Stocks that are doing well, tend to keep doing well.
How many times have you concluded that a stock's best days are behind it, only to watch it soar as you stand on the sidelines? This assumption has often come back to haunt investors. In reality, the stocks that are doing well, tend to keep doing well, while those slumping will, in all likelihood, continue to do poorly. Why? Well-performing companies manifest their strength through superior performance in terms of earnings, sales, profit margins and, yes, even the performance of their stock.
- Choose the leaders (even at a higher price)
- Ignore the laggards (even if they are available cheap)
A study of the greatest stock market winners found that all-star stocks had, on average, outperformed 87% of the market before they began their most dramatic price advances. In other words, they were already in leadership positions. This concept is contrary to the popular bargain-hunting mentality, but is based on historical facts.