David Frazier employs a methodical, top-down approach to selecting investments for Your Million Dollar Secret Code.

Step 1: The Macro Investment Environment — Big Picture Analysis

Frazier begins by regularly reviewing and analyzing the macro investment environment in an effort to determine which asset classes and economic sectors will likely become the top-performing assets and sectors approximately three months to 12 months into the future.

Every month, Frazier reviews and analyzes more than 100 economic and financial variables, as well as 13 technical and investor sentiment indicators. In addition, he regularly reviews information on demographic trends, geopolitical events, and new legislative proposals.

Frazier systematically uses that information to forecast the future direction of worldwide economic developments and to determine the stage of the business cycle at which different countries around the world appear to be operating at any point in time.

Those forecasts and determinations are integral components of Frazier's investment selection process, because different asset classes and economic sectors tend to perform differently during different phases of the business (economic) cycle.

More specifically, Frazier inputs the results of his analysis into a statistical forecasting model to project which asset classes and economic sectors will likely be among the top-performing assets and sectors approximately three months to 12 months into the future. Frazier refers to that model as his Asset & Sector Allocation ("ASA") Model.

Step 2: Sector Rotation Analysis

While Frazier uses step number 1 above to forecast which asset classes and economic sectors will likely perform best during a specified future period, he reviews (on a weekly basis) the actual financial market performance of stocks that compose every major economic sector to determine which sectors actually performed the best over a given time period.

More specifically, Frazier uses a Relative Performance Model to rank the price performance of stocks that compose Standard & Poor's 10 major economic sectors (and 130 industries within those sectors) over the most recent oneweek, one-month, and three-month periods to determine which sectors and industries improved and which ones deteriorated in terms of their relative price performance during the most-recent six weeks.

In essence, Frazier's Relative Performance Model is a momentum model that attempts to determine which economic sectors (and industries within those sectors) will perform best approximately three to 12 months into the future. This model applies a theory first postulated by Sir Isaac Newton in his universal law of motion — an object in motion will remain in motion unless acted upon by an external force.

Frazier uses his Relative Performance Model in a manner similar to the way in which someone would likely prefer to bet on a horse race. For example, most horse racing enthusiasts would welcome an opportunity to place their bets on a race during the final stretch of the race, rather than at the beginning of the race, by betting on a horse that ran the first quarter of the race in the middle of the pack, gradually advanced its position during the second quarter of the race, and then began to move towards the front of the pack during the third quarter of the race.

In a manner similar to the example above, Frazier's Relative Performance Model helps him to identify economic sectors that demonstrate the most positive price momentum, at any point in time, and that will therefore likely outperform other asset classes and economic sectors during some specified period into the future.

Frazier then reviews the results of his Asset & Sector Allocation Model and his Relative Performance Model to determine the types of securities in which he might invest during any given period.

Comparing the Readings on Frazier's ASA Model and His Sector Rotation Model

Frazier primarily uses his Relative Performance Model to confirm (or disconfirm) the readings on his Macro Forecasting Model — on his Asset & Sector Allocation ("ASA") Model.

Investment Decisions Gleaned from Those Models:

• If both Frazier's ASA Model and his Sector Rotation Model were to indicate that worldwide economic conditions would likely deteriorate during the ensuing months and that stock prices would likely trend lower, Frazier would generally recommend for investors to sell their equity holdings and to either deposit the proceeds of those transactions in cash-like securities or to use those proceeds as margin against which to sell stocks short.
• If both Frazier's ASA Model and his Sector Rotation Model were to indicate that economic conditions would likely remain about the same during the ensuing months and that stock prices in general would likely trade in an narrow sideways pattern, Frazier might recommend for investors to actively trade in and out of exchange-traded funds ("ETFs") that track the daily performance of the major stock market indices. He might also recommend for investors to write covered call options on the equity securities of fairly stable stocks during such periods in an effort to capture guaranteed income during a flat market environment.
• If both Frazier's ASA Model and his Sector Rotation Model were to indicate that economic conditions would likely improve during the ensuing months and that stock prices would likely trend higher, Frazier would generally recommend for investors to invest the majority of their liquid assets into equity securities.

In the third situation outlined above, Frazier would next determine which economic sectors he expected to perform best during the ensuing months by comparing the readings on his ASA and Sector Rotation Models.

For example, if (1) Frazier's ASA Model was to forecast that the stocks of companies that operate in the technology sector would be among the better-performing stocks during the nearterm future and (2) his Relative Performance Model revealed that the stocks of companies that operate in the technology sector had been consistently improving, in terms of their relative price performance, during the recent past, Frazier would feel confident that the readings on his ASA Model were correctly forecasting stocks of companies in the technology sector to be among the top-performing stocks during the near-term future.

In contrast, (1) if Frazier's ASA Model was to forecast that the stocks of companies that operate in the technology sector would be among the better-performing stocks during the nearterm future, but (2) his Relative Performance Model revealed that the stocks of companies in the technology sector had been deteriorating, in terms of their relative price performance, during the past few months, Frazier would conduct more research before relying on his ASA Model.

Once the readings on Frazier's ASA Model confirm the readings on his Sector Rotation Model in regards to indicating which economic sectors will likely be among the top-performing sectors during the near-term future, Frazier goes to the next step in his investment selection process.

Step 3: Company Analysis

After Frazier determines the sectors in which he'll likely invest during a given economic environment, he then reviews the publicly traded stocks of every company in those sectors to select the stocks that he might recommend during a given period.

