What is Growth Investing?

Growth investing is when someone invests in a company whose earnings are 20% year after year. Examples of this would be Cisco, Microsoft, and Paychex. They each had huge earning reports that beat the previous year. These stocks usually have a product that users want and has a superior profit margin.

What is a Value Investor?

A value investor is one who tries to find stocks that are priced low but have a great balance sheet and assets in their company. Basically - a company who someone thinks is undervalued. The value investor tends to like finding stocks with a  low P/E ratio or a low price to book value.

Hmm…

Now you might think that P/E ratios are everything a stock is about and that value investing is the best idea on the planet…this isn’t true.  The stocks mentioned above in growth investing had P/E ratios of over 31; that is 31 times earnings! If you were a value investor you would have not made the critical buys of the great companies, such as Microsoft in its prime years. Also, you must remember, unless you are Warren Buffet, you will not get special information on investing. Warren Buffet has teams and teams of auditors who can go through companies’ books. Just beacuase he can do it and be successful does not mean that you will be as successful. Mr. Buffet has many more tools than you will ever have, unless you plan to one day be the oracle of your town.

I am sure you have seen 50-day this and 50-day that in articles and forums. Why is the 50-day moving average so critical? This is called support. The 50-day moving average is a line that if your stock goes slicing through it, more often than not your stock will continue downward. It shows that big players, such as mutual fund managers, are pulling out of the stock. If your stock is traveling down to that line, do not panic. Stocks often make a trip to that line and bounce back; often to reach higher than old highs.  This is because big institutions that manage money add to their posistions in the stock and force it back up. The time to panic is when your stock goes below the line on above normal volume. Volume is the amount of buying and selling.  If volume is high and the price is going through the floor, it is because people are selling tons of that stock.  Make sure to always stay disciplined and sell before you loose over 8%.

A climax is a term used when a stock has previously has gone up by 100% and then gaps up to gain 50%-100%. A gap up is when the stock on day X gaps to a higher price before day Y starts. This is the sign to get out of the stock. Remember, this is only when the stock has already shot way up. It will usually be within one week. It shows that the stock has come to the end and is sqeezing the life out of itself.

No matter what people think or tell you, a company should have good fundamentals. Investing in a company that does not have good fundamentals is not a sound investing strategy. What are good fundamentals?

Good fundamentals are a basic analysis of the company’s balance sheet, income statements, and cash flow papers. Investors can uses these papers to conver into formulas and see if a company fits their investing strategy. Some of the key components are:

• Return on equity (profitability of company)
• Net Income (net money made)
• Sales Growth 17% + (growth over a year’s past sales)
• Debt Ratio  (debt to cash on-hand)
• Growth Rate (company’s growth rate)
• earnings growth 25%+

The fundamentals above should be present in the stick you purchase. This way, you have a higher percentage to get a true growth stock to make huge gains. To see these, you need to go to Yahoo or Google finance sections.

One of the most successful patterns in the investing realm is the “cup and handle” pattern. This is a commonly seen pattern on stocks that create huge gains that could change your life. I am sure you are asking, “What exactly is a ‘cup and handle’ pattern?” It is a pattern on the weekly stock price chart that looks like a cup with a small handle. In a bull market you will see hundreds of these patterns and a few of them will lead to major gains of 200% to 1200%. You need to make sure it has all the bullet points below to be a true “cup and handle” pattern.

• Prior price uptrend is at least 30% run up (major price up trend)
• The cup should be over at least 7 weeks
• The handle should be within 15% of the old high
• Handle should last at least one week
• Buy point is right after old resistance (old high)

Not the following: The pull back is from old buyers selling stock that they had at the old high. They sell so that they can cover the price they paid for the stock and fear it might drop again. If you are watching a stock with this pattern, “cup and handle,” make sure to buy right after resistance. Do not be scared, just make sure if the pattern does not work to cut losses.

This is a sample image: