User guide Version 1.4 Dated: 17th April 2007 

 

This user guide has been prepared to assist you as a subscriber of the Blue Sky Report. You should read this guide carefully and in its entirety prior to purchasing shares based on the recommendations this report offers. Not only will it provide you with vital information that you need to be aware of prior to applying the Blue Sky Report recommendations to your share portfolio but it will also answer most of the common questions you may have.

 

 

In our opinion, the majority of people who participate in the share market can be separated into two groups. The first group consist of investors while the second group choose to denote themselves as traders. It is extremely important to cater for each groups needs as they vastly differ from each other. To help you appreciate these differences we have provided our definition of the investor and trader and the potential dilemmas facing each group. After reading this User Guide if you have any specific questions relating to your needs or objectives we suggest contacting a financial adviser who is qualified to assist you.

 

 

 

The investor may be someone who intends to buy shares for long term financial benefit. We believe these people intend to invest a proportion of their savings over a selection of companies and hold the position for not less than twelve months attempting to capture a tax effective environment. The investor may even contribute additional funds over time to broaden the portfolios diversity.  The investor does not worry too much about short term price fluctuations rather, he or she is looking for a major upward trending share price, benefiting from re-investing dividends to acquire more shares. Focusing on leaders capable of producing capital growth (share price appreciation) and increasing dividends over time the ultimate aim here is to build a portfolio capable of producing large profits or even a regular tax effective income stream.

 

 

 

Usually an active individual with an appetite for higher returns the successful trader carefully selects companies that indicate short term price increases. In our opinion, traders are not highly concerned with tax relief rather they are focused on producing consistent profits. Good traders acknowledge the need to incorporate risk management into their analysis, they expect to cut losses quickly when a trade fails. They know when to stay out and when to get out of the market. They strive to make at least $2.50 profit for each $1.00 loss. When applied correctly this strategy quickly forms the basis of successful trading and is capable of producing amazing results. Dividends are not considered a priority rather, a bonus if paid during the trading period.

The Investor's dilemma

 

One of the greatest challenges the investor may face is falling share prices. What does one do when they find themselves in a losing position? Should I sell or should I maintain my strategy and hold on? Perhaps my shares will make a come back and generate glorious profits? At times this approach defies logic and can be a very risky proposition. Not only is the unprepared investor vulnerable to fear, greed and hope he or she may also be exposed to excessive risk, as stocks can and sometimes do fall to zero. Unfortunately, many investors have no real risk management plan and find themselves holding shares that literally provide little or no return for many years. Only the lucky ones find big profits and luck may eventually run out.   

 

The Trader's dilemma

The trader knows only too well how easy it is to sell prematurely leaving profits behind in the process. He or she may also experience the opposite scenario...holding on while greed drives the trader into a frenzy of unreasonable expectation until all profits have been depleted. Many traders find it difficult to make consistent profits as they fight their emotional state. In many instances this may cause the individual to over trade caused by excess leverage or failure to implement a profit taking strategy, necessary to keep the ego at bay. Without the implementation of a sound business plan the trader may find the road to riches a short, lonely journey.

 

The Blue Sky Buyer's Portfolio    

 

The Buyer's Portfolio is capable of combating the Investor and Trader dilemma while providing subscribers with a realistic approach. You are now capable of producing solid results without excessive risk. Our extensive experience and expertise is offered to all subscribers. This proven method of stock selection offers buying opportunities that carry a realistic level of risk - and potential for reward.   

 

 

The old saying: 'one can never go broke taking a profit' is flawed. The saying should be: 'One can go broke taking a profit, if the losses are greater.' Capital protection is essential, as such, the Blue Sky Buyer's portfolio attempts to cut losses at no more than 10% where a position begins to defy the recommendation. When a position produces the necessary return by trading at the profit target sell price, we will suggest to sell half of the quantity in an attempt to maintain a low emotional state but capture further profits. The remaining position is held with the intention of maximising profits or at least until a solid sell signal confirms.

 

 

 Risk Management

 

There is a saying: "There are old traders and there are bold traders but there a very few old bold traders."

We encourage subscribers not to risk more than 3% of  their entire capital on any one position. This can be achieved with diversity and the correct use of a timed stop loss order. The stop loss is your safety net while diversification provides damage control. Obviously the further your stop loss is away from your entry level the greater you need to diversify. Sometimes if we believe a stock is oversold we will remove the stop loss completely and take a longer term view. In such instances we will advise you via the recommendation before 3.20pm, where possible, (see 3.20 pm rule), so you can make an informed decision before the market closes. For these reasons we have provided the following suggestions when allocating capital.  

 

 

Our experience has led us to believe the right amount of diversification can actually help increase returns over time. The following table offers a guide for dividing your capital across a minimum number of stocks. Investors or traders with more than $100,000 should refer to the paragraph below under the heading: ‘Minimum average daily volume.’

