Are you a believer? If you are, you made a lot of money yesterday. And you made a lot of money this week...and last week...and the week before...and, by golly, the week before that!

Yes, we nailed the bottom of the market four weeks ago, October 4th to be exact, and began buying stocks on the morning of October 5th. The 50 stocks found by the five one-day Derby Winners shown in the October 4th Views have gained an average of 33.1%. Was this just dumb luck? Not at all, we've done it before.

Read the VectorVest Views of March 6, 2009 entitled, "Itching to Rally." In this essay, we prepared our readers to buy stocks in the event of an imminent, explosive rally. We repeated our guidance on Monday, March 9th, the day the market hit bottom. Stock prices exploded the next day for the buying opportunity of a lifetime. That wasn't dumb luck either. So how do we do it?

Take a look at an End-of-Week, All Data view of our Market Timing Graph. Show the Buy to Sell Ratio, BSR, at the bottom of the graph and change the color of the BSR to yellow, so you can see it clearly. Note that the BSR cycles up and down over and over again. Imagine how much money you could have made if you had bought stocks every time the BSR rose from a bottom. You'd be so rich you wouldn't have to buy lottery tickets any more. But it doesn't start there.

It starts by recognizing that you haven't made any money until you sell your stocks at a profit. So you want to sell stocks when prices are high, and we are just as proud of our ability to get you out at tops as we are of getting you in at bottoms. But that's not the point. The point is that when you sell stocks at high prices, you will learn to stop worrying and love bear markets. Yes, you read that right. You will learn to love bear markets because bear markets create great buying opportunities!

I do become concerned, however, when prices get too high. The period starting on July 1st presents a classic example of such a time. On the Friday, July 1st, I vented my concerns about "A Fearless Market" that was ignoring a variety of serious problems. The following week, I questioned whether a poor jobs report would become a "Game Changer." On July 15th, the "Strategy of the Week" was entitled, "The Armageddon Collar," and our Market Timing System issued a Confirmed Down signal on July 18th.

Although the market rallied into July 22nd, I advised readers that it could be a "sucker's rally." Indeed, stock prices fell for the next seven days, rallied one day; then plunged to a low point on August 8th.

By that time, the market was tremendously oversold and the BSR was at an extremely low level of 0.04. It was time to start preparing for a rebound. On August 12th, I wrote an essay called "Secret Weapon," in which I railed against the faulty practices Wall Street preaches to suffering investors. Most importantly, I shared how my sad experience of selling my stocks at a market bottom led to the creation of VectorVest.

The following week, August 19th, I wrote an essay explaining that stock values go up when prices go down. I advised my readers to not be afraid, and quoted Mr. Warren Buffet who said, "Be fearful when others are greedy, and be greedy when others are fearful." I also asked them to be patient because the market was "Giving Birth to Bargains."

The downturn continued, however, and investors became even more fearful. Many of them were becoming discouraged, so they needed encouragement. On September 2nd, I wrote an essay called "Bottom-Fishing: A Great Way to Get Rich." In this essay I described exactly how we do what we do. It's all there: When to Buy, What to Buy, and When to Sell. There are no secrets.

Finally, on September 30th, I wrote my now famous "Hang-on Sloopy, Hang-on." In this essay, I said, "the way to get rich is to have the patience and fortitude to buy stocks when everyone else is scared as hell." I also said we would use all the skill, knowledge and experience we have to signal the right time to start buying stocks. As noted above, that time came on the evening of October 4th.

If you want to become an expert bottom-fisher, you must have the sense to sell high and the courage to buy low. Most of all, you must Become a Believer.

P.S. Make sure you see this week's "Strategy of the Week" presentation, "Seeing is Believing."

I don't consider myself to be a quitter, but I have lived to regret the few times I've thrown in the towel. The most memorable occasion happened in December 1974 when I sold all my stocks at the very bottom of the brutal '73-'74 bear market.

It was a huge mistake. No sooner than I sold them, they took off like birds. One stock in particular, Teledyne, still sticks in the craw of my throat. I sold it at $10 a share and watched it go over $700. I was so dumb I didn't even know we were in a bear market. All I knew was that I was buying what I thought were good stocks, and they went down. I was so resentful that I refused to buy back my Teledyne even as it went higher and higher. What a dope!

Well, I may have been a dope in 1974, but I was a heck of a lot smarter in 1982...I had my shopping list ready when the market exploded in August 1982, and I had no regrets. No, I didn't have VectorVest as we know it today, but I did have its prototype and it worked like a charm. Unfortunately, there are millions of investors out there right now who are as dumb as I was back in 1974. They're selling-out at the wrong time. How do I know? All you have to do is watch the flow of money in and out of mutual funds.

