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It’s easy to see why. The global recreational cannabis market is expected to grow from around $20 billion in 2021 and 2022 to $130 billion in 2030, which is still just a fraction of what’s expected to be a $3 trillion total market for marijuana and related products (CBD, medicinal use, etc.). That’s better than a six-fold increase in less than a decade in recreational use alone and rivals growth rates unseen anywhere outside the best technology stocks.

And while that torrid pace of growth stirs up a frenzy of speculators any time the words “legal weed” are uttered by a politician, the market activity between those utterances has been a painful grind lower.

And that grind has followed a disappointingly common pattern.

Any significant effort toward legalization (medical marijuana, state-level votes, Canadian legalization, etc.) prompts a flurry of buying before the rubber meets the road and the grind begins again.

In December 2018, negotiators in the Senate and House reached an agreement on the Farm Bill that would eventually impact cannabis stocks.

Normally the result of a tug-of-war pitting conservative heartland agriculture interests vs. progressive coastal urbanites, and corporate farms vs. family farms, the Farm Bill legalized industrial hemp for the first time in decades, thanks to the pushing of then-Senate Majority Leader Mitch McConnell, who argued that there will be great economic benefits from legalizing the crop—and putting it under the purview of the U.S. Department of Agriculture rather than the Justice Department.

Given the rapidly accelerating sales and seemingly inevitable trend toward widespread legalization, you’d assume cannabis stocks would have exploded in the years since the Farm Bill passed … right? Wrong. In fact, shortly after the bill passed, cannabis stocks nosedived, losing more than 80% of their value in the ensuing 15 months, bottoming in March 2020 along with everything else at the outset of the pandemic. After rebounding with the broader market, the sector topped out in February of 2021 and has since fallen even further.

Despite that performance, there’s renewed optimism in the sector following a recommendation by the Department of Health and Human Services that cannabis be rescheduled from a Schedule 1 drug (alongside far more dangerous drugs like heroin, cocaine and other harmful drugs) to a Schedule 3 drug.

While it may seem academic, rescheduling offers a meaningful benefit to cannabis companies as it would remove the onerous restrictions of IRS Rule 280E, which bars companies from deducting expenses when their businesses involve Schedule 1 (or 2) substances. This simple accounting change could massively improve profitability for cannabis companies.

But, if every major legalization achievement has been a “buy the rumor, sell the news” event, how do you profitably invest in the best marijuana stocks?

Our Free Report, How to Invest in Marijuana Stocks, is an excellent place to start. In it, you’ll learn how to avoid the most common investing mistake novice cannabis investors make and the one factor that has allowed Cabot Cannabis Investor to regularly outperform the marijuana sector index.

If you’re less interested in methodology and more interested in simply having the names of the best cannabis stocks regularly sent to your inbox, a subscription to Cabot Cannabis Investor will get you both the best marijuana stocks and the market timing to profitably trade them.

Dividends are a measure of a company’s success and its commitment to shareholders. The companies that consistently grow their dividends are the ones whose sales and earnings are also growing. Companies that lose money or fail to grow usually don’t pay a dividend.

When a company pays a dividend—and especially if it makes an effort to increase that dividend every year—it shows that it cares about rewarding shareholders. Paying a dividend is also a savvy way to attract investors, which is why the share prices of most dividend stocks appreciate over time.

Dividend-paying stocks aren’t going to make you rich overnight. But they can significantly build up your nest egg if you buy and hold them for years, or even decades.

Not all dividend-paying stocks build wealth. You need to search for investments with timelessness and longevity—companies that are sure to not only be around 20 or 30 years from now, but still thriving. Dividend stocks become more powerful, and usually make up a larger part of your annual return, the longer you hold on to them.

For example, if you had bought Walmart (WMT) in April 1990, your current yield on cost would be about 40%. That means you’d be collecting 40% of the value of your original investment every year from dividends alone. If you’d invested $10,000, you’d now be collecting about $4,000 in dividend payments every year.

With investments like these, it’s best to let your money work for you as long as possible.

That can mean riding out some tough times. Walmart declined 23% during the 2000 bear market, for example. Selling as the stock declined would have saved you some money in the short term, but you also would have forfeited that 40% annual yield.

When buying dividend stocks, you have two options. You can either collect the quarterly income or reinvest it to buy more shares. The latter is called a Dividend Reinvestment Plan, or DRIP, and is an easy way to increase the value of your position without having to do much.

To help you find the best dividend stocks, we offer two dividend services at Cabot Wealth Network. Those are the Cabot Dividend Investor, a service that has beaten the market since its February 2014 inception, and Cabot Income Advisor, an advisory that combines high-yield dividend stocks with covered call options trading to earn more income. Both advisories are run by our dividend investing expert, Tom Hutchinson.

Investing in these markets really began to heat up after the turn of the 21st century, when most of the attention was focused on the so-called BRIC countries, which are Brazil, Russia, India and China. Those four countries combined enormous populations with stable governments and national economies on the verge of major expansion.

Out of that group, China has certainly delivered on its promise. China enjoyed more than a decade of double-digit economic growth based on cheap labor and massive exports, and its massive population of industrious people, directed by its powerful central government, has created a booming middle class eager to achieve the prosperity of developed nations. China’s growth has undoubtedly slowed, but it remains one of the fastest-growing economies in the world.

The other BRIC countries have each had their problems. Brazil’s economy is vulnerable to inflation any time economic growth revs up. Russia has squandered its potential with expansionist policies aimed at rebuilding at least a part of the old Soviet territory. And India has suffered from a political system that is chronically susceptible to gridlock.

Of these three countries, India appears to have the highest potential for the kind of growth-from-a-low base that powers big stock returns. The current administration of Narendra Modi, a leader with decidedly pro-business views and a working majority in both houses of India’s parliament, is in the process of infrastructure improvements that have proven successful at stimulating growth in other countries. And we’re seeing the beginning of a loosening of stifling government controls that hamper entrepreneurism.

We’re also watching other countries for signs that growth is taking hold, including South Korea, Mexico, Indonesia, Turkey, Saudi Arabia and South Africa. It’s an exciting time to be an emerging markets investor!

The advantage of investing in these markets is that it allows you to invest in countries with double-digit GDP growth—or close to it. At a time when America’s economy is expanding in the low single digits, Japan’s economy is struggling and much of Europe is still feeling the lingering effects of the sovereign debt crisis, these markets hold more appeal than ever. The potential rewards of this kind of investing have rarely been more enticing.

But with those potential rewards comes a considerable amount of risk.

Investing in any kind of growth stocks has inherent risk. When you invest in an emerging market, which is essentially a euphemism for “underdeveloped” market, you take on even greater risk. There are a lot more unknowns when investing in a country that is still developing. And the less you know about a company, the more risk you take on when you invest in it. One way to curb that risk is to invest in American Depository Receipts (ADRs) traded on U.S. exchanges, which requires the stocks to meet strict U.S. requirements.

For some, emerging markets investing is simply too risky. But for many, the potential for massive rewards is worth the extra risk.

If you’re part of the latter group, then you should consider subscribing to our Cabot Explorer advisory. In this advisory, analyst Carl Delfeld scours the globe looking for the best growth stocks benefitting from some of the biggest worldwide trends. Many of the companies Carl examines are headquartered in emerging markets, though some are American or European companies that derive a large part of their growth from sales in these markets. And nearly all of Carl’s emerging-market recommendations trade on a U.S. exchange.

Many emerging market countries are experiencing growth that will persist for years to come. International investing is a way to profit from that trend. Cabot Explorer attempts to deliver you those huge profits while minimizing risk.

Of course, stock market investing comes with more risk than a safe, low-yield savings account. Inevitably, not all of your investments will be winners.

In investing, no one really knows for sure what’s going to happen. Over time, however, stocks tend to rise. History tells us this. Since 1928, the average annual return in the S&P 500, the benchmark U.S. stock index, is 10%. So historically, a well-diversified portfolio of stocks should allow you to just about double your investment once every seven years.

Now, there are periods where returns in the stock market underperform the average. Every few years we encounter corrections and bear markets, as we did in 2022 and 2018, and the years after the Great Recession and dotcom bust.

But over a longer time horizon, those off years are more than offset by the performance in bull markets. If you invested in the S&P 500 at the beginning of 2014 and simply held that investment, you would have weathered the 2018 correction, the pandemic sell-off, and the 2022 bear market. And you’d have generated 16.5% annual returns.

You wouldn’t think that, with a correction, a pandemic and a bear market, the last decade would be anything to write home about, but those numbers speak for themselves. Despite the fear and negative headlines, investing over the last 10 years has beaten the historical average by more than 50% each year.

But, of course, your return would have depended on what stocks you actually bought. Take General Electric (GE), for example. GE is an iconic American company. As recently as 2009 it was the largest company in the world.

But had you bought GE at the beginning of 2014, you would have lost 0.7% every year, and that’s assuming you reinvested your dividends. Without dividend reinvestment, your returns would have been even worse.

That kind of unpredictability scares some people away from investing in the stock market. The track record over time should be enough to convince you otherwise.

The stock market is a vast and ever-evolving place, and there are many ways to approach stock market investing.

Want to invest in safe companies that offer a steady stream of income? You’re probably a dividend investor.

Are you willing to take on a bit more risk to go after bigger, faster rewards? Growth investing is likely for you.

Value investing is for investors who like to bargain shop.

Options trading is for those who like to invest based on statistical probabilities. And so on.

At Cabot Wealth Network, we have something for every investor. Our investment advisories cater to a variety of risk tolerances and timetables, depending on your preference. Since 1970, we’ve been helping investors of all experience levels achieve market-beating returns, helping our readers double their money more than 30 times over.

When done right, investing in the stock market can be a hugely profitable endeavor. For more than a half-century, we’ve been helping investors maximize those profits—and hope to continue doing so for another 50 years.

It’s an investment fund that trades on a public stock exchange just like a stock. ETFs hold dozens and even hundreds of stocks, commodities or bonds, so you get the safety of diversification. In that way, they’re like mutual funds.

Because they are “unmanaged,” however—you might say they run on autopilot—ETFs entail lower annual fees than comparable index-based mutual funds, and far lower fees than actively managed mutual funds. And unlike mutual funds, which are priced once a day after the market closes, ETFs are traded throughout the day just like regular stocks, so you can buy or sell them whenever you want, and when you buy, you get exactly the price quoted when you buy.

Now, of the thousands of ETFs available in the U.S. alone, many are designed to mimic the performance of major indexes. You can buy indexes that duplicate the performance of the S&P 500 and the Dow Industrials. You can also buy indexes that mimic lesser-known indexes like the S&P Emerging Markets Small Cap Index and the Dow Jones Small Cap Value Index.

Those are fine for investors who are content to just do as well as the averages.

But if you want to beat the averages, you’ve got to specialize. And for that, you need sector ETFs, which allow you to invest precisely in the economic sectors you think are most likely to bring the biggest gains.

We recommend ETFs when we feel more strongly about the sector than we do about any individual stock, or when we feel there is too much risk in any one stock, yet we still want to participate in the sector.

We also might buy an ETF if we were very confident about a bull or bear market move and wanted to leverage the move by using an ETF that aimed to double the market’s move. Our resident growth stock expert, Mike Cintolo, will occasionally invest in a major index—or even a leveraged fund—when he thinks it’s about to start a major upmove.

There are some instances when investing in ETFs makes sense—whether it’s gaining maximum exposure to a red-hot sector, gaining access to an entire country’s stock market, or simply taking advantage of a bull market. In general, we don’t recommend buying and holding them the way you would a stock with long-term growth potential. But there’s money to be made in ETFs if you time it right.

We highlight some of our favorite growth stocks in our FREE REPORT on the 5 Best Stocks to Buy every month.

Of course, there’s a caveat to investing in these stocks. Unlike time-tested dividend stocks or bargain-basement value plays, these stocks carry plenty of risk. The companies are less mature, have smaller margins, and typically don’t pay a dividend. Thus, the stocks can be very volatile, especially around earnings season.

