1. Invest In Companies That Are Growing quickly
One of the best things you can do is start putting more of your money into fast-growing companies. You will find the fastest-growing companies in some of the fastest-growing industries. As you look at growth industries and study growth stocks, you’ll want to look for stocks that seem undervalued. A lot of the time, you will find smaller growth stocks, that have less exposure and have more growth possibilities.
2. Buy Stocks With Strong Relative Performance
You need to look at how the stock is performing relative to the market. Relative performance showcases how the stock is doing in comparison with the market. You want a stock that is going to perform as well as or better than the market. This shows you that the company is in a consolidation phase and that it’s a company worth owning. Pay attention to the performance of the stock and the price action. This will give you more information about a stock than looking at financials and other things. Take a look at the insiders guide to asset value investors (AVI).
3. Market Timing
You want to look to invest more when the market is going in the direction you want. When the market is trending, it’s time to get aggressive. When the market is going against you, it’s time to be more cautious. Try not to go against the grain as much as possible. Many underestimate the power of the market and the impact it can have on individual stocks. When you have Cabot’s market timing indicators signaling the market is in bull mode, it’s time to get aggressive. “The trend is your friend.” If the market is going up, it’s time to buy your favorite individual stocks or ETFs.
4. Have Patience
It’s time to be patient when you have made your investment decision. You need to have an investment thesis. This gives you a reason to get and then a reason to get out of a trade. Time is always on your side when you are investing in equity income investing. A lot of times, you won’t catch the wave. That’s not an issue as long as you have a longer time horizon on your investment. If you can continue to exercise patience, you will find that you are going to make money more often than not. Having the staying power is crucial when you are looking to invest in speculative growth stocks.
5. Don’t Forget To Diversify
You need to diversify your portfolio however possible. You can invest in 10 individual stocks and have a well-diversified portfolio. Ideally, you don’t want to put all of your eggs in the same basket. This means investing in 5 to 10 different companies in various industries.
6. Cut Your Losses Short
One of the biggest mistakes a lot of people make when they are investing is not knowing when to throw in the towel. If your thesis doesn’t play out and you were wrong, you need to cut your losses quickly. Some stocks are simply not going to go the way you want them to go. If your thesis changes or if the stock’s underlying price hits your stop loss, it’s time to get out. You need to have a stop loss on every trade. Do not allow your loss to exceed 20 percent at any point. This is a very important rule that you need to stick to. Otherwise, you’ll find yourself losing big when you do lose. These losses can end up wiping out all of your gains and more.
7. Sell Your Winners When It’s Losing Momentum
You never want to sell your winners too early. However, you do want to sell when it’s clear that the trend is changing. It can be easy to tell when the stock is losing momentum in the short term. You want to start looking to exit once the momentum has fallen out of your favor. You don’t want to wait for the company to release bad news for you to exit. You want to follow the price action. If a lot of investors are taking profits, it might be time for you to do the same. Otherwise, you risk being the last one to leave the party. Typically, you can hold a stock for up to 8 weeks of an RP correction. Once it starts to get around 13 weeks, it’s time to exit with no regrets.
8. Let Your Profits Run
You need to focus on compounding your returns. The power of compounding is real when it comes to boosting your portfolio. You will find that long-term investing is much more profitable than short-term investing. It’s also less risky. Try to develop some staying power and allow your profits to continue running. This is how you generate massive returns in the market. You don’t want to take profits at as low as 10% because you’ll have some losers too.
9. Buy More
Try to add to your winners whenever possible. Allow yourself to average up on occasion. If you have a winning trade and a winning position, don’t be afraid to add to it. Adding to your winners is a good way to grow your portfolio and your investments. Many are scared to ruin their original position if it’s run a good amount.
10. Be Optimistic
In over 50 years of publishing Cabot Growth Investor, there have been plenty of swings both up and down. However, after every event that brings widespread panic, there are big rebounds. It doesn’t matter how bad you think the situation is, there is always the potential for things to recover and then some. The stock market continues to be one of the best places to store your money and it presents a lot of incredibly investing opportunities for small, medium, and big investors.
