company. My point is a billionaire
Suspend your belief that other investors are smarter or more investor wouldn’t buy an entire company because he heard
intelligent than yourself. You may not believe it right now, but it was hot, or the chart pattern told him to – He would buy an
just open your mind to the possibility that Wall Street is not as entire company because:
smart as they’d like you to think.
• He believed earnings will continue growing giving him a
Stocks are not wiggly lines. high return on his investment. Therefore if Mr. Billionaire
paid a 10x multiple on today’s earnings, he estimates he
Most investors (and especially traders) think of stocks as can sell in 5 years at the same 10x multiple of much higher
wiggly lines on a chart. And these lines could wiggle upwards earnings.
or they could wiggle downwards. To them a stock is an
electronic price quote and the price is all that matters. • Or his reason may not be based on earnings; it may be
based on the company’s assets. Maybe the company has
This fuzzy thinking is mostly true of day traders. The types 15 factories on the books valued at $20 Million. Because
who try and predict if a stock will go up by plotting chart

How to Hack the Stock Market

of historical cost accounting assets are never marked up in Union Book Company. (UBC) Digital Books Corp. (DBC)
value (even real estate). So if these factories were bought
Real Cost: $50 Million Real Cost: $250 Million
in 1902, they could be worth $700m by now – a huge
hidden asset Wall Street has missed. Real Earnings Yield: 20% Real Earnings Yield: 4%

Most “at home” investors don’t even look at what they receive Most investors wouldn’t take the cash balance into account.
in return for their money. They probably barely glance at the They’re too busy plotting a chart, or getting swept up in the
assets, liabilities and earnings stream they buy – All because romance of Digital Book Corp’s impressive business plan and
they view their stock as a fast moving price quote instead of growth projections.
ownership in a real, live business.
Here’s why that’s such a big mistake.
Let me give you an entirely possible (and actually quite
common) scenario. Imagine two companies trade on the stock The market cap of a company is the price per share x total
market, Union Book Company and Digital Books Corp. number of shares. i.e. it’s the price of the entire company.
So UBC and DBC cost exactly the same amount, right? Both
UBC is viewed as a relic of old. This company was formed in have a market cap of $100m which makes sense considering
1937 and plods along each year selling books from their direct they both earn $10m per year.
mail catalog mainly to mature customers aged 50+.
This would give you an earnings yield of 10%. i.e. if you
On the other hand Digital Books Corp is viewed as new and bought the entire company for $100 million you’d be paid $10
exciting. Setup 3 years ago they sell digital books online million per year.
mainly to young, switched on customers.
The problem is this common assumption is wrong.
It just so happens: both these companies earn $10 million per
year and both have $200 million of debt. The only difference Union Book Company really costs just $50 million; On the
between the two is the cash balance. UBC has $250 million of other hand Digital Books Corp costs a very real $250 million.
cash on hand whereas DBC has only $50 million.
This gives Union Book Company an even juicier 20% earnings
yield, and Digital Books Corp a 4% yield (Less than you can
Union Book Company. (UBC) Digital Books Corp. (DBC)
get from a risk free U.S. government bond).
Cash: $250 Million Cash: $50 Million
Total Debt: $200 Million Total Debt: $200 Million How so?
Net Income: $10 Million Net Income: $10 Million Because whether buying one share, or an entire company you
Market Cap: $100 Million Market Cap: $100 Million receive a proportionate ownership of their assets, debt and
earnings stream.

How to Hack the Stock Market

If you bought the entire Union Book Company for $100 million My point with all this? You cannot make money in the
you could immediately use their $250 million in cash to pay off stock market treating shares as flashing price quotes. The
the entire $200 million debt. And you’d still have $50m in cash companies are real and your share of the company is real.
leftover. Since you own the entire company you can take this
money and pocket it. You wouldn’t buy a local restaurant without glancing at the
books. But this happens every day in the stock market when
E.g. Union Book Company’s Net Debt = +$50m day traders invest based on the pattern of a wiggling line.

Instead of spending $100 million on buying Union Book Billionaire investors like Warren Buffett consistently buy stocks
Company you’ve in fact spent just $50 million, because the like Union Book Company. Stocks where the profit is made
company was cash rich. And you have a steady $10 million before they’ve sold any shares. Because…
per year income stream giving you an earnings yield of 20%
on your investment. Price is what you pay. Value is what you get.

