RULES FOR INVESTMENT SUCCESS
A vital point is these rules
are not based on our personal opinion, our
beliefs or those of Wall
Street’s analysts and experts. Investor’s Business
Daily built models of the most
successful stocks and investors of the last
half-century. We analyzed all
their common characteristics, what variables
occurred before the best
stocks had huge advances and how these
variables changed when the
stocks topped. So these rules and principles
represent how the market
actually works. If you ignore them and rely
instead on personal opinions,
feelings or emotions, you are potentially
arguing with how the market
has functioned for 50 years.
- Consider buying stocks with each of the last three
years’ earnings up 25%+, return on equity of 17%+ and recent earnings and
- Recent quarterly earnings and sales should be up 25% or
- Avoid cheap stocks. Buy stocks selling at $15 a share
- Learn how to use charts to spot sound bases and exact
buy points. Confine buys to these points as stocks break out on big volume
- Cut every loss when it’s 8% below your cost. Make no
exceptions so you can always avoid huge, damaging losses. Never average down
- Have selling rules on when to sell and take profit on
the way up. Review “When to Sell and Take a Profit” in “How to Make Money in
- 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.
- Read IBD’s Investor’s Corner and Big Picture columns to
learn how to recognize important tops and bottoms in market indexes.
- Buy stocks with a Relative Price Strength Rating of 85
or higher in the IBD SmartSelect Corporate Ratings.
- Pick companies with management ownership of stock.
- Buy mostly in the top six broad industry sectors in
IBD’s New Highs List.
- Select stocks with increasing institutional sponsorship
in recent quarters.
- Current quarterly after-tax profit margins should be
improving and near their peak.
- Don’t buy because of dividends or P-E ratios. Buy the
No. 1 company in an industry in earnings and sales growth, R.O.E., profit
margins and product quality.
- Pick companies with a new product or service.
- Invest mainly in entrepreneurial New America companies.
Pay close attention to those with an IPO in the past eight years.
- Check into companies buying back 5% to 10% of their
stock and those with new management (what is management’s background?).
- Don’t try to bottom guess or buy on the way down. Never
argue with the market. Forget your pride and ego.
- Find out if the market currently favors big-cap or
- Do a post-analysis of all your buys and sells. Post on
charts where you bought and sold. Evaluate and develop rules to correct your