For many investors, however, the risks of investing in these stocks are worth the potential rewards. Apple (AAPL), Amazon (AMZN), Netflix (NFLX)—all of them started off as growth stocks before they became some of the best-performing and most coveted stocks on the market. Those who got in early earned triple-digit, even quadruple-digit, returns.

There are several keys to finding the right growth stocks:

• Invest in fast-growing companies. It’s a rather obvious prerequisite. But it’s important to know what fast-growing means. It means investing in fast-growing industries, where revolutionary ideas and services are being created. Any little-known stock that provides a product that is essential to that budding industry makes for a good growth stock.
• Buy stocks that are outperforming the market. Companies can promise all kinds of financial growth. But is that growth potential translating to a rising share price? The best investing tips come from the performance of the stocks themselves.
• Use only the best market timing indicators. Never underestimate the power of the market to move stocks. You don’t want to invest in a growth stock just as the market is plummeting. If you’re in a bull market, you can afford to be aggressive in buying stocks that are more speculative.
• Be patient. Not every growth stock will make you rich overnight. Very few will, in fact. Even Apple took years before it morphed into the biggest technology behemoth in the world. In the investment world, time is your friend. If you get out of a stock too early, you may miss out on some big gains months down the road.

Growth stocks were the basis upon which Cabot Wealth Network was founded in 1970. Our founder, Carlton Lutts, gave up a career in engineering to pursue his passion for stock selection and market timing.

More than half a century later, we’re much more than a growth investing advisory. But growth stocks—and helping individual investors earn big profits from them—are still at the heart of what we do via our flagship advisory, Cabot Growth Investor.

Investing in these stocks can be tricky. Finding a hidden gem that has yet to be fully discovered by the market is simultaneously exciting and frustrating. Look for up-trending earnings growth, improving profit margins, and booming industries. If done right, investing in growth stocks can be both highly satisfying and highly profitable.

And we’re here to help!

The most common way to buy a stock is through a brokerage firm. Thanks to the internet, using a brokerage firm to invest is easier—and more affordable—than ever. There are a variety of popular online discount brokerage firms, and most offer trading with no commission.

Now, if you’re just getting started, you can choose to invest in just one or two stocks; that’s all some people can afford, and that’s fine. But for those who can afford it, an ideal portfolio consists of about 10-20 stocks from a variety of industries (technology, banks, housing, retail, energy, etc.). It also makes sense to invest in different types of stocks—growth stocks, value stocks, dividend-paying stocks, international stocks, etc.

However you spread out your investments, the goal is to put together a portfolio that’s diversified enough that you aren’t overly susceptible to a collapse in any one industry. For instance, if you have all housing stocks and the real estate market suddenly collapses like it did during the subprime mortgage crisis … you could lose all the money you’ve invested very quickly.

That said, successful investing involves much more than just stock selection. Here are a few other tips on how to invest:

Recognize that perfection in investing is impossible. Not all your investments will be winners. Losses are a normal part of the business. Your goal is to ensure that your profits outweigh your losses, and the best way to do that is to have an investing discipline.

Determine whether you’re dealing with a value stock, as recommended by our Cabot Value Investor or a growth stock, as recommended by Cabot Growth Investor, Cabot Top Ten Trader or Cabot Explorer.

If it’s a growth stock, buy only if the stock’s main trend is still positive. If the news is good but the stock’s behavior is not, trust the stock. Remember that the stock market is always looking ahead, and that your best guide to the company’s future news is what the stock itself is doing today.

In healthy bull markets, remain heavily invested, remembering, again, to ignore the news. In bear markets, hold a large cash position, remembering that capital preservation is goal #1. And remember that bull markets always begin when the economic news is lousy, and bear markets always start when the news is good. Again, the market is looking ahead. So learn to trust stock charts.

Sell your growth stocks in the following circumstances:

1. a) When the stock’s uptrend ends, as signaled by a substantial high-volume drop below a previous support level
2. b) When the stock fails to outperform the broad market over a period of 13 weeks
3. c) When a profit of 100% or more has been cut in half
4. d) When your loss exceeds 20% in bull markets and 15% in bear markets.