You can probably see where I’m going with this. Here’s another way of putting it:

Digital Books Corp has net debt of -$150 million ($50m cash - Imagine two men, one in Columbus, Ohio (Dave) and one in
$200m debt). Which means if you bought the entire company New Jersey (Adam). Both Dave and Adam are newlyweds
for $100m, then used the $50m in cash to pay off debt – starting a family and need a new, cheap second hand car.
You’re still left with $150m in debt. Both happen to find a car they like, and it just so happens the
cars cost exactly the same amount ($4,000).
E.g. Digital Book Corp’s Net Debt = -$150m
We can all agree $4,000 is the price (or sticker price) of each
Which means you didn’t really buy the entire company car.
for $100 million like you thought, your real cost was $250
million – Because you took on $150m in debt as soon as you But what Adam or Dave receives in exchange for their $4,000
acquired it. Leaving you with a rather undesirable 4% earnings can be drastically different.
In New Jersey, Adam visited a local second hand car dealer.
Sure when you buy shares in a company you aren’t personally The sleazy hotshot salesman sold Adam a car he picked up
held accountable for the debt. When buying shares you can at auction just a week earlier for $1500. The car is a mess.
never lose more than you invest. But this doesn’t mean you It was involved in a collision and put back together at some
can ignore a company’s assets and liabilities. After all the point. Of course, Adam wasn’t told about this – He was in awe
company’s debt repayments will affect future earnings and of this fast talking, sharply dressed salesman.
your share of those earnings.
Meanwhile Dave bought a $4000 car from his neighbor. The

How to Hack the Stock Market

neighbor, an elderly man had bought the car just a year earlier more sensible 10x or 11x earnings.
for $8000 but had suddenly run into financial problems and
needed cash fast. He sold this fine car at a knock down price The Only Universal Truth
and accepted the loss. His loss was of course Dave’s gain.
This is the only point I’m going to need you to accept a
In both cases the sticker price was the same - $4,000. universal truth. Here it is:

But the VALUE was much different. You cannot put an exact In the short-term stocks can sell at any price (cheap, fair
amount on value because it isn’t written anywhere and the or expensive). But in the long-term the price always moves
figure is subjective. But it’s plain to see Dave got much more towards fair (where value roughly equals price). In the long
than $4,000 in value while Adam received much less than term (1 – 3 years) the stock market is efficient, in the short
$4000 in value. term it can be hugely inefficient.

This same thing happens in the stock market every day. To use the same analogy. The same can be said about
Companies with exciting stories (like bio-technology) sell at the second hand car market. Say you want to buy a 2006
sticker prices well above their true value. Ford Mustang. At any point in time there will be some 2006
Mustangs selling very cheap, some very over-priced BUT on
Meanwhile boring & stoic companies like manufacturers sell at average, most 2006 Mustangs will sell at a fair price.
sticker prices well below their true value.
The market for second hand cars as a whole (the market’s
You’ see, every company trading on the stock market has fictional hive mind) will have a fair price in mind for a good
an “intrinsic value” – Nobody knows what this exact value is condition 2006 Mustang. But there will always be outliers.
because companies are complex ‘machines’ with thousands The elderly neighbor selling in a hurry or the sleazy salesman
of variables. squeezing out every last dollar.

But, right now there will be hundreds of stocks trading at 50% Likewise most stocks sell at a fair price. Your job is finding the
or less of their true value. In other words dollar bills selling outliers. The one’s selling very cheap.
for 50 cents. And you’re much more likely to find these 50-
cent dollars amongst the boring and unloved than the exciting Most often (like the elderly neighbor) these cheap stocks are
stocks Wall Street loves. neither sexy nor exciting. Funeral homes, tobacco processors,
DIY megastores etc.
But I hear you ask, if boring companies are always valued
at say 7x earnings while exciting companies are always As opposed to the fast & exciting new bio-tech with a miracle
valued at, say 20x earnings – How can I realize a profit on the patent on the brink of curing cancer. It has no revenues, let
difference, how can I sell my shares in a boring business for a alone profits – But just think of the possibilities!

