Investor Spotlight

Sunday, May 21, 2017

Why I Trade Growth Stocks

I started trading stocks and options on stocks in 1992. I wasn't very successful at first but than I read the book:

"How to Make Money in Stocks"

By William J. O'Neil (Founder of Investor's Business Daily)

Once I started reading the book, I just couldn't put it down. What struck me the most was a statement on the very first page of the book where it said:

"The American Association of Individual Investors conducted an independent real time study of 50 top investment strategies every month from January 1, 1998 to December 31, 2009 and found O'Neil's CAN SLIM to be the top performing investment strategy.

In AAII's study, CAN SLIM produced a 2,763% result, an average of 35.3% per year versus 3.3% a year a year for the S&P 500 during the same time period."

This got my attention. I quickly began to learn this system of trading IBD (Investors Business Daily) types of Growth Stocks. I learnt from all the IBD classes that I attended and the videos that I consistently watched on their website that an investor could out perform the general market by 2 to 2 and 1/2 times as measured by $SPY's performance as an indicator of the general market performance. I just had to learn to buy the stock right and sell it right and not allow losses to be more than -4% to -5% from the purchase price if the market conditions worsened.

Results of My Test

On Monday April 24th, the 3 major indexex - $DJI, $SPY and $QQQ all gaped up and by the end of the day, IBD changed the status of the condition of the market as "Confirmed Uptrend" That is the signal for retail investors to start deploying their profits by initiating a stock position.

I had identified 23 stocks on My Watch List that I posted on my blog on Sunday night April 23rd. Here are the results of the performance of these stocks by establishing the base price of the stock as it was on the end of the market session on Monday April 24th. I don't hold the stock through earnings and as such I looked at the price of stock on the end of the session prior to the day earnings were reported. I just wanted to test out the theory that IBD style stocks do perform 2 to 2 and 1/2 times better than $SPY.

From the day the market was in "Confirmed Uptrend" until Friday May 19th, major indexes performance was:

$DJX ... +0.19%

$SPY ... +0.48%

$QQQ ...+2.74%

Performance of My 23 Stocks was -1.76% average for 7 losers

$CIM ... -0.20%
$CRUS ... -0.60%
$SWKS ... -0.90%
$GMS ... -1.40%
$DIS ... -1.83%
$IBP ... -2.52%
$GTN ... -4.84%

+ 4.44% average for 16 winners

$RAI ... +0.11%
$CGNX .. +0.92%
$CHTR .. +1.11%
$MKSI ... +1.71%
$ADBE ... +2.66%
$SNPS ... +2.83%
$IDXX ... +3.62%
$AEIS ... +3.75%
$ATVI ... +3.85%
$LRCX ... +5.12%
$ULTA ... +5.70%
$AMAT ... +5.74%
$HDB ... +5.95%
$PCLN ... +6.28%
$APO ... +8.41%
$MOMO ..+13.34%

Average performance for all 23 stocks - counting 7 losers and 17 winners - was +2.68%. in 3 weeks. That amounts to +46.45% annualized. $SPY performance in the same period amounts to +8.32% annualized.

Mentoring Service

Enroll in our mentoring program to learn how to out perform the general market and learn:

How I Identify Winning Stocks and How I manage the Stock for Entry, Exit and using appropriate Trailing Stops