Rules to Remember
Stock Market Analysis Video
In Case You Missed It
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The Early Bird Grows Insanely Rich
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As you know, the market has been in a major uptrend since September 1, moving almost straight up for the last six months. So it’s only natural that after such an extended run the market takes a breather, shaking out the weak hands and providing stock set-ups for the next upmove.
So instead of recommending a stock today, I’m going to review some basic growth investing rules. Longtime subscribers will likely know these by heart, but it never hurts to review them.
1. Cut losses short (definitely rule #1 for growth stock investing).
2. Search for strong sales and earnings growth (especially triple-digit sales growth).
3. Search for revolutionary products with major benefits. (First Solar and Crocs filled the bill in 2007 and were our two biggest winners. In 2009, subscribers benefited from Green Mountain Coffee Roasters’ revolutionary Keurig single-cup brewer. And last year, we hit a huge home run with Baidu.)
4. Heed the message of the overall market—never fight the main trend! This is a major basis for our market timing indicators, which keep subscribers on the right side of the market, allowing them to profit from leading stocks in good times and preserve capital in bad.
5. Never average down in growth stocks.
6. Be prepared for all contingencies (always have an exit plan ahead of time). This is especially important in times like these when the market is chopping around. You’ll make better and smarter decisions if you’ve thought out several scenarios before things get rough.
7. Never try to buy at the bottom or sell at the top (if you try, you’ll just lose more money).
8. To avoid gut-wrenching volatility, stick with stocks that are liquid (at least 500,000 shares traded per day or more).
9. Only put more money to work after your past purchases are showing you a profit.
10. Be humble—making money in stocks is tough, so don’t kill yourself over one or two bad trades. Be thankful when you hit a big winner.
11. Find an investing system that works for you. The best way to deal with stress from the market is to have a game plan ahead of time. If you wait until things are blowing up in your face, it’s too late—by then, your emotions are out of control and you’re likely to do the exact opposite of what’s constructive.
12. “Markets are never wrong; opinions are,” is a quote from Jesse L. Livermore, one of the most colorful, flamboyant and respected market speculators of all time. At Cabot, we agree wholeheartedly with his comment and truly embrace this thinking. And you should, too, if you want to become a successful growth investor.
13. When looking for potential purchase candidates, examine both the company’s fundamentals and its stock’s technical performance. When analyzing the technicals, focus on the stock’s momentum and price chart, along with its volume pattern and 50-day moving average.
14. Find a company that has a big idea … one that has few if any limits on its future growth potential. It’s these big ideas that create an atmosphere that can push a growth stock to dizzying heights!
15. Warren Buffett once said there were only two rules to follow with your investments: Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.
16. Our goal is to get you heavily invested while the market is trending higher. During those times, when investor perceptions are improving, investors are willing to pay more and more for stocks. This is when you can make big money! But, of course, no market moves in one direction forever. So, when the intermediate-term trend of stocks is down, your best move is to play defense. Easing up on new purchases, while building up cash by selling your weakest stocks, is a good idea.
17. Be an optimist. In our more than four decades of publishing investment advisories, we’ve seen many ups and downs for both the market and our country. But after every tough event our dynamic country and economy have eventually rebounded. So no matter how bleak the situation, always stay optimistic because the U.S. and our stock market will give you some dazzling opportunities!
18. Diversify your portfolio. For our Model Portfolio in Cabot Market Letter, our maximum of 12 stocks provide plenty of diversification for your growth portfolio. Smaller investors can do well with as few as five stocks, but you should never have all your eggs in one basket.
19. Once you’ve invested in a stock, be patient. Recognize that time is your friend. Frequently stocks don’t go up as fast as you might want them to. But if you can develop a persistent and tolerant attitude coupled with plenty of patience, you’ll have a great advantage. We call this STAYING POWER!
20. Buy growth stocks with strong Relative performance (RP) lines. RP studies are a superb way to identify successful companies and to avoid problem companies. You should buy stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding. The best investing tips come from the performance of the stocks themselves. So ignore hot tips!
I hope these rules will help you stay calm and avoid panic when the market gets dicey. Print them out, keep them handy and refer to them whenever you need a refresher.
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Put the Margin of Safety in Your Wallet
Benjamin Graham is credited as being the father of value investing. His investing system brought him an average annual return of 20% per year for 30 years. If you’d been one of his clients, you could have turned every $50,000 into a robust $445,805 in just over a decade.
His most famous disciple is Warren Buffett, who he took under his wing at Columbia. And a less-well-known devotee is our very own Roy Ward, who employs Graham’s system to put the margin of safety in your wallet. Protect your wealth and earn double-digit returns with Cabot Benjamin Graham Value Letter today!
In this week’s Stock Market Analysis Video, Cabot Market Letter Editor Mike Cintolo says it is certainly an interesting time in the market. On one hand, there is a lot of distribution with many breakdowns among some large indexes and key leading stocks. On the other hand, there are leading stocks that are resisting the market’s three-week decline. Stocks discussed are Finisar (FNSR), Salesforce.com (CRM), F5 Networks (FFIV), Priceline.com (PCLN), OpenTable (OPEN), Baidu (BIDU), Sina Corp. (SINA), Under Armour (UA), Lululemon Athletica (LULU) and Polo Ralph Lauren (RL). Click here to watch the video!
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Has the Bull Market Finally Had It?
The shocking answer could make you 50% richer or 50% poorer, depending on what you do now! Make no mistake about it—the bull market is entering a dangerous new phase. One that will soon affect all the stocks you own.
The next market move we see headed our way in the next 30 days could be the biggest shocker of 2011. My free report reveals what you must do now to protect yourself and profit. Get it now!
In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, there are links below to each issue.
On Monday, Timothy Lutts wrote about why you shouldn’t buy at the top or sell at the bottom. Why you should sell a stock when it proves you wrong. And why you should always be looking for the next big thing. Tim discussed two stocks that could benefit from the booming mobile device market. Featured stock: Polypore (PPO).
On Thursday, Paul Goodwin discussed Albert Einstein’s famous quote, “Imagination is more important than knowledge,” and the many misconceptions surrounding it. Paul also discussed the top-performing stocks of 2010 and a stock that could have two catalysts for action in the near future. Featured stock: Harbin Electric (HRBN).
Until next time,
Editor of Cabot Wealth Advisory