Stock picks to change your life

By Jon Markman

Want to get rich? Here's all you have to do: Buy 10 stocks. Hold them for six months. Sell and repeat.

If that sounds too good to be true and you want to stop reading now, I can't blame you.

But that would be unfortunate because this advice is a twist on a strategy that has worked really well for 5½ years, through hell and high water. Or at least war, recession and flood.

If you follow it in a low-cost trading account, particularly one in which gains compound tax-free, then there is a distinct chance -- though not a guarantee, of course -- that you could make serious, life-changing money.

Of course, you can't just buy any old 10 stocks. They've got to be the ones ranked at the top of the class by MSN Money's StockScouter rating system. You have to be ready not just to buy them at times when you think it is a terrible idea, but also be ready to sell when you love them so much you can't bear the thought.

The numbers don't lie

Is there a catch? Naturally. You are almost certainly going to have misgivings about the top-ranked stocks sometimes, not to mention the notion of putting your hard-earned money in the emotionless hands of a system.

Trust me on this. I came up with the idea for StockScouter in the middle of the 2000-02 bear market, helped to develop it with a crack team of independent financial engineers and have marveled at its success every day since. Yet even I still sometimes look at the top-ranked stocks and go "Naaah!"

Yet the numbers don't lie. (Actually, they lie just a little -- more on that later.) If you had followed this six-month-hold system on the top-ranked stocks since January 2001, you'd be up 26.1% per year since, on average, versus a gain of just 2.5% per year in the Standard & Poor's 500 Index ($INX) and 3.1% in the Nasdaq Composite Index ($COMP). That kind of return more than triples your money over six years, as you can see in this table:

Triple your money in 6 years

Year	Gain for StockScouter's top 10	StockScouter's $100k portfolio*	Gain for S&P 500	S&P 500's $100k portfolio
2001	13.8%	$113,819.06	-13.0%	$86,957.31
2002	17.0%	$133,155.85	-23.4%	$66,638.89
2003	82.7%	$243,212.75	26.4%	$84,218.50
2004	21.2%	$294,884.92	9.0%	$91,792.65
2005	20.4%	$355,020.49	3.0%	$94,547.37
2006	19.5%	$424,273.79	13.6%	$107,424.18
2007 **	3.5%	$439,190.88	2.6%	$110,244.80
6-year return	339%		10.2%

* Starting with $100,000 on Jan. 2, 2001, with equal-dollar investments in StockScouter's top 10, then re-balanced and reinvested every six months in the new top 10
** Through Feb. 16

The little lie? Well, as many of you know, these kinds of returns are more of an ideal than real because in the world of creating quantitative investment models there is no trading-price slippage, bid/ask spread or other difficulties in obtaining the exact quote listed in the market's historical record. In the real world, if 100,000 people try to buy a top-ranked small-cap stock quoted at $10.20, any given individual might actually have to pay $10.50, $10.75 or even $11 to start a position, as the price is driven up by demand. The same goes for sales at the end of the period.

Returns are reduced by commissions and, if held in anything but a tax-free retirement account, the government is going to want its cut -- robbing you of the ability to actually reinvest all the proceeds every six months.

So maybe in the real world you wouldn't be up 3.4 times your original investment at the end of six years. Maybe the "real" number is only 2.5 or 3. No biggie. StockScouter's top-10 strategy has still blown away the market since its launch and shows no signs of wearing out.

What's the magic recipe, and why am I willing to share it with you?

How the strategy works

It's nothing more than the strategy first described in 2001 in my column as well as in my book "Swing Trading." The only difference: Further refinements allow you to a successful StockScouter portfolio with just with 10 stocks per six-month period, rather than the 50 originally recommended.

Here's a quick refresher on StockScouter ratings. Every day, software at the labs of our research partner, Gradient Analytics, uses a variety of quantitative methods to analyze the fundamental and technical well-being of the 6,000 largest companies trading on U.S. stock exchanges. Stocks are rated on a curve from 10 to 1, with 10 being best, on the likelihood that they will advance over the next six months with the least amount of volatility. If a stock is expected to advance a lot but make holders suffer through a lot of jumpiness en route, it is rated lower than a stock that might be expected to advance a bit less but get to that level more smoothly.

We created the system this way because in 2001, you may recall, volatility was off the charts, and it was hard to persuade people to take advantage of the plunge in values and buy stocks. We aimed to be the first rating system to embed a measure of volatility in our rankings. Rather than just focus on typical rating factors such as earnings growth, price momentum, estimate revisions and insider buying, we wanted to help people find stocks that they could hold comfortably. This proved to be an awesome idea and has accounted for much of the success of the system over the years.

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