Investing isn't always pretty. Too many speculators make ugly trading decisions. You can't blame them for making rookie mistakes.
- They buy into companies they know nothing about.
- They trade penny stocks based on promotional emails promising huge gains.
- They sell too late.
- They sell too soon.
The stock market is a powerful weapon. It can make you rich over time. It can also make you poor lickety-split. There's just no telling how things will go once Ralphie Parker gets that Red Ryder BB gun in A Christmas Story. The same thing goes for investors -- even seasoned ones who should know better -- once their brokerage accounts are fully funded.
So, let's see if we can prove Mom, the teacher, and Santa wrong. I've got a few tips for beating the market. You can make a mint in the market. You just need to watch your aim and always know what you're shooting for.
Go for the right kind of growth
Smaller companies' stocks have historically outperformed their larger peers. This doesn't mean that you should entertain the cheapies that trade for pocket change. You can find quality stocks -- of both the growth and value variety -- among the ranks of small-capitalization companies.
By limiting yourself to more obscure companies, you stand a better chance of finding companies that are earlier in their growth cycle. Bonus: Sometimes they can be had at more attractive price points, too.
There is nothing wrong with Burger King (NYSE: BKC ) . The world's second-largest fast-food chain is on a roll since going public last year. However, smaller chains such as Panera (Nasdaq: PNRA ) , Chipotle (NYSE: CMG ) , and Texas Roadhouse (Nasdaq: TXRH ) are growing much faster than the Whopper maker.
Don't go back to the future
The key to finding great growth stocks is to spend less time staring at the rearview mirror and more time analyzing the road ahead. Trendy footwear maker Crocs (Nasdaq: CROX ) may be trading for 37 times trailing earnings, but heady growth finds it fetching just 20 times next year's Wall Street profit target. Stamps.com (Nasdaq: STMP ) has some near-term challenges, but it is also growing briskly and trading for just 16 times next year's earnings estimates. See the kids lining up for their customized teddy bears at Build-A-Bear Workshop (NYSE: BBW ) ? The longer line should be for the shot to buy the stock at just 14 times its 2008 profitability.
Don't go it alone
My last tip may seem selfish. I am part of the Rule Breakers team. It's a growth-stock research service where subscribers share stock ideas and analysts provide monthly trading recommendations.
After being a part of the stock-picking team since 2004, I can't imagine diving into potential growth-stock winners without having a community of like-minded investors to lean on. You need folks to challenge your convictions and unearth future catalysts that may never have occurred to you.
But let me show you my more selfless side by compelling you to find a community of investors even if you have no interest in subscribing to Rule Breakers. Join a local investment club. Lurk in free message boards until you find voices that you can trust (while filtering out the noise).
An opinion is only as good as the number of people you can bounce it off. Don't worry, Ralphie. Unlike the pellets in that rifle, opinions will never ricochet into your eye socket. If anything, they will help you see clearer.
Join Rick and other Ralphies for a free 30-day ride on the
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newsletter service. Chipotle is an active recommendation.
Longtime Fool contributor Rick Munarriz occasionally watches MythBusters. He does not own shares in any of the companies in this story. Chipotle is also a Hidden Gems pick. The Fool has a disclosure policy.
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