Page 1099 - How to Make Money in Stocks Trilogy

Buying Checklist 85

What if Your Stock Gets
Both Pass and Fail Ratings?

This will certainly happen. Investing, after all, is not an exact science. Few
stocks—even those that go on to stellar gains—are picture perfect in every
single respect.
So here are tips on how to handle stocks that have a few blemishes.

• If the stock fails in several areas, take a pass and move on.
You’re not looking for mediocre stocks. You’re looking for the market’s
strongest leaders. These top stocks may have one, two or maybe three
flaws, but they won’t have a lot of serious ones. So if a stock fails on several
items on the Buying Checklist, keep your powder dry and keep looking.
As T. Boone Pickens has said, “If you’re going to hunt elephants, don’t
get off the trail for a rabbit.”
• Focus on the “big rocks”—the most important factors in deciding
what to buy.
■ Does the stock have big earnings growth and a new, innovative product
or service?
■ Are mutual funds heavily buying the stock?
Always put those big rocks in first. A stock may come up short on a
checklist item or two, but make sure you can answer a definite “yes” to
those two key questions above.
Let’s look at a few “mixed bag” scenarios you’re likely to encounter.

Scenario 1: Strong Stock but Relatively Weak Industry Group

If you find a stock that passes everything on the checklist, except its industry
group is not ranked in the top 40–50 groups, should you toss it by the way-
side? Not necessarily.
Yes, you want to focus on the top-rated stocks within the top-ranked
industry groups. But there are times when a big winner will emerge from a
somewhat lower-ranked group.