Investment Rules for Solid Growth

With very few exceptions, stock prices grow because of expectation of future growth. I divide the 'when to buy (or sell)' from 'what to buy.'

• When-to-move is tricky: timing the market is a mixed bag. If you are buying, then ultimately it doesn't matter much over a 1 year period. If you are selling, then I always set a sell price that reflects trading ranges as well as stop-loss situations that will limit my losses (if any).
• The WHAT TO BUY is much more fun. I am looking for the virtuous combination of strong sales growth and stock price momentum. After that, my model looks for other variables that influence my decision.

Sometimes I buy a stock at a short term low, and sometimes at a short term high. And that can make a difference because it adds or reduces from the total gain. In a model like mine that shuffles stocks every quarter, a few points can and does make a difference. I win some, I lose some, and hopefully it balances out in the end.

When it comes to stock picking, my model follows some basic rules:
1. Strong revenue and earnings growth (>50%) - potential upside surprises
2. Earnings growing faster than sales
3. Healthy corporate finances
4. Qualitative analysis supporting the sector and the company
5. A risk adjusted portfolio that is not sector focused

Lastly, I expect to be actively managing my money by setting price targets for upside and downside situations. I will not sit on stocks that have fallen >15% unless there are VERY compelling reasons.

That being said, this weekend, I will present my portfolio as well as stocks that I am following as possible newcomers.