This list of rules are comprised of models constructed from the past market winners over 70 years. These models collect information that is common to these winners before they became big winners through their rallies until price topped out. These rules will guide you through best and worst of times. Stick to the rules and not the opinions of the media or your personal opinions and emotions in order to achieve investment success.
1) Buy stocks with each of the last three years earnings 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 low priced stocks. Buy stocks selling for $15 to $100 or more.
4) Learn how to use charts to see sound bases and exact buy points. Confine buys to these points as stocks break out on solid volume increases.
5) Cut every loss at no more than 8% below your cost. No exceptions to this one so that you will avoid possible large damaging losses. Never average down.
6) Follow sell rules.
7) Buy when market indexes are in an uptrend. Reduce investments and raise cash when general market indexes show five days of increased volume distribution.
8) Buy stocks with Relative Price Strength in the top 20th percentile.
9) Select companies with management ownership of stock.
10) Buy stocks in the top six to ten industry sectors.
11) Select stocks with increasing institutional sponsorship. Which means that top performing money managers and mutual funds are buying.
12) Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock's industry group.
13) Don't buy because of dividends or P-E ratios. Learn about a company. Buy the No. 1 company in an industry group with earnings and sales growth, ROE, profit margins and product quality.
14) Select companies with a superior new product or service.
15) Buy companies that are entrepreneurial in nature. Pay attention to those with an IPO during the past eight years.
16) Look closely into companies buying back 5% to 10% of their stock and those with new management (check out management's background).
17) Never try to bottom fish or buy on the way down. Never argue with the market. Check your ego at the door.
18) Do a post-analysis of all your buys and sells. Evaluate and develop rules to recognize mistakes and successes. What you learn after the trade is most vital. This will help improve your results going forward.
