What’s the best thing to talk about when the market is firing on all cylinders? Recessions, of...
20 Tips to Keep Your Investing on Track
11/08/2012 11:30 am EST
While most investors tend to have some vague principles in their heads about their core investing principles, it's important to make a list and keep it around, so you can refer to your limits and goals observes Mike Cintolo of Cabot Wealth Advisory.
With basics in mind after the recent storms, now is as good a time as any to review the investing basics...though with 20 rules below, many of these probably aren’t basics to most investors.
Nevertheless, I have a list similar to this saved on my computer. Whenever I have some free time or am in a bit of a rut, it helps to go back, read through them, and make sure I’m not violating some core principles.
I view this as blocking-and-tackling sort of stuff—it doesn’t show up in the box score necessarily, but lots of investors go awry because they, for one reason or another, get off track and don’t adhere to the basics. Make sure that doesn’t happen to you!
Here are 20 of Cabot's top tips and tools that you can use to become a better investor:
- Cut losses short (definitely rule No. 1 for growth stock investing).
- Search for strong sales and earnings growth (especially triple-digit sales growth).
- Search for revolutionary products with major benefits. First Solar (FSLR), Crocs (CROX), and Green Mountain Coffee Roasters (GMCR) filled the bill and were some of our biggest winners.
- Heed the message of the overall market—never fight the main trend!
- Never average down in growth stocks.
- Be prepared for all contingencies (always have an exit plan ahead of time).
- Never try to buy at the bottom or sell at the top (if you try, you'll just lose more money).
- To avoid gut-wrenching volatility, stick with stocks that are liquid (at least 500,000 shares traded per day or more).
- Only put more money to work after your past purchases are showing you a profit.
- 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.
- 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.
- "Markets are never wrong; opinions are," is a quote from Jesse 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.
- 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.
- 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!
- Warren Buffett once said there were only two rules to follow with your investments: Rule No. 1: Don't lose money. Rule No. 2: Don't forget rule No. 1.
- 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.
- 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!
- 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.
- 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.
- 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!
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