With value stocks, diversification is highly recommended. Because the timing of their advances is unpredictable, holding dozens of value stocks means the average value of your holdings will appreciate over time. Contrarily, with growth stocks, concentration is advised. Five growth stocks can be plenty, particularly if they are in different industries, while 12 growth stocks is probably the maximum you should contemplate.

Lastly, don’t fall in love with your stocks, regardless of how big your profit or how well you think you know the company.

Second, if you invest right, your income stream can actually grow … sometimes while your portfolio is growing too! If you’re selling assets whenever you need cash, your portfolio will shrink over time. But if you own investments with growing income streams and rising prices, your income and your portfolio value can both increase over time.

Lastly, income investments’ reliable returns make them less volatile than the market. A recent study found that U.S. stock funds with yields over 2% (meaning they hold mostly dividend stocks) had an average three-year annualized standard deviation (a measure of volatility) of three percentage points less than stock funds yielding less than 2%. In addition, many income investments actually become more popular when the market is weak, so they can be great buy-and-hold assets for investors who don’t want to have to trade a lot.

So You Think Income Investing is Right for You?

The first step to income investing is to consider your income needs or wants, and your risk tolerance. There are some income investments that return as much as 10% of your investment as income each year—but they’re generally going to be much higher risk than an investment that returns 2% or 3% each year.

That amount—the percentage of your investment that is returned as income each year—is called yield. If you’re looking at a dividend-paying stock and see that it has a 3% yield, that means that at the current dividend rate, an investor who puts $1,000 in that stock will get paid $30, or 3% of his investment, each year in dividends. Those dividends are on top of any price appreciation from the stock, and don’t reduce the amount of your original investment. The investment is just paying you to own it.

Here’s how you determine the yield of an investment:

Yield = Annual Dividend Amount / Price

When you’re considering buying a new investment, you will use the current indicated annual dividend amount (how much the company has declared it will pay in dividends that year) and the current price in that calculation. That will tell you what percentage of your investment you’ll receive as income each year, as long as the company maintains its current dividend rate. This number is widely available on many quote services.

The other part of the equation is risk. Obviously, you’d like to maximize your income, but simply buying all the highest-yielding investments you can find is a sure recipe for disaster. For one thing, there aren’t that many (about 70 stocks in the S&P 500 currently yield over 4%). And you don’t want to buy subpar stocks just for the yield—if the company is struggling, it won’t be able to maintain that yield for long.

So with income investing, you need to balance yield against the other factors that matter to you in your investments: things like volatility, diversification, capital appreciation potential and income growth potential. Luckily, there are a wide variety of different investments that pay you to own them, so every investor should be able to create a mix of holdings that fulfill both their income needs and other criteria.

Income Investing Options

There are a variety of income investment types, including dividend stocks, real estate investment trusts (REITs), master limited partnerships (MLPs), business development companies (BDCs) and bonds. Regardless of which income-generating vehicle you choose, income investing is a way to minimize your risk and protect your portfolio against huge losses. It’s a way to fortify yourself against market volatility and the wild share-price fluctuations it brings.

To help guide you in your income investing, we offer Cabot Dividend Investor, a service that focuses on only the best dividend stocks, and Cabot Income Advisor, an advisory that couples dividend stocks with periodic covered call writing to maximize their income-generating power.

A long option is a contract giving you the right, but not the obligation, to buy or sell a specific security at a specific price over a specific period of time. After that period of time has elapsed (the option’s “expiration”), the option ceases to exist.

A short option contract (where you sell a call or a put) is more akin to selling insurance, where you collect premium in exchange for taking on the obligation to buy or sell shares at the strike price for a fixed period of time.

A long call option gives you the right to buy the security.

A long put option gives you the right to sell the security.

There are numerous types of options trades. Depending on which method you choose, options trading can be used to hedge a portfolio, create yield or gain significant market exposure and returns with little capital risk.

Options contracts typically represent 100 shares of the underlying stock or ETF. So, if you exercise a call, you’re buying 100 shares of the underlying stock; if you exercise a put, you are selling the underlying 100 shares at a stated price—known as the “strike price.”

However, most options contracts are never exercised, with traders generally preferring to sell the contract prior to expiration at either a gain or a loss depending on the performance of the underlying asset.

