Cabot's Top Growth Investing Rules
10 More Growth Investing Rules
Top Ten Trader Pick: I'll Drink to That
I'm going to review some basic growth investing rules that
were originally published here in May 2010. Longtime subscribers
will likely know these by heart, but it never hurts to review
1. Cut losses short.
We could write a book about this rule, which is definitely growth
investing rule #1. If you can't jettison your losers before they
do major damage, you can't succeed as a growth investor.
2. Search for growth stocks with strong sales and
Triple-digit sales growth is especially attractive).
3. Search for revolutionary products with major
(First Solar and Crocs filled the bill in 2007 and were our two
biggest winners. Last year, subscribers benefited from
discovering 3D Systems' revolutionary three-dimensional printing
technology. Baidu's unique Chinese search services also produced
big profits for subscribers.)
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
If you try, you'll just lose more money).
8. Stick with stocks that are liquid
to avoid gut-wrenching volatility (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
12. "Markets are never wrong; opinions are."
At Cabot, we agree wholeheartedly with this quote from Jesse L.
Livermore, one of the most colorful, flamboyant and respected
market speculators of all time. We truly embrace this thinking,
and you should, too, if you want to become a successful growth
13. Examine both the company's fundamentals and its
stock's technical performance
when you're looking for potential purchase candidates. 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 dizzying heights!
15. Follow these growth investing rules.
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. Be heavily invested while the market is trending
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 provides 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
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 RP lines.
Relative performance (
) 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!
For today's stock pick, I've selected
Buffalo Wild Wings (
, a national chain of sports bars that has perfected the design
of its restaurants and is building more of them all the time.
Instead of just printing the text from BWLD's writeup in Cabot
Top Ten Trader, I thought you might like to see exactly what a
subscriber to Top Ten Trader sees every Monday when the report is
sent out. In addition to a Why the Strength? section and a
technical analysis, there's also a Buy Range, a Loss Limit, a
chart of the stock's recent performance and a table of the
(Click the image to download the full page)
It's a pretty complete package, and gives growth investors an
entire toolbox of information for analyzing and evaluation
potential investments. I hope you find it interesting.
Just this year, Cabot Top Ten Trader readers grabbed
double-digit returns in strong momentum stocks like Tesla, Yelp,
ServiceNow, Qihoo Technology, Cree and others.
Cabot China & Emerging Markets Report
and Cabot Wealth Advisory