How to Hack the Stock Market

One you’ve bought shares in what you consider a fifty-cent At other times, his mood goes south and all he sees is a
dollar you hold onto the shares and wait. And you’ll only dismal future for the company. He arrives dejected and pale,
consider selling when they eventually reach your estimate of a tie loose around his neck. He is so concerned, he is willing to
fair price. sell you his part of the company for far less than it is worth. All
the while, the underlying value of the company may not have
But it’s not always plane sailing. Sometimes after you’ve changed - just Mr. Market’s mood.
bought a stock it can drop – no matter how cheap it is.
The best part of this entire arrangement: you are free to ignore
Let’s say you value a stock at $13 per share. If after you’ve him if you don’t like his price. The next day, he’ll show up at
bought this stock at say, $6 it suddenly falls to $4 you do not your door with a new one. For your interest, the more manic-
sell in a panic induced haze. You should in fact be happy; the depressive he is, the more opportunity you will have to take
market has offered you more “$13 bills” for the even bigger advantage of him (don’t worry, he doesn’t have feelings or
bargain price of $4 each. mind being taken advantage of.) As long as you have a strong
conviction of what the company is really worth, you will be
If you liked it at $6 you should love it at $4. And if you have no
able to look at Mr. Market’s offers and reject or accept them...
more money to invest, you just sit tight and wait for the market
the choice is yours.
to crawl up to a more sensible $10 - $13 per share.
This is exactly how you should look at the stock market -
Mr Market.
each share that is traded is merely a part of a business. Each
Now, just in case a few of you still haven’t “got it”. I’m going to morning, when you open up the newspaper or turn on CNBC,
explain it yet another way. you can find Mr. Market’s prices. It is your choice whether or
not to act on them and buy or sell.
Imagine you are partners in a private business with a man
named Mr. Market. Each day, he comes to your office or home If you find a company that he is offering for less than it is
and offers to buy your interest in the company or sell you his worth, take advantage of him and buy as much as you want.
(the choice is yours). Surely enough, as long as the company is fundamentally
sound, one day he will come back under the sway of a manic
The catch is, Mr. Market is an emotional wreck. At times, he high and offer to buy the same company from you for a much
suffers from excessive highs and at others, suicidal lows. higher price.
When he is on one of his manic highs, his offering price for the
business is high as well, because everything in his world at By thinking of stock prices in this way - as mere quotes from
the time is cheery. His outlook for the company is wonderful, an emotionally unstable business partner - you are free from
so he is only willing to sell you his stake in the company at a the emotional attachment most investors feel toward rising
premium. and falling stock prices.

How to Hack the Stock Market

Before long, when you are looking to buy stock you will inept management who will squander the money (overpriced
welcome falling prices. The only time you want to invite high acquisitions being the biggest culprit).
stock prices is when you are eager to sell your shares for
some reason. Thankfully, in most cases (except those caused However dividends are good for providing a floor on a stock
by “Life”), you are free to wait out Mr. Market’s emotional roller price. Notwithstanding some big accounting scandal a healthy
coaster until he offers a price that you consider equal to or dividend will keep a stock above a certain level. On the other
higher than true value of your shares. hand a big dividend is a message from management that they
don’t believe they can invest excess cash at good rates of
This mindset is your greatest advantage in investing. return. Instead they’re giving the money back to shareholders
so it can be invested elsewhere. This is often indication of a
The Dividend Fallacy company late in its life.
There’s one other thing I need to address. The fallacy of In short: Whether you own one solitary share or the entire
dividends. When telling friends or family you live off your company - earnings are earnings. At the end of the year
investments they’ll often say something like “so you own you’re richer because the company made an economic profit,
dividend stocks”. Uninformed investors believe receiving a not because you cashed your dividend check.
dividend is “something extra” a freebie.
Lesson Over
They can be forgiven for thinking this. During the first half of
the twentieth century, Wall Street believed that companies Now, you have a burning question. I can tell. Let me take a
existed primarily to pay dividends to shareholders. The past guess.
fifty years, however, have witnessed the acceptance of the
more sophisticated notion that the profits not paid out as You’re thinking if it really is this easy to make money in
dividends that are reinvested in the business also increase the stock market. Why isn’t everyone doing this, surely the
shareholder wealth. Harvard MBA types on Wall Street with the 180 IQ’s would
know about this and any profit would have been “competed
Profits not paid out can be used for expanding the company’s away”.
operations through organic growth and acquisitions or
strengthening the shareholder’s position through debt After all, Wall Street is a cut throat industry. Where the
reduction or share repurchase programs. smartest whizz kids are hired straight from college, and
provided with teams of analysts, research and computing
Whether a company you’re invested in pays out 80% of power.
earnings as a huge dividend each year or retains all earnings
to be reinvested. In real terms, you’re no better off either What would be left for little old you and me with a laptop
way as long as the company doesn’t have egotistical or computer and pocket calculator?

How to Hack the Stock Market

Oh, ye of little faith. Read on down to Chapter 3 where I
explain exactly why Wall Street MBA types are not competing
for these easy profits and why in fact they’re the ones you’re
“stealing” from!

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How to Hack the Stock Market