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
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
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
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
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 (
) 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
Cabot Benjamin Graham Value Letter
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
), Salesforce.com (
), F5 Networks (
), Priceline.com (
), OpenTable (OPEN), Baidu (BIDU), Sina Corp. (SINA), Under
Armour (UA), Lululemon Athletica (LULU)
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!
Until next time,
Editor of Cabot Wealth Advisory