 

 Diversification Table

 

Amount of Capital	Number of Companies	Divided Capital
$6,000	3	$2,000
$8,000 - $20,000	4	$2,000 - $5,000
$20,000 - $40,000	5	$4,000 - $8,000
$40,000 - $80,000	8	$5,000 - $10,000
$80,000 -$100,000	10	$8,000 - $10,000

 

 

 

Volume refers to the number of shares that change hands over a given period. Low volume levels can make it difficult to buy or sell shares efficiently so a little caution beforehand can go a long way.

 

We do not take into account your individual circumstances so you should consider the levels of trading volume for each stock before proceeding with each recommendation. As a rule of thumb we suggest the average daily volume should be at least 30 times larger than the number of shares you wish to acquire. To assist you each recommendation provides this relevant information for your consideration.

 

 

If possible avoid exposing more than twenty five percent of your available capital into a single company. History has taught us to 'distribute our eggs' and we are passing this knowledge on to you. However, occasionally we like a company so much that we recommend accumulating shares by way of a second recommendation. Always confirm that you are not at risk of over exposure before accumulating.   

 

As a subscriber to the Blue Sky Report we understand that you as an individual have specific needs and although we cater for the general public you are our first priority. We want to provide you with a service you can clearly understand and rely on at all times. To assist you with your decision making process the Blue Sky Report categorises all recommendations according to potential price behavior. We have done this so you can choose recommendations that may be more to your liking. To help you, each recommendation is given a unique classification and then rated in a manner which you can easily understand.

 

 

Before we post our recommendations we carefully assess the characteristics and potential risks associated with each individual stock. When we are confident with our analysis we carefully sort each recommendation into its compatible class. Each class has a specific meaning that you can relate to in life. This type of structure simplifies the selection process and lets you immediately identify the type of shares that are more likely suitable for you. 

 

 

There are five classifications in total each with a specific meaning: Class one to four includes a descriptive risk assessment while class five looks at environmental issues.   

 

Class 5 – Organic* (Extreme, Adventurous, Universal, Expansive)

 

 

People with an appetite for price volatility should enjoy this class. In search of double digit and occasionally even higher returns they realise the unexpected can and does happen from time to time. The risks are great but the rewards can also be plentiful. The fundamental principle applies in this case - before you jump check your safety gear.  

 

 

 

The adventurous like to invest in shares capable of producing high returns. Generally this means smaller companies that are capable of becoming leaders in their field of expertise. Sound risk management is vital as not all companies succeed so risk is present but with discipline and an objective mindset the adventurous can navigate the rapids.

 

 

The universal class comprise of companies that offer well established brand names. These recommendations usually deal in products and services that are commonly used by consumers or companies in everyday life. In this class we look for companies with underlying substance. The universal class may be small to medium sized in terms of market capitalisation but are usually well established market players.

 

 

The expansive class is designed for subscribers who are looking for large market capitalisation. Our objective here is to seek out optimal performers of the Blue Chip arena, maintain a presence for potential long-term capital growth and capture compounding dividends to improve overall returns. The patient investor will reap the rewards here.  

 

 

Primarily, the organic class comprise of companies focused on improving environmental issues or consumer benefits. Recommendations may  include both industrial and mining entities that differentiate themselves from their counterparts. Rather than ignoring environmental issues these companies are either suppliers or consumers of technology change that contribute to improving our environment for future generations. 

 

 

 

The Blue Sky Report has been designed to provide a level of security against inherent risk that is present when exposed to stocks. We apply our unique risk management principles over each recommendation and then offer our opinion as to how much (in percentage terms) of your Divided Capital should be exposed.   

 

 

For example:

 

Divided Capital

100%

 

Recommendations that have a 100% Divided Capital recommendation suggest you may want to consider exposing the full 100% of the suggested divided capital into the stock.

 

 

Divided Capital

75%

 

Recommendations that have a 75% Divided Capital recommendation suggest you may want to consider only exposing 75% of the suggested divided capital into the stock.

 

 

 

Successful investing or trading is a serious business that can be fun if you keep things simple. The last thing you need at this point is loads of jargon to confuse your decision making process. All of our recommendations are laid out clearly so you can get straight down to business. The Blue Sky Report is a secure website which protects your privacy. You can enjoy our recommendations, set SMS price alerts and establish your own watch list. There is no need to manually enter current share prices, calculate profit / loss and portfolio balances because every twenty minutes your watch list will do this tedious task for you.

 

 

Inside the members area you will be able to access the Blue Sky Buyer's Portfolio. For simplicity all New recommendations are summarised inside the member's home page for easy viewing. Simply click the Info tab on the right hand side and the full recommendation will appear. To avoid congestion each New recommendation is transferred to the appropriate area following a change to its status. You can easily access these areas by clicking on the appropriate tabs. There are four tabs inside the members area each describing the status of a recommendation. All recommendations that trigger flow through each area and eventually become archived.