Investors pulled $92 billion out of stock funds in June, July and August, matching the worst three-month period during the 2008 downturn. Another $25 billion was withdrawn in September. Of course investors are scared. There's a newsletter writer out there writing about the "End of American." He's not a flake or a fear monger, but he is scared. On the other hand, other newsletter writers are talking about the "buying opportunity of a life time." Who can you believe?

All I know is that bull markets are born in the worst of times...when fear and the feeling of defeat are pervasive. With our Investment Climate data showing only 37.60% Bullish Advisors, sentiment is pretty bad, but that's good. History has shown that investor sentiment is a counter intuitive indicator. In other words, it's time to buy when bullish sentiment is low and time to sell when it's high.

I created VectorVest 37 years ago and it has been a commercial product for over 23 years. So VectorVest and I have weathered a lot of storms. I can tell you that a bull market has followed every bear market and the way to get rich is to have the patience and fortitude to buy stocks when everyone else is scared as hell. But you have to do it the right way at the right time. We have successfully bought at the bottom many times and we will use all the experience, skill and knowledge we have to signal the right time to start buying stocks. Please watch tonight's "Strategy of the Week" Presentation, "Bottom Fishing with Precision."

I grew up in Ohio and have been a Buckeye fan all my life. I love football and love to watch the Buckeyes play. They don't have a great team this year, but I am inspired when I hear the "Best Damn Band in the Land" play Hang on Sloopy, Hang On.

TRIATHLON CHALLENGE UPDATE.
The VectorVest Triathlon Challenge was first described in my essay of April 8, 2011. The first event was a BackTest Competition, running from March 31, 2010 through March 31, 2011. The second event was conducted in real time using the VectorVest 7 RealTime Derby. It ran from June 1, 2011 through July 31, 2011. The third and final event is being conducted with the Automated Portfolio Manager. This event was started on August 1, 2011 and will end October 31, 2011. The second month was completed today, and several of the contestants have remarkable profits despite what CNBC calls a miserable quarter for the stock market.

The three top performers in the BackTest event are still holding up reasonably well. T-01-DS-PW-LS and T-02-DB-PW-LS are still in first and second place respectively. T-03-DB-PW-LS is now in sixth place and has been replaced by T-05-SJ-DEW-LS.

With a gain of 35.06%, the leader of the current event continues to be contestant T-10-JL-DEW-LS. You may recall that this contestant's strategy for selling short is so good that we named it "Hindenburg Stocks" and put into the UniSearch tool. We also used it in our August 26, 2011 "Strategy of the Week" presentation, "Best Performing Short Strategies." The second and third place leaders of this event are running neck-and-neck with gains of 26.46% and 25.03%.

Only 14 of the 50 contestants are showing a gain at this point. All of them use Market Timing. The biggest loser in this competition is down 58.19% and does not use Market Timing. In fact, only one of the five worst performers uses Market Timing. The lesson here is obvious: You must protect and/or take profits when the market heads south. You should learn how to make money in a down market. We can show you how.

August's ugly jobs report torpedoed stock futures' prices today, triggering talk of a recession and other gloomy forecasts. The market opened sharply lower, essentially sealing the fate of this week's rally. Is this the beginning of another brutal sell-off or will the rally from the August 8th low begin anew?

Nobody knows for sure, but even if the sell-off continues for a while, stock prices will consolidate at some point and it will be time to go bottom-fishing and bargain hunting once again. Fortunately, we have the tools to recognize when that time arrives. We have a large number of new subscribers here at VectorVest, so let me say just a few words about bottom-fishing.

In my book, "Stocks Strategies and Common Sense," I said, "Bottom-fishing is the art of buying low and selling high, and a great way to get rich." True enough, but I also said, "Buying low and selling high is not as easy as it sounds. No one knows which stocks are low and which stocks are high." Well, that was true in 1997 when I wrote the book, but it's not true anymore. We now have knowledge, tools and techniques to go bottom-fishing with precision and success.

So how do you know when stock prices are low?
Our Market Timing System tells us. When we see our Market Timing Indicator, MTI, go below 0.60, and the Buy to Sell Ratio, BSR, go below 0.20, we know the market is oversold, stock prices are low and they are more likely to go up than down.

How do you know when to actually start buying stocks?
The market tells us. When we see stock prices go up on bad news; then fall back at the end of the day, we know a big rally is coming soon. When we see that prices of stock futures are sharply higher and stock prices shoot higher at the open, it's time to buy. The trick is to be ready to buy as we were on the morning of March 10, 2009. See my essay of March 6, 2009.

How do you know what to buy?
I hate to admit this, but it took me a long time to figure this out. Of course, I knew I wanted to buy stocks with beaten down prices, and I knew they would have "S" ratings. That didn't bother me, but I also wanted to buy good stocks with high VST ratings when the rally began. This was an oxymoron, and the stocks I bought didn't perform. I did notice, however, that the stocks I had sold short in the downturn usually took off like birds. What the heck was going on?

