The Best Growth Stocks: 5 Rules for Successful Growth Investing

How to Invest in the Best Growth Stocks: 5 Rules for Successful Growth Investing
By Timothy Lutts
A Cabot Wealth Advisory Special Report

I was talking with a longtime subscriber last week—a professional money manager—when the topic of education came up. He told me, “The thing I‘ve always liked about Cabot is that you educate your readers. You don’t just tell them what to buy and sell, you explain why.”

Today, recognizing the value of that thought, I’m going back to the  basics, bringing you five rules for successful growth investing in the best growth stocks, complete with the all-important reasons why.

1.  Use market timing to guide your investing. In bull markets, we say, “A rising tide floats all boats.” In bear markets, we say, “It’s hard to swim against the outgoing tide,” ... as so many investors have learned in recent months. So learn to recognize the major trend of the market, and learn to respect the power of that trend. Today the market’s correction appears to be finished, and a new uptrend is trying to establish itself.

2.  Do your very best to ignore the economic news. The fact is, the stock market is always looking six to nine months ahead, so today’s news means nothing. Sure, the ongoing drama in Europe makes for great cocktail chatter, but it won’t help you make money. In fact, if you’re always focused on investing according to the hottest news,  you’ll find you’re always one step behind the professionals. You’re at a disadvantage. To succeed as an investor, you’ve got to find an area  where you have an advantage, and that’s on the road less traveled, namely younger, less well-known companies.

3.  Invest in fast-growing companies. Fast growth can overcome a huge number of smaller deficiencies, like inexperienced management, competition, weak patent positions, and more. And fast growth eventually attracts the attention of institutional investors, who are very useful in both providing downside support and in pushing prices higher as they buy their way in. The best growth stocks are in small companies growing at triple-digit rates—100% or better—through organic growth, not acquisition. Three exciting companies that fit the bill today are LinkedIn (LNKD), Westport Innovations (WPRT)  and Zillow (Z).

You may be familiar with LinkedIn and Zillow, as they are consumer-oriented internet businesses. Both came public last year, and because they’re not as wildly popular as Facebook, there are more potential buyers than sellers. Westport Innovations makes and converts automobile and truck engines to run on natural gas, and business is booming as natural gas prices fall.

4. Average up in your winners.
As the song says, “Accentuate the positive.” So when you've invested in a small, fast-growing company, and the market gives you a profit, don’t take the profit. Wait for a normal pullback, and then buy some more of that top growth stock!

5.  Cut losses short. As the song says, “Eliminate the negative.” If a stock you bought has declined, it has not done what you hired it to do. Thus, you should consider letting it go. Analyze the chart carefully, and tolerate no losses exceeding your own personal pre-set limits. Our absolute maximum loss limit is 20% in bull markets and 15% in bear markets, but we do our best to cut them even shorter. The very worst thing you can do is let a loss get bigger and bigger.


Perhaps the biggest rule of all, which has existed for centuries, is about diversification. “Never put all your eggs in one basket.”  This applies even to the best growth stocks. Of course, everybody knows this, so I don't even include it my five growth investing  rules. But sometimes ... people forget.

Yours in the pursuit of wisdom and wealth,

Timothy Lutts
For Cabot Wealth Advisory

PS - Do you want to be well positioned for the next upmove?

Then take a look at our growth-stock system that's doubled investors' money 24 times in the past 44 years during up markets, down markets and everything in between. Just look at these gains we're holding while the financial media continues to claim the sky is falling:

- Lennar UP 27.27%,
- GNC Holdings UP 46.15%
- Equinix UP 40.35%.

Click here for Cabot Market Letter and learn how you can enjoy gains like these.

3 Must-Have Indicators for Triple-Digit Gains

My research has uncovered a little-known BULL MARKET indicator that has predicted
every bull market since 1947 … and right now it’s screaming BUY!

Every time this indicator flashes, the market surges 51.2% or more…. And when you
add in all three of my indicators, you have a proven system for taking a market surge
and turning it into massive triple-digit gains like …

• A 239% gain on Home Depot
• A 415% gain on First Solar
• And a 746% gain on Apple

… Just to name a few!

That’s enough to take a $100,000 investment and turn it into $339,000 … $515,000
… or even $846,000!

Best of all you can start grabbing profits like these without having to read a single
chart or make a single data calculation because I’ve already done all the number
crunching and data analysis for you.

Click here for more details on Cabot Market Letter!

Stock Picks


The fact that these stocks couldn’t rally even in the market strength of the past month tells us there’s little hope for the rest of the year.

Newfield Exploration

This oil & gas producer looks like an early leader.

Mindray Medical

Mindray has made a global name for itself, designing and refining medical equipment that can be sold more cheaply than the big international brands.

Cabot Wealth Advisory

Three Things I'm Thankful For

By Paul Goodwin on November 25, 2015

The question of thankfulness is especially interesting to me because I write a financial advisory on how to invest in emerging market stocks, and I know that being a growth investor requires a certain amount of optimism. Pessimists don’t buy growth stocks because they believe deeply that most things will turn out badly. With all that philosophical maundering out of the way, I’d like to run down my optimistic list of things I’m thankful for.Read More >

Yes, You Can Have Both Dividends and Growth

By Timothy Lutts on November 24, 2015

How do you find growth companies that pay dividends? Using the Cabot resources, there are two excellent ways. One is to refer to Cabot Dividend Investor, which recommends three specific classes of stocks for its readers: High Yield, Dividend Growth and Safe Income.Read More >

Two Stocks Mr. Buffett Should Own

By J. Royden Ward on November 23, 2015

As Warren Buffett said, "Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Two stocks that I think Mr. Buffett should own are Johnson Controls and Whirlpool. Read More >