I believe newer is better, and I’ll give you an example. For many years, the analysts at Cabot have had a running contest to find the best growth stocks. The contest includes Paper Portfolios, a presentation from a different person each week and a prize of absolutely nothing at all. Each new member of the Wednesday Group receives a grant of $100,000 in hypothetical capital, finds new stocks to buy and invests the ‘money’ in any stocks that aren't in the Cabot Growth Investor's Model Portfolio and that trade over a major exchange.
The amount of cash in the collective portfolios was used to help calculate our sentiment indicator, and it did a good job of serving as an overbought/oversold signal when it hit either high or low extremes.
I can remember the first big winning stock I ever dug out. I wanted to find new stocks to buy and I found Charles & Colvard (CTHR), a North Carolina manufacturer and merchandiser of moissanite, a rare, naturally occurring form of silicon carbide. Charles & Colvard figured out how to grow huge crystals of moissanite—which has a higher index of refraction than diamonds and is harder than rubies and emeralds—and began manufacturing fine jewelry featuring the stone.
Things went really well for a while and I "bought" my first CTHR shares at around 10 in March 2005 and rode it up to as high as 26 as volume spiked in December of that year. I followed the rules, adding to my stake as the stock moved higher, then taking some profits when it formed a climax top. The stock actually put me in the lead in our Paper Portfolio contest for a few weeks, even though the people I was competing against had been using the Cabot system for many years.
Ultimately, however, (long after I liquidated my last position, fortunately) the stock fell back to a narrow range just about where I first bought it, then started a determined dive toward penny stock territory as earnings deteriorated. The stock was trading below 20 cents a share for a while. An announcement that the company had fired its CEO, Senior VP of Sales and VP of Operations gave a little insight into the turmoil into which this once-hot company had fallen.
CTHR bottomed out at about 40 cents a share, indicating that the stock market's bottom feeders have found enough evidence of potential to take a few small bites. But with volume averaging just 28,000 shares a day, the stock was an object lesson, not a real investment. It was time to find a new stock to buy.
In fact, I'm only bringing it up to show how being involved with a growth stock, I mean really getting to know it and the company's marketing plans and the whole nine yards, can make you want to keep up with it like an old high-school girlfriend. I check up on the stock every once in a while, just like I stay in touch with old friends. But I'm never, repeat never, tempted to buy a little for old time's sake. I find new stocks to buy.
Because when you’re looking for the best growth stocks to buy, it's what's new that counts.
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