While there are a variety of option trading terms that are unique to this type of investment, here are a few that can help you learn more:

Options Premium: This is also known as the options “price.” The potential loss for the holder of an option is limited to the premium paid for the contract. On the other hand, the initial premium can offset potential losses or generate income for the seller of the option.

Time Decay: All options are wasting assets whose time value erodes by expiration—and that erosion is called “time decay.” The more time remaining until expiration day, the higher the premium will be. That’s because the longer an option’s life, the greater the possibility that the underlying share price will move to make the option in the money.

Implied Volatility: If the market becomes volatile, or if volatility is expected, implied volatility will rise, thereby increasing options prices. Conversely, low market volatility lowers options prices. The Chicago Board of Options Exchange Volatility Index (VIX)—a.k.a. the investor “fear gauge”—is the best way to measure near-term volatility in the S&P 500. It represents the market’s volatility expectations over the next 30 days.

Want to learn more? Let our options expert Jacob Mintz explain more about options basics, and his own personal options strategies. Jacob runs three options services for Cabot Wealth Network: Cabot Options Trader, catered to options beginners; Cabot Options Trader Pro, for more experienced options traders; and Cabot Profit Booster, which trades covered calls on one momentum stock each weed recommended by our resident growth investing expert Mike Cintolo in his Cabot Top Ten Trader advisory.

Jacob carefully assesses the risk and reward of each one of his options trades. When he buys options, he risks pennies to make dollars. When he sells options, he does so with defined risk to avoid big losses. Sometimes Jacob uses conservative options strategies to hit singles; other times he uses more aggressive strategies to try to hit home runs.

Despite its growing popularity, options trading remains widely misunderstood by the investing public. We encourage you to read and learn more, and, if you’re ready, to take advantage of the expert guidance of Cabot’s options services.

It’s those unforeseen debts—such as a medical bill—that can empty a savings account quickly and make it harder to catch up and get ahead again. Some personal finance gurus will tell you to put away half of your paycheck (or more), and while that’s certainly ideal, it’s not the only or the easiest way to start getting ahead. Paying off your debts and beginning to save in every way you can is how you start on the path to financial independence.

Our personal finance articles below will show you how to get yourself into a more secure position to be debt-free and start accumulating wealth. You’ll discover more about estate planning, financing education, choosing better insurance, refinancing, retirement planning, retirement living, and improving your credit.

Gold is almost always the first one precious-metals investors think about. However, there are other worthy commodities to consider, such as silver, platinum, copper, and palladium, to name a few. Each precious metal has its inherent pros and cons. What should you look for in a precious metal investment?

We’ll share all our knowledge about investing in precious metals in the articles below, but the thing you should know before investing in precious metals is that there is a lot of volatility and no cash flow with precious metals, although they also have no credit risk and hold their strength in the face of inflation or currency devaluation.

The best precious metal to invest in will provide a hedge against inflation. That is the most significant benefit of investing in precious metals, making them a useful tool for diversifying your portfolio. However, because of their high volatility, it is crucial to invest in these commodities in a way that works best for your investing temperament.

Investing in precious metals and the stock market can be overwhelming or downright scary, but, hopefully, this informational content can help simplify your investing journey and teach you more about precious metals investing.

It’s impossible to take the risk completely out of small-cap investing. But there are ways to minimize those risks without sacrificing potential profits. For starters, set up a clearly established set of rules ahead of time, and stick to them.

Our small-cap expert, Tyler Laundon, has a very specific set of rules for identifying the right stocks. Those are:

• Search for paradigm shifts in any field of business that requires a unique, new solution that will be provided by a stand-alone company. Then seek a niche supplier that will become an equal benefactor to that pioneering company.

• Invest only when the market opportunity is huge—and quantifiable. Only invest in small companies that serve large, burgeoning markets because you can realize tremendous growth with even small shares of the market.

• Get into a small cap stock before institutional investors become aware of it. Sometimes it takes a while for the big hedge funds or mutual funds to discover small yet promising companies. Once they do, it quickly drives up the price.

• Invest in small caps that offer both growth and value. Look for relatively young companies with growing sales that are undervalued based on the company’s market potential versus its total market capitalization. A balance sheet with little to no debt is also a big plus.

