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How We Made 450% in This MarketBy Dr. Steve SjuggerudMonday, March 5, 2007 Less than two years ago, I recommended shares of Seabridge Gold to subscribers of my newsletter, Sjuggerud Confidential. When I wrote my story, shares of Seabridge were at $2.64. Today, they're above $14 a share – for a gain of over 450%. How did I do it? And why didn't I sell somewhere along the way? I'll tell you today... not to toot my own horn... but to share with you, what I believe are the secrets to making incredible returns in stocks. While there was some luck to picking the right stock, we used some skill as well. Let's take a look at what we did right: First off, when we bought, Seabridge was tiny... like a penny stock. Its market value was less than $100 million. While your risks are undoubtedly higher in a small stock like this, versus a Microsoft or G.E., your chances of making hundreds of percent returns are higher, too. What could Microsoft or G.E. do to quintuple their stock market values in less than two years? Secondly, no brokerage firms cover Seabridge. The downside, of course, is that we have to do all our own homework. Finding the diamond in the rough takes time. But what we found here were... Then, the hard part comes – which is staying in the trade. It took me many years to get it right, but this has now become the easy part of investing for me. I now approach it systematically. Here's how I learned to stay in my good trades... In the late 1980s, I read the book Market Wizards: Interviews With Top Traders by Jack Schwager. It changed the way I invest. These "top traders" all had made fortunes from the stock markets. And all but one of the traders in the book followed the rule: "Cut your losses and let your winners ride." The rule of cutting your losses and letting your winners ride does some amazing things...
It's simple math for me... I try to invest with a 3-to-1 reward to risk ratio. So if I think I can make 75% in a stock, then I'm willing to "risk" 25% on the downside, by using a trailing stop. As an example of a 25% trailing stop, if I buy a stock at $10, and it goes to $20 and then starts to fall, I'd be willing to cut my loss at $15. I'd pocket a 50% gain, from $10 to $15. You can vary your trailing stops based on the potential rewards. Generally, a good starting point is a 25% trailing stop. Tracking your stops can be a pain to follow. But I have two excellent recommendations for how you can keep track of them – TradeStops and XLQ.
So how do you make 450% on a stock? You find a small stock, with no analyst coverage, with fantastic assets at a very cheap price. Then – most importantly – you let your winner run! As I mentioned, Market Wizards a great read... easily in my top five investment books. It's required reading if you want to become a betterinvestor. You can order a copy from Amazon here.
Editor's note: Steve Sjuggerud is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments. 
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