IBD’s 20 Rules For Investment Success aren’t based on our personal opinion or those of Wall Street experts. IBD® built models of the most successful stocks each year from 1880 to 2010. IBD studied what common factors that existed before these great winners had large advances and how they changed when the stocks topped.
So these rules show you how the market actually works. If you ignore them and rely instead on personal opinions, feelings, tips or emotions, you are arguing with how the market has behaved for over 100 years and you will likely make more costly mistakes. You can learn from history.
1) Consider buying stocks with each of the last three years’ earnings up 25%+, return on equity of 17%+ and recent quarterly earnings and sales accelerating.
2) Recent quarterly earnings and sales should be up at least 25%, preferably 40% or more.
To watch a short video, click: Rules 1 & 2
3) Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock’s industry.
4) Don’t buy due to dividends or P-E ratios. Read a stock’s story on Investors.com. Buy the No. 1 stock in an industry in earnings and sales growth, ROE, profit margins and product quality.
To watch a short video, click: Rules 3 & 4
5) Always use charts to spot sound chart bases and exact buy points. Confine all buys to proper points as stocks emerge on big volume increases. Don’t chase stocks.
6) Always cut every loss when it’s 8% below your cost. Make no exceptions so you’ll avoid any possible huge, damaging losses. Never average down in price.
Video: Rules 5 & 6
7) Invest in entrepreneurial New America companies. Pay attention to ones with IPOs in the last 15 years.
8) Pick stocks with increasing institutional sponsorship in recent quarters.
9) Pick companies with a unique, superior new product or service that leads its industry and gains market share.
10) Check out companies buying back 5% to 10% or more of their stock, and those with new management. What is management’s background?
11) Buy stocks with a Composite Rating of 90 or more and a Relative Price Strength Rating of 85 or higher in the IBD SmartSelect Ratings. Run a Checklist on the top stocks in the IBD 50.
12) Consider boldface stocks in IBD’s New Highs List and Stocks On The Move.
13) Pick compaines where management owns stocks.
14) Avoid lower-quality stocks. Mainly buy stocks seling for $15 or higher.
15) Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.
16) Follow selling rules on when to sell and take your profit on the way up. Review “When to Sell and Take A Worthwhile Profit” in “How to Make Money in Stocks.”
17) Buy when the market indexes are in an uptrend. Reduce stocks and raise some cash if general market indexes show six days of increased volume distribution over 25 days.
18) Read IBD’s Investor’s Corner and Big Picture columns to learn how to recognize major tops and bottoms in market indexes. You can learn to do this.
19) Does the market favor big-, mid-, or small-cap stocks, and what sectors?
20) Do a post-analysis of all your buys and sells. Post on charts where you bought and sold. Always create a new rule to correct your major mistakes. It’s what you learn after you think you know what you’re doing that’s vital. That’s how you learn to improve your results.
