IBD's 20 Rules For Stock Market Success
If all of IBDís 20 rules are carefully followed (not just the ones you like), your investment results should materially improve:
- Consider buying stocks with each of last three yearsí earnings up 25% or more, return on equity of 17%+ and recent earnings and sales accelerating.
- Recent quarterly earnings and sales should be up 25% or more.
- Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.
- Learn how to use charts to spot sound bases and exact buy points. Confine your buys to these points as stocks breakout on big volume increases.
- Cut every loss when itís 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price.
- Have selling rules on when to sell and take a profit on the way up. Review "When to Sell and Take a Profit" in How to Make Money in Stocks.
- 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 IBDís "Investorís Corner" and "The Big Picture" columns to learn how to recognize important tops and bottoms in the market indexes.
- Buy stocks with a Relative Price Strength Rating of 85 or higher in the IBD SmartSelectģ Corporate Ratings.
- Pick companies with management ownership of stock.
- Buy mostly in the top six broad industry sectors in IBDís New High List.
- Select stocks with increasing institutional sponsorship in recent quarters.
- Current quarterly after-tax profit margins should be improving and near their peak margins.
- Donít buy because of dividends or P-E ratios. Buy the #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 8 years.
- Check into companies buying back 5% to 10% of their stock and those with new management (what is managementís background?).
- Donít 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 is currently favoring big cap or small cap stocks.
- 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.