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Cabot’s Top Growth Investing Rules

A market correction is the perfect time to review some tried and true investing rules.

Cabot’s Top Growth Investing Rules

Stock Market Analysis Video

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As you know, the market entered a correction a couple of weeks ago that included a “flash crash” and more recently, several triple-digit drops. Our growth investing newsletters advised subscribers to move to cash, so when the market turns positive again they’ll be ready to put capital to work in the new leaders that have emerged.

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 investing).

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. Last year subscribers benefited from Green Mountain Coffee Roasters’ revolutionary Keurig single-cup brewer.)

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 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 investor.

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 average.

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. 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 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 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 RP lines. Relative performance (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 takes it on chin, as it has the last few weeks. Print them out, keep them handy and refer to them whenever you need a refresher.

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Take the Guesswork out of Investing

Cabot Market Letter Editor Michael Cintolo has 40 years of time-tested investing strategy behind him when he chooses top-notch growth stocks. He does all the work so you don’t have to!

Mike recently handed subscribers gains of 100% (and climbing) in Baidu ... and there’s much more where that came from! So take the guesswork out of stock picking, let Mike be your guide. Click below to get started today!


And now for today’s Stock Market Analysis Video with Cabot Market Letter and Cabot Top Ten Report Editor Michael Cintolo

Mike urges you to ignore predictions about the stock market and just follow the evidence. Our indicators tell us this is just a correction, but only time will tell. We recommend that growth investors preserve capital by going to cash. Take control of the situation and respect the market’s action.

Mike also discusses (PCLN), Acme Packet (APKT), Baidu (BIDU), SanDisk (SNDK), Chipotle (CMG) and Coinstar (CSTR).

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In case you didn’t get a chance to read all the issues of Cabot Wealth Advisory this week and want to catch up on any investing and stock tips you might have missed, I have links below to each issue.

Cabot Wealth Advisory 5/17/10 - The Scope of the Gulf Disaster

On Monday, Brendan Coffey wrote about the scope of the Gulf of Mexico oil spill based on differing estimates of how much oil is gushing out each day. Brendan also discussed the latest clean energy bill and a stock that may benefit from it. Featured stock: Fuel Systems Solutions (FSYS).


Cabot Wealth Advisory 5/18/10 - A High-Yield Bull Market in This Little-Known Asset Class

On Tuesday, we brought you an article from a guest editor, Carla Pasternak, Chief Investment Strategist of High-Yield Investing at StreetAuthority. Carla discussed a high-yield bull market she discovered in a little-known asset class.


Cabot Wealth Advisory 5/20/10 - Don’t Bet Against Strength

On Thursday, Paul Goodwin wrote about one of the rules you need to be part of the smart money in the stock market. Paul also discussed the history of ticker tape and a Chinese medical stock that looks promising. Featured stock: China Biologic Products (CBPO).


Until next time,

Elyse Andrews
Editor of Cabot Wealth Advisory

P.S. Paul Goodwin, editor of the #1 ranked Cabot China & Emerging Markets Report, appeared on CNBC on Thursday afternoon to discuss the worldwide debt crisis and how it might effect China. If you missed the video, you can watch it here:


Elyse Andrews, is a contributor and former editor of Cabot Wealth Daily, focusing on educational topics on finance, the stock market and individual stocks.