• Invest at the right time in the product cycle. There is a direct correlation between the time of investment and the degree of risk and rate of return you can expect. The time period after venture capital investors come aboard is generally the most promising.

• Lastly, concentrate on the very best ideas. Look for industries that have hit a roadblock and need new technologies to keep growing. The small companies that provide those breakthrough technologies make for the best small cap stocks.

These rules won’t help you pick all winners. But they should give you a leg up in selecting the right small caps.

Tyler applies his winning philosophies as editor of our Cabot Small-Cap Confidential advisory. Searching for small cap stocks can seem a bit overwhelming. In the Cabot Small-Cap Confidential advisory, Tyler does all the heavy lifting for you, identifying those hard-to-find small caps that can earn you the kind of triple-digit returns that can transform your portfolio.

But for every profitable tech stock, there’s a dark, sinister doppelganger that’s ready to eat your money and laugh at your misery. Okay, maybe that’s an exaggeration. Still, the world of tech is vast and volatile. You don’t get fast, seemingly unlimited growth without a share of risk.

Further, there isn’t one type of tech company, either. So “tech stocks” could be biotech, financial tech, educational technology, engineering software, and so on. The common thread is that they are technology companies first, and then they specialize from there.

They can also be some of the biggest names in the economy or micro-cap startups. But when you put all those differences aside, the best tech stocks all share some common traits.

As a whole, technology stocks have been moving up faster than the general market. The Information Technology sector of the S&P 500 has been the index’s top-performing sector for the past 10-year, 5-year, 3-year, 1-year, and year-to-date periods, outperforming the Nasdaq by well over triple-digit percentages in some cases.

In the future, there is a good chance tech sector performance will be even more dominant than it has been. So how do you get in on this?

The best tech stocks, or for that matter, the best stocks in any industry, have a few common traits:

1. The company has a product, service, or business model that is revolutionary.
2. Their offering has mass-market appeal.
3. The company has plenty of room to grow and is likely already fast-growing.
4. The stock has strong RP lines, positive earnings, and reasonable valuation (meaning it’s not overpriced).
5. And last but not least, it has a stock that’s trending up, indicating that investors’ perceptions of the company are improving—this is important because perceptions are always at least as important as reality.

While they might seem “boring,” there are plenty of older tech stocks that also pay dividends, which is almost always a good indicator of a quality stock. (Just be aware that a dividend alone doesn’t make a stock a good purchase. There are dividend stocks out there hanging on by a thread and don’t have very promising-looking futures.) Microsoft (MSFT), International Business Machines (IBM) and Qualcomm (QCOM) are a few dividend-paying tech stocks that come to mind as being particularly reliable over the years.

If you need help finding the best tech stocks, subscribe to any one of our investment advisories, where our analysts routinely pick winning stocks and options trades that beat the market year in and year out.

Investment legends like Sir John Templeton, Benjamin Graham and Warren Buffett realized decades before behavioral finance became a respected academic discipline that systematic psychological errors tend to create market inefficiencies. Templeton, Graham and Buffett reasoned that herding behavior (including momentum traders and short-term speculators that chase price trends) and overreaction bias (the tendency of people to overreact to bad news) are strong forces in the market that can push stocks far below their fair value.

Based on these observations, many of the world’s greatest investors look for stocks that are beaten down by the market due to bad news or negative rumors. Benjamin Graham, the father of value investing, constantly searched for companies that once fetched sky-high valuations but that crashed when the companies were unable to deliver on investors’ expectations.

Warren Buffett famously said, “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Value investing is about recognizing opportunities, spotting deep discounts and finding the next big turnaround stock. One way some investors measure a company’s value is its price-to-earnings ratio, or P/E. But P/E is a very simplistic measure of a stock’s value. Experts dig deeper, examining a company’s sales, cash flow, dividend, book value, debt levels, historical valuation patterns and more to determine if a stock is undervalued.

To help you find the next turnaround story, Cabot offers both Cabot Value Investor and Cabot Turnaround Letter. Both advisories are intended for investors who place an added emphasis on company fundamentals and undervalued opportunities.