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Growth Investing Basics

These basics will help any growth investors improve their portfolio results.

By Mike Cintolo, Vice President of Investments and Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader

Here are some basics that will help any growth stock investors improve their portfolio’s results:

1. Cut your losses short. The only sure way to make money in growth stocks is to make sure no single stock (or two or three) will destroy your portfolio. To this day, this remains the most important rule in growth stock investing, yet it’s the hardest to follow. Don’t ever average a loss!

2. Respect the market’s action. Way too many investors just look for growth stocks without considering the market’s major trend. If you’re in a bear market, 75% of stocks are heading south, so you must be defensive during those times.

3. Low-priced stocks are low-priced for a reason. Yes, you can make money in low-priced stocks if you have in-depth research and a proven system. But most people don’t have either-they just want lottery tickets that they believe could pay off big. Yet they almost never do.

4. ALL stocks eventually top ... and they top when the news is good. Most investors have a hard time letting go when a stock has been “good” to them, especially when positive news comes out. Well, get over it. A stock is not your child, and furthermore, you can always buy it back if all appears well. It’s OK to take some chips off the table (some, not all) as the stock works its way higher.

5. Think contrarily. What’s the main reason most investors have trouble making money in stocks? It’s because the market is a contrary animal--it acts nearly the opposite of how an intelligent person would. Thus, when the market looks terrible, you must train yourself to expect better times ahead. And when all appears wonderful, it’s probably a good idea to take some profits.

6. Most important ... watch your portfolio! Most investors, shockingly, view investing as a hobby. But you need to treat it as a business, or if you like, as a second, part-time job. You have to give thought to your portfolio, your strategy and (very important) your risk.

I actually talked to a subscriber last week who, partly because he wasn’t paying much attention, has seen his good-sized account fall by 60% in the past few weeks; he was heavily margined in a bunch of stocks that have broken down. Such a drop is devastating, and can take years to recover from.

So give your portfolio some thought; this is your hard-earned money we’re talking about. Don’t put all your stocks in one basket, commit to cutting all losses short, and know how much risk you have (i.e., how much would you stand to lose if a stock, or the market, fell 10% overnight?). It doesn’t take more than a few hours a week to keep track of things, but doing so will greatly improve your returns.

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A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.