IBD, otherwise know as Investor’s Business Daily, has compiled a basic set of rules for success. They claim that your investment results should improve materially if you carefully follow these 20 rules (rules in bold lettering).
1. Consider buying stocks with each of the last three years’ earnings up 25%+, return on equity of 17%+ and recent earnings and sales accelerating.
2. Recent quarterly earnings and sales should be up 25% or more.
3. Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.
4. Learn how to use charts to see sound bases and exact buy points.
5. Cut every loss when it’s 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price.
6. Follow selling rules on when to sell and take profit on the way up.
7. Buy when market indexes are in an uptrend. Reduce investments and raise cash when general market indexes show five or more days of volume distribution.
8. Read IBD’s Investor’s Corner and Big Picture columns to learn how to recognize important tops and bottoms in market indexes.
9. Buy stocks with a Composite Rating of 90 or more and a Relative Price Strength Rating of 85 or higher in the IBD SmartSelect® Corporate Ratings.
10. Pick companies with management ownership of stock.
11. Buy mostly in the top six broad industry sectors in IBD’s New High List.
12. Select stocks with increasing institutional sponsorship in recent quarters.
13. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock’s industry.
14. Don’t buy because of dividends or P-E ratios.
15. Pick companies with a new product or service.
16. Invest mainly in entrepreneurial companies. Pay close attention to those that went public in the past eight years.
17. Check into companies buying back 5% to 10% of their stock and those with new management.Another rule that sounds good but I don’t pay too much attention to for my own research. I don’t ignore when companies buy back stock but I rarely ever trade based on this type of news.
18. Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.
19. Find out if the market currently favors big-cap or small-cap stocks.
CP: This is a secondary indictor of lesser importance that I follow but does come in handy from time to time.
20. Do a post-analysis of all your buys and sells. Post on charts where you bought and sold each stock. Evaluate and develop rules to correct your major past mistakes.
2. Recent quarterly earnings and sales should be up 25% or more.
3. Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.
4. Learn how to use charts to see sound bases and exact buy points.
5. Cut every loss when it’s 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price.
6. Follow selling rules on when to sell and take profit on the way up.
7. Buy when market indexes are in an uptrend. Reduce investments and raise cash when general market indexes show five or more days of volume distribution.
8. Read IBD’s Investor’s Corner and Big Picture columns to learn how to recognize important tops and bottoms in market indexes.
9. Buy stocks with a Composite Rating of 90 or more and a Relative Price Strength Rating of 85 or higher in the IBD SmartSelect® Corporate Ratings.
10. Pick companies with management ownership of stock.
11. Buy mostly in the top six broad industry sectors in IBD’s New High List.
12. Select stocks with increasing institutional sponsorship in recent quarters.
13. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock’s industry.
14. Don’t buy because of dividends or P-E ratios.
15. Pick companies with a new product or service.
16. Invest mainly in entrepreneurial companies. Pay close attention to those that went public in the past eight years.
17. Check into companies buying back 5% to 10% of their stock and those with new management.Another rule that sounds good but I don’t pay too much attention to for my own research. I don’t ignore when companies buy back stock but I rarely ever trade based on this type of news.
18. Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.
19. Find out if the market currently favors big-cap or small-cap stocks.
CP: This is a secondary indictor of lesser importance that I follow but does come in handy from time to time.
20. Do a post-analysis of all your buys and sells. Post on charts where you bought and sold each stock. Evaluate and develop rules to correct your major past mistakes.
