How to Use History to Determine the Success of a Growth Stock - dummies

How to Use History to Determine the Success of a Growth Stock

By Paul Mladjenovic

A growth stock isn’t a creature like the Loch Ness monster — always talked about but rarely seen. Growth stocks have been part of the financial scene for nearly a century. Examples abound that offer rich information that you can apply to today’s stock market environment.

Look at past market winners, especially those during the bull market of the late 1990s and the bearish markets of 2000–2010, and ask yourself, “What made them profitable stocks?” These two time frames offer a stark contrast to each other. The 1990s were booming times for stocks, whereas more recent years were very tough and bearish.

Being aware and acting logically are as vital to successful stock investing as they are to any other pursuit. Over and over again, history gives you the formula for successful stock investing:

  • Pick a company that has strong fundamentals, including signs such as rising sales and earnings and low debt.
  • Make sure that the company is in a growing industry.
  • Fully participate in stocks that are benefiting from bullish market developments in the general economy.
  • During a bear market or in bearish trends, switch more of your money out of growth stocks (such as technology) and into defensive stocks (such as utilities).
  • Monitor your stocks. Hold on to stocks that continue to have growth potential, and sell those stocks with declining prospects.