20 Investing Rules for 2011
Cabot Chart School
In Case You Missed It
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In the spirit of New Year’s resolutions, I’m going to share some of Cabot’s top tips, tricks and tools that you can use in 2011 to become a better investor. These aren’t resolutions exactly, but more like rules and tools to keep in mind when investing.
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. This year we’ve benefited from Green Mountain Coffee Roasters’ revolutionary Keurig single-cup brewer.
4. Heed the message of the overall market–never fight the main trend!
5. Never average down in growth stocks.
6. Be prepared for all contingencies (always have an exit plan ahead of time).
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, then follow it. 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 leaves 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 three 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 our country and stock market will give you some dazzling opportunities!
18. Diversify your portfolio. For our Model Portfolio in Cabot Market Letter, 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.
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!
Send me your tried and true investing rules and tools by replying to this email. And best wishes for your investing in 2011!
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Turn Market Volatility Into Huge Gains
Leverage your investments to make money in all markets! Cabot Options Trader Editor Rick Pendergraft uses the market’s volatility to bring his subscribers huge profit-making opportunities. Just check out these gains from the last three months:
A 109% gain on a Call on Pride International (PDE) in only 15 days!
An 88% gain on a Put on Arcelor Mittal (MIT) in 13 days!
A 70% gain on a Call on Linear Technology (LLTC) in 14 days!
This week, we’re bringing you a Cabot Chart School video instead of the usual Weekly Review because of the holiday. In it, Cabot Market Letter Editor Mike Cintolo discusses portfolio management, focusing on selling strategies. He weighs taking profits versus trailing stops and discusses offensive versus defensive selling tactics. This video is a classic, so don’t miss it! Click to watch.
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I Refuse to Let the Financial Media Send You to the Poorhouse!
Make no mistake about it—what happens in the new year will shock the bulls, confound the bears, and make shrewd investors rich. What you do now could make you 50% richer or poorer in the next 30 days—and the financial media is telling you none of it.
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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, Rick Pendergraft wrote about the many ways to use options and the method he uses in Cabot Options Trader. Rick also recommended an options trade that readers may want to take advantage of. Featured investment: PowerShares DB US Dollar Index Bullish Fund (UUP).
On Tuesday, you heard from Carla Pasternak of StreetAuthority on how she determines which dividend stocks are good investments. She revealed her four safety criteria and a few recommendations based on them. Featured stocks: Frontier Communications (FTR), Windstream (WIN), CenturyLink (CTL) and Altria Group (MO).
On Thursday, Brendan Coffey discussed three reasons that oil is likely to climb significantly higher in price in 2011. Brendan also revealed the best way to profit from rising oil prices: Invest in Green stocks. And he also discussed Cabot Green Investor’s performance in 2010.
Until next time,
Editor of Cabot Wealth Advisory
P.S. Want to connect with Cabot? Follow me on Twitter!