As I see it, this happened because the fund managers and other heavy hitters owned high VST stocks as a defensive measure during the downturn; then sold them off and bought "high alpha stocks," i.e., low VST, low RT stocks as the rebound started. Further work on this phenomenon showed that low RT was the key to identifying which stocks were low. Now we have a whole slew of Bottom-Fishing Strategies that sort stocks by RT Asc. For more information, see my essay of April 17, 2009.

How do you know when to sell these stocks?
Well, we use Stop-Prices during the rally, but as it has happened over the last few days, we use the Color Guard and our Market Timing Graph to monitor the market. Even though the Primary Wave was Up, we decided to lighten up on long positions because our candlestick analysis said the rally was petering out. Dan Misch pointed this out in his Daily Color Guard Report on Wednesday. Besides, I said last week that I didn't think this rally would last very long, so I was ready to bail-out.

So there you have it: When to buy, what to buy and when to sell. Bottom-Fishing: A Great Way to Get Rich.

Investors typically use P/E ratios to assess stock Value. It's easy to do and the information is readily available. But P/E ratios can't begin to provide meaningful answers for a variety of reasons, which I discussed in my essay of 09/10/10. The most serious problem with using P/E ratios to assess stock Value is that they are not measured against an independent standard.

This problem can be alleviated by comparing P/E ratios to Earnings Growth Rates, thereby creating the famous P/E to Growth, PEG, ratio and the less famous, but mathematically correct, Growth to P/E ratio, G/PE. Even this improvement, however, does not give the best answers. History tells us that P/E ratios vary with interest and inflation rates. P/E ratios are high when interest and inflation rates are low and P/E ratios are low when interest and inflation rates are high. The reason for this may be explained by understanding that "Money goes where money grows." (See my essay of 09/03/10.)

Investors put their money where they think it will give them the greatest rate of return. If P/E ratios of stocks are low and Earnings Yields, EYs, are high, money will flow into stocks. If bond prices are low and Interest Yields, IYs, are high, money will flow into bonds. When investors are fearful, as they are now, they will demand that the potential return on stocks be substantially greater than that of bonds. They want to be compensated for the risks they perceive in stocks. The current EY level of stocks in the S&P 500 is 7.13% and the IY of long-term AAA Corporate Bonds is 3.45%. Investors are demanding a 107% higher yield on stocks than they are on bonds. The difference between EY and IY is called the Yield Premium, YP. Currently, EY - IY = 7.13 - 3.45 = 3.68%.

The relationship EY = IY + YP, lays the foundation for stock valuation.

Since EY = 100/(P/E) = 100*E/P, we can substitute for EY and obtain the equation 100*E/P = IY + YP. Solving for P, gives us P = 100*E/(IY + YP).
Replacing P, Price, with V for Value, gives us V = 100*E/(IY + YP).

You may have noted that this equation is exactly like Eq. (6), shown on pg. 16 of Stocks, Strategies & Common Sense except it includes YP, the Yield Premium. Let's see how it works with McDonalds and compare the answer to the one we get with Eq. (6).

When the stock = MCD, Date = 09/23/10, E = 4.83 and (IY+YP) = 7.13%,
the equation shown above gives us, V = 100*4.83/7.13 = $67.74 per share.

Using Eq. (6) when E = 4.83 and IY = 3.45%, gives us,
V = 100*4.83/3.45 = $140.00.

Of course, this result is 107% higher than the first one because Eq. (6) does not contain the Yield Premium, YP. MCD closed at $74.64 yesterday, and VectorVest showed a Value of $99.03. So which valuation method does the best job of informing you of MCD's true Value?

Well, MCD's current P/E of 15.45 tells me nothing. The PEG and GPE ratios both say MCD is overvalued, which I don't believe, and the valuation formula adjusted for YP gave the closest answer to MCD's current Price. It, too, says that MCD is undervalued, but not by much. So, I'll have to say it's not too bad of an answer. Eq. (6) at $140.00 is way off the mark. The Value of $99.03 given by VectorVest is 25 bucks higher than MCD's current Price, but it seems good to me considering the extremely low level of today's interest and inflation rates, MCD's growth rate and financial track record. I like it the best. Of course, I'm prejudiced, but I'll stick with what I know best. That's VectorVest...especially when it comes to Stock Valuation.

BOTTOM FISHING WITH SURE-FIRE WINNERS.
Here we go again...another bottom-fishing strategy. What are we doing this for? We're doing it because it's one of the surest ways to make consistent profits that we have discovered, and we want you to know about it. We want you to have a bottom-fishing epiphany. Yes, a bottom-fishing epiphany. It was a revelation to me that you could make so much money, so consistently by buying "S" rated stocks. But you've got to know how to do it. So visit the VectorVest University to see Mr. Dan Misch's eye-opening "Strategy of the Week" presentation, "Bottom Fishing with Sure-Fire Winners."