If Frazier's models indicate that stock prices in general will likely trend substantially higher for at least several months, Frazier will generally focus on companies that have the following characteristics:

1. Products / Services: Companies that offer revolutionary products/services and/or companies that have recently brought new products/services to market that virtually anyone could reason will likely become in big demand during the ensuing years.
2. Limited Competition: Companies that have very few competitors or that are demonstrated leaders in their fields of endeavor.
3. Publicly Traded for More Than Two Years, But Less Than 10 Years: Companies whose stocks have been publicly traded for at least two years, but for less than 10 years.
4. Strong Financial Condition: Companies that are very strong financially — that have low levels of debt and that are able to pay their recurring bills out of their available cash and trade accounts receivables.
5. Rapidly Growing Revenues and Earnings: Companies that recently grew their revenues and operating earnings at rapid rates and that appear to be in a position to continue to grow their revenues and earnings at rapid rates during the foreseeable future.

Frazier's research shows that stocks of companies that possessed the characteristics outlined above were among the biggest stock market winners over the past two decades.

Step 4: Stock Value Analysis

After gathering detailed information on a group of companies that display the preceding characteristics, Frazier then analyzes the equity securities of those companies.

Two of the key variables that Frazier reviews when conducting his stock analysis are the PEG ratio and the institutional demand for each of the stocks whose underlying companies meet Frazier's company criteria.

PEG Ratio

For those of you who aren't familiar with the PEG ratio, this is a valuation metric that enables one to determine the relative trade-off between the price of a stock, the earnings per share generated by the stock's underlying company, and the expected growth of the company's earnings per share.

The PEG ratio is computed by dividing a stock's Price-to-Earnings ratio (P/E ratio) by the expect growth rate of the underlying company's earnings per share (EPS) over the next three to five years.

In general, stocks that are correctly valued by investors will have a PEG ratio of 1.0. For example, if a company has a P/E ratio of 30 and that company's earnings per share were expected to grow at an average annual compounded rate of 30 percent over the next five years, that company's stock would have a PEG ratio of 1.0; (PEG = (P/E) / EPS Growth Rate: 30/30 = 1.0).

In general, Frazier considers stocks of rapidly growing companies that have a PEG ratio of less than 1.0 to be good bargains. Those are usually the types of stocks in which Frazier prefers to invest.

Institutional Demand

Frazier also prefers to invest in stocks that are owned at the time of his analysis by a small number of institutional investors, but that have recently attracted an increasing number of institutional investors.

Frazier assumes that if a large number of institutional investors already own a stock, there's little chance that the demand for that stock will increase substantially during future periods. That's because, just like any other product, the demand for a stock (relative to its supply) ultimately determines the stock's price.

In contrast, if few institutional investors own a particular stock at a given point in time, but the institutional demand for the stock increases substantially during future periods, there's a good chance that the stock's price will also increase substantially.

Step 5: Timing Analysis

After Frazier completes steps 1 through 4 of his investment selection process, he generally has a relatively small number of stocks on his list of investment candidates in which he'll consider investing at any point in time.

However, Frazier still won't buy (or recommend a stock for purchase) until his stock timing analysis indicates that the expected rewards of investing in a given stock substantially outweighs the risk of investing in that stock. Frazier makes that final decision by analyzing the trading pattern of the stocks that met his previous four criteria.

Frazier primarily monitors and analyzes the price and volume action of those stocks, and he looks for certain trading patterns that were demonstrated by past stock market winners.

Once Frazier's timing analysis suggests that a stock should be purchased, he'll then recommend that stock to our subscribers.

This comprehensive and exhaustive 5-step process comprises what David Frazier has labeled his Stock Timing Axis.

Yet, even after completing all of the detailed research and analysis mentioned above, Frazier recognizes that he'll still select some stocks for recommendation that don't perform in the way that he had initially anticipated. Therefore, when a stock that Frazier had previously recommended for purchase declines by 10 percent in price, he closely monitors the ongoing trading performance of that stock and does further research in an effort to determine if he overlooked some important developments that could negatively affect the underlying company and its stock.

Regardless of Frazier's findings, if a previously recommended stock declines more than 16 percent in price, Frazier generally recommends immediately selling that stock to help protect our subscribers against incurring substantial losses.

Frazier's ASA Model has accurately forecast, within two months of stock market lows and highs, every major turning point in the U.S. equities market since 1970.

For example, during February 1975 his ASA Model forecast that the 1973-1974 recession had ended and that a new bull market was underway. Over the next 14 months, the Dow Jones Industrial Average rallied 37 percent.

In September 1982, his ASA Model forecast that the 1980-1982 recession had ended and that a new bull market had begun. Over approximately the next five years, from Oct. 1982 to Aug. 25, 1987, the Dow advanced 1,826 points (204 percent) and the S&P 500 Index rose 180 percent.

Frazier's ASA Model also accurately forecast the beginning of both the 1991-2000 and the 2003-2007 bull markets.

Most recently, Frazier's ASA Model forecast during July 2007 that worldwide economic conditions would deteriorate substantially and that stock prices would fall sharply during the ensuing months. Less than three months later, the U.S. economy entered its worst recession since 1982 and stock prices peaked. Over the next 14 months — from Oct.10, 2007 through Dec. 31, 2008 — the S&P 500 Index declined a whopping 40.6 percent (including dividends).