 

 1) Members Home

 

 

Instructions under the label ‘Members Home’ may at anyone time contain Wait, Buy, Sell and Profit recommendations appearing for the first time. Each Buy recommendation will remain in this section until we believe the opportunity is lost or price has surpassed the Buy Zone. Sell recommendations are displayed for two weeks from the date the recommendation is made. Wait status means price is trading below the Buy Zone and no action is required just yet. Profit status indicates you have or are getting close to achieving your objective and it may be time to sell and take some profits.   

 

Shares that were recommended as a Buy but no longer present a buying opportunity are removed from the Members home page and transferred to the ‘Hold’ section where you simply wait with the intention to make a profit until further notice. Hold recommendations that have changed to a Sell recommendation will be removed from this section and reappear in the member's home page.

 

 

After two weeks of being listed as a 'Sell' inside the member's home page the recommendation is moved to the ‘Closed’ section informing you the transaction has fully completed. All completed recommendations will remain in this section for one month.

 

 

All Closed recommendations more than one month old will be referenced, sorted and filed inside the ‘Archives’ section. Members have access to the Archives section.

 

 

The Blue Sky Report is so much more than a recommendation service. Members’ are provided with their own secure watch list so they can keep track on performance, view recommendations and select SMS alerts. Setting up your watch list is easy and you can add or delete the recommended securities at your own convenience. Prices are twenty minutes delayed so you can rest assured each time you check your watch list important information such as your portfolio’s return is accurate. To receive an SMS sell alert you must add the recommendation of your choice to your watch list.

 

 

Your watch list is designed to inform you concerning the status of each position. Positions in your watch list that are coloured green are currently a BUY, while red positions are currently a SELL . Grey positions instruct you to HOLD while WHITE coloured recommendations have been completed and are CLOSED.

Other Colour Indicators 

 

 

The Blue Sky Report has been designed to make your experience as real and realistic as possible. One of the biggest mistakes people make in the share market is they enter into a trade either far too early or far too late. To help you we have introduced the GOLD and Blue indicators. Gold coloured recommendations mean they are not ready to buy just yet but they may be ripe and ready for you to buy shortly. Blue coloured recommendations mean the stock is trading at the profit target sell price and depending on what stage the recommendation is at we are either recommending to sell half and capture a free trade or we are suggesting to close out the position completely.   

 

 

Suppose there is a NEW recommendation that is currently coloured Gold inside the member's home page. This automatically tells you to Wait because price is currently beneath the suggested Entry Zone. When price is inside the Entry Zone the recommendation will be Green informing you the stock is now ready to Buy. If price behaves as expected and rises completely above the Entry Zone the status of the recommendation will change from a Buy to a Hold and the colour also changes to Grey. At this point the recommendation is transferred to the Hold area until eventually reappearing inside the member's home page as a Sell recommendation, coloured Red informing you to take action.

 

When a Buy becomes a Wait 

 

There may be occurrences when you login and the share price of a Buy recommendation is trading inside the Entry Zone confirming a current Buy status. Then the next time you login the stock which was a Buy has now reverted back to a Wait. If you have acted on the Buy recommendation and now own stock, ignore the instruction to Wait and maintain your original stop loss for capital protection. The current price has retraced below the Entry Zone before completely crossing it causing the status of the Buy to change. Only when price completely crosses the upper limit of the Entry Zone will the recommendation be transferred to the Hold area. Recommendations that never reach the Entry Zone will be dismissed and completely removed from the report.

 

 

You have acted on a recommendation, added it to your watch list and elected to receive an SMS sell alert. You have been patient and suddenly your phone beeps informing you that price has reached the profit target sell price. The Blue Sky Report has made a call to action by informing you electronically. If you login to the Member's home page you will see the Blue coloured profit recommendation with clear instructions suggesting the appropriate action to take. For your convenience SMS sell alerts include the specific action to take but we encourage you to login to the member's home page first so you can make a more informed decision.

 

 

Blue Sky Buyer's Portfolio – Updated Daily

 

Timing is critical. The successful Buyer has a proven strategy and the resources to provide him or her with the necessary information at the time it is most important.

 

The Blue Sky Buyer's portfolio makes recommendations as opportunities present themselves. To ensure you are kept fully informed, each recommendation is posted for your viewing the same day we recognise the opportunity and prior to 6pm EST in time for the next days trading. You can login to the website at any time on a daily basis to view these recommendations.   

 

 

A company’s share price is only worth what someone is willing to pay for it. On the other hand buyers who wish to acquire shares can only do so at the price someone is willing to sell. This combination of supply and demand creates a fluent market for participants but it does not guarantee you will get the price you want.

 

The spread is the difference between the buyer's bidding price and the seller's asking price. Human nature lures buyers into offering less while the seller’s usually ask for more. Many opportunities are lost or tarnished because people fail to buy or sell at the current market price and then complain later about it. Trade at the current market price (so long as the current price is within our recommended trading range) otherwise you might find yourself missing profitable opportunities.

 

 

Slippage usually occurs when there are insufficient buyers or sellers willing to participate. The more market participants there are the closer the incremental price changes between each share transaction and the easier it is to trade at your desired price. The less market participants there are the greater the potential for price gaps or slippage. For the uninformed this can cause real problems especially if you are the seller. To minimise the risks of slippage impacting on your portfolio the Blue Sky Report does its best to avoid shares with little or no volume however we cannot guarantee that you will always be able to get the price you want.   

 

 

 

 

 

Share prices can move rather quickly at times and for the unprepared, opportunities can pass even quicker. To maximise opportunities and help you avoid missing trades we will always give you an Entry Zone.

 

Each Entry Zone is calculated by our team of experienced analysts and we urge you to buy within that zone. Please approach our recommendations with an element of discipline. If the current share price is outside the Entry Zone at the time you are attempting to buy then the best thing to do is cancel the order immediately and wait for another recommendation. Remember, there will always be other opportunities.

 

 

 

 

The Blue Sky Buyer's portfolio does not concern itself with buying at the bottom or selling at the top. Rather its purpose is to identify high probability trading opportunities capable of producing solid profits while carefully managing acceptable levels of risk exposure at all times. To achieve this objective, we only recommend trades that offer a profit to loss ratio of at least 2.5 times. So for every dollar we are prepared to lose we strive to make $2.50.  Maintaining at least a 2.5 times profit/loss ratio means we can be wrong seven times out of ten and still make money. This is what professional trading is all about! 

 

In addition to the Entry Zone each trade recommendation includes a Profit Target sell price and a Stop Loss sell price instructing you to sell if and when your shares trade at either level. Obviously, when your shares reach the Profit Target and you sell you will make a profit, on the other hand if the trade fails and you sell at the Stop Loss level you will incur a loss.

 

 

No system is full proof however, experience has taught us to avoid selling when a stop loss has triggered until the afternoon. There are occasions when it pays to hold off selling until after 3.20pm. If price recovers and surpasses the stop loss by 3.20pm, we will not issue a stop loss trigger. The data works off a 20 minute delayed service, so there may be instances when price recovers after 3pm causing the system to issue a false alert. Please be sure to check the  price before selling to ensure the current price is actually beneath the stop loss at the time.

 

Occasionally we will remove the stop loss 

 

There may be times when market announcements cause a significant shift in price or change our decision making processes. In such instances we may decide to override the system and issue a manual sell alert before 3.20pm. Alternatively, there will be circumstances when we decide to remove the stop loss and not sell, at least temporarily. In such cases (where possible) we will issue a sms alert before 3.20pm.

 

 

Traders with an edge over their competitors make more money. Today’s technology enables you to receive Blue Sky Report sell recommendations lightning fast. For your benefit we have built an SMS price alert service into the system. You can receive Sell recommendations direct to your mobile phone or email address alerting you to take action the moment a Stop Loss is triggered. As a subscriber you will receive thirty complimentary SMS price alerts. If you require more alerts you can purchase blocks of one hundred for $24.95 plus GST. 

To receive sell alerts, you must ensure you add your chosen recommendation to your watch list and select either/or the phone or email alert. You can check your SMS alert balance inside your watchlist.

 

 

The most important thing to remember is to stick to the rules and follow the recommendations. Try to maintain a low level emotional state otherwise you might give trading away when losses arrive. Continually remind yourself that there is always the next trade. Manage your risk by selling when our timed Stop Loss sell price triggers and enjoy making money when your shares reach your Profit Target sell price. Avoid greed and chip away.

 

 

 

If you already have a stock broker you are happy with – great! If not you will need to establish an account. We suggest shopping around for a quality brokerage service. Brokerage is a very competitive business with many providers willing to offer online platforms. The internet is great because you can transact immediately and you do not have to rely on the person being available. You can even set timed sms alerts as a backup service in the event our system crashes. The downside is you need access to a personal computer or a phone with internet. To overcome this, many online services also have a call centre which you can access by phone.

 

We suggest you use a reputable firm and ensure they follow the CHESS system and you maintain complete ownership over your shares. In the past, some boutique firms have been known to transfer ownership from you to them in return for borrowed funds resulting in you becoming the creditor. Avoid these brokers at all costs.

 

For your convenience we have provided a short list of our preferred brokers.

 

CommSec (Online/Call Centre) www.comsec.com.au

E*TRADE (Online/Call Centre) www.etrade.com.au