Investing is a disciplined approach. Whether you are a short-term trader or a long term investor, you have to follow specific guidelines to be successful in the field of investing. Without clearly predefined course of action, a trader/investor can make irrational decisions in the heat of the moment.
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One of the famour trader William J. O’Neil has pointed out 14 basic rules for becoming a successful trader/investor. Hope you find it useful.
Important Guidelines For Investing
1. Don’t buy cheap stocks.
2. Buy growth stocks where each of the last three years’ annual earnings per share have been up at least 25%.
3. Make sure the last two or three quarters’ earnings per share are up a huge amount. Look for minimum of 25% to 30%. In bull markets, look for EPS up 40% to 500%. (The higher, the better).
4. See that each of the last three quarters’ sales are accelerating in their percentage increases or the last quarter’s sales are up at least 25%.
5. Buy stocks with a return on equity of 17% or more. The great companies will show a return on equity of 25% to 50%.
6. Make sure the recent quarterly after-tax profit marginal are improving and are near the stock’s peak after-tax margins.
7. Don’t buy a stock because of its dividend or its P/E ratio. Buy it because it’s the number one company in its particular field in terms of earnings and sales growth, ROE, profit margins and product superiority.
8. Carefully average up, not down, and cut every single loss when it is 7% or 8% below your purchase price, with absolutely no exceptions.
9. Write out your sell rules that determine when you will sell and nail down down a worthwhile profit in your stock.
10. The company should have an excellent, new, superior product or service that is selling well. It should also have a big market for its product and the opportunity for repeat sales.
11. It doesn’t pay to be a “jack-all-trades” or to over diversify or engage in too much asset allocation.
12. The stock should have ownership by top management.
13. Forget your pride and your ego; the market doesn’t care what you think or want. Your ego could cost you a lot of money. Don’t argue with the markets. Never try to prove you’re right and the market is wrong.
14. Don’t try to buy a stock at the bottom or on the way down in price, and don’t average down.