How to Make Money in Stocks (C20): 24 Rules for Picking Winning Stocks

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There has been a lot of information shared from this book.

Let’s recap some of the most important guidelines for choosing a winning stock.

• Stay away from cheap stocks. Most super-stocks emerge from a base of at least $30. Stay away from anything below $10.
• Check that each of the last three years’ annual earnings per share have been up 25% or more. Also check to make sure that the general consensus for the next year is also at least a 25% growth.
• The last few quarters’ earnings per share should be up a minimum of 25%. Expect it to be higher in a bull market: 40% and up.
• Check that each of the last three quarters’ sales are increasing by at least 25%.
• Only buy stocks that have a return on equity of at least 17%.
• Ensure that the recent quarterly after-tax profit margins of the stock are improving and are close to the stock's highest after-tax margins.
• Look for stocks in the top 10% of IBD’s 197 Industry Groups rankings list.
• Ignore dividends and P/E ratios.
• Buy stocks with an IBD Relative Price Strength of at least 85.
• Look for an average daily volume of at least 200,000.
• Learn to read the charts so you can buy at the exact right time. The right time is when a stock initially breaks out of a proper base with at least a 50% daily volume increase above the normal.
• Average up, not down, and cut all losses at 8%.
• Write down your sell rules and stick to them.
• Ensure at least one better performing mutual fund has also bought your stock recently, and that institutional sponsorship has been increasing over the last several quarters.
• The company you are investing in should have an excellent, new product that is selling well, and a big market for the product.
• The general market should be in an uptrend.
• Stay away from options, foreign stocks, bonds, preferred stocks, and commodities.
• The company's top management should own a significant amount of stock.
• Invest in companies that have a new stock issue within the last 10 years.
• Leave your ego at the door. The market is always right.
• Stay informed about any company you own, and also about the general market. Learn to recognize market tops and bottoms.
• Look out for companies that announce buybacks of their common stock. Check if there is new management.
• Don’t buy a falling stock.
• Have courage, be positive, and don’t give up.

Read the first chapter of Swing Trading for Dummies here.

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