If you want to become a rich growth investor, here are twenty ways to win in the growth stock market.
Growth investors love a good gamble. Growth stocks often outpace the market, and the best ones can earn triple-digit returns in a short amount of time. The caveat to being a growth investor is that the companies you invest in are less mature, have smaller margins, and typically don’t pay a dividend. Thus, the stocks can be very volatile, especially around earnings season. But for a growth investor, the risks of investing in these stocks are worth the potential rewards.
Since you’ll be investing in higher-volatility stocks it’s important to make sure you maintain a diversified portfolio. For some investors that means maintaining a majority of their portfolio in diversified funds or ETFs while using a smaller share to make investments in individual stocks. For others, it may simply mean investing in a broader portfolio (across asset-class and sector) of a larger number of individual stocks.
The Difference Between a Poor Growth Investor and a Rich One
Anybody can invest in growth stocks, but not everyone succeeds. The most successful growth investors we know follow these guidelines:
- They stay positive, because after every tough event, our dynamic country and economy have eventually rebounded.
- They invest in fast-growing companies that have yet to reach the point of peak perception. Frequently these will be smaller stocks, where growth potential is greater!
- They invest in stocks that are consistently outperforming the market. This is a good indication that they are under accumulation, week after week, month after month, and that the companies are succeeding.
- They use technical market timing indicators, and when a bull market is signaled, they don’t delay, they buy!
- They are patient, because frequently stocks don’t go up as fast as you might want them to.
- They hold diversified portfolios, because you should never have all your eggs in one basket when growth investing. We suggest 10 stocks to provide plenty of diversification.
- They cut losses short —the key for a growth investor is to ensure they retain enough capital to stay in the game.
- They sell winning stocks when they lose positive momentum. They don’t wait for the company to tell them bad news, they sell first without regret.
- They don’t seek 10% and 20% profits, they think longer term and shoot for 100%, 200%, and larger profits. As long as all the rules above apply.
- They “average up” over time, by continuing to buy their best-performing stocks.
The Best Growth Stocks to Invest in as a Growth Investor
If you want to become a growth investor, there are other factors to look for in addition to growth. The following characteristics are most desirable when investing in growth stocks:
- Growing revenues, ideally at a rate exceeding 15%.
- Growing earnings, ideally at a rate exceeding 20%.
- A good story, promising more of #1 and #2 for years to come.
- Improving investor perception, with room for further upside as more investors learn about the company.
- Growing institutional investor sponsorship, with room for further upside.
- A healthy chart, indicating that investors as a whole are growing more optimistic about the stock.
- A strong relative performance (RP) line, indicating that the stock is outperforming the broad market.
- Ample liquidity for smooth trading (consider looking for stocks with an average trading volume of at least $20,000,000 per day).
- A price in the double digits (or higher).
- Capable management.
The key to becoming a growth investor is identifying fast-growing companies before the masses do. That can be tricky, since some of the best growth-stock candidates are relatively obscure. There’s a reason, after all, that the market hasn’t fully discovered them yet. If you’re beginning to research companies, using stock screeners like FINVIZ, or MarketWatch, is a great place to start looking for companies that meet some of the growth criteria above.
What else do you need to know before you become a growth investor? We’re listening for your comments below.