20 Jul The Key Characteristic of Big Winning Stocks

Research shows that there is one characteristic that marks all big winning stocks. The knowledge of this distinctive characteristic can provide you with an immediate answer to whether you have a bushel of winning stocks or are you burdened with losers.

Empirical data as researched by Eric Crittenden and Cole Wilcox from Blackstar Funds shows that 2 out of every 5 stocks lose money over time. Here is how you can ensure that you are always holding winners.

Applying Pareto’s Principle

The easy way to determine the value of winning stocks is to use Pareto’s Principle while developing your investment strategy. Basically, the principle dictates that 80% of your results are yielded from 20% of your efforts.

If you want to get to picking winning stocks every time, understand that the majority of any a stock index average’s performance originates from a small section of the stocks. Judicious investment advice would be to concentrate your attention on getting a few of the right stocks that will determine your success.

Trend-following for risk management

If you want to bring down the level of risk, follow trends of the respective financial vehicle. This can work for mutual funds, ETFs, commodities or even to stock picking. The major advantage with trend-following is that its correct usage will help minimize downside volatility and risk.

This mathematical principle can be your secret to portfolio risk management. What it essentially does is that it keