Growth Investing Basics

By Mike Cintolo, Vice President of Investments and Chief Analyst, Cabot Growth Investor and Cabot Top Ten Trader

Here are some basics that will help any growth stock investors improve their portfolio's results:

1. Cut your losses short. The only sure way to make money in growth stocks is to make sure no single stock (or two or three) will destroy your portfolio. To this day, this remains the most important rule in growth stock investing, yet it's the hardest to follow. Don't ever average a loss!

2. Respect the market's action. Way too many investors just look for growth stocks without considering the market's major trend. If you're in a bear market, 75% of stocks are heading south, so you must be defensive during those times.

3. Low-priced stocks are low-priced for a reason. Yes, you can make money in low-priced stocks if you have in-depth research and a proven system. But most people don't have either-they just want lottery tickets that they believe could pay off big. Yet they almost never do.

4. ALL stocks eventually top ... and they top when the news is good. Most investors have a hard time letting go when a stock has been "good" to them, especially when positive news comes out.  Well, get over it. A stock is not your child, and furthermore, you can always buy it back if all appears well. It's OK to take some chips off the table (some, not all) as the stock works its way higher.

5. Think contrarily.  What's the main reason most investors have trouble making money in stocks?  It's because the market is a contrary animal--it acts nearly the opposite of how an intelligent person would.  Thus, when the market looks terrible, you must train yourself to expect better times ahead.  And when all appears wonderful, it's probably a good idea to take some profits.

6. Most important ... watch your portfolio! Most investors, shockingly, view investing as a hobby. But you need to treat it as a business, or if you like, as a second, part-time job. You have to give thought to your portfolio, your strategy and (very important) your risk.

I actually talked to a subscriber last week who, partly because he wasn't paying much attention, has seen his good-sized account fall by 60% in the past few weeks; he was heavily margined in a bunch of stocks that have broken down. Such a drop is devastating, and can take years to recover from. 

So give your portfolio some thought; this is your hard-earned money we're talking about. Don't put all your stocks in one basket, commit to cutting all losses short, and know how much risk you have (i.e., how much would you stand to lose if a stock, or the market, fell 10% overnight?). It doesn't take more than a few hours a week to keep track of things, but doing so will greatly improve your returns.

Analysts Center

Our analysts regularly share content from their premium advisories. See a sampling of our analysts’ unique takes on current market conditions and how they impact a wide range of investments.

More on Growth Investing

Growth Investing involves a greater degree of volatility than dividend or value investing, but it has the potential for bigger rewards. Find out how.


Michael Cintolo can be found on Google Plus.

Stock Picks

Loews Corp.

This undervalued stock has strong future earnings growth expectations.

Biogen

Biogen is the market-share leader in treating multiple sclerosis.

Weibo

One of Paul Godwin’s favorite stocks in his Cabot Emerging Markets Investor portfolio.

Cabot Wealth Advisory

Does Alibaba (BABA) Stock Measure Up to Amazon (AMZN)?

By Paul Goodwin on September 23, 2016

Alibaba (BABA) is the Amazon (AMZN) of China. But does BABA stock measure up to AMZN stock? Let’s break it down!Read More >

As Stock Market Trends Change, Invest in these New Leaders

By Michael Cintolo on September 22, 2016

History tells us that all stock market trends change, and if you don’t recognize the leaders of that change early, you risk missing out on the next big winners.Read More >

AMZN Stock vs. FB Stock: Which Is the Better Value Buy?

By J. Royden Ward on September 20, 2016

For the past five years, AMZN stock and FB stock have been two of the market's great growth stories. But could you make the case that either stock is still undervalued? Let’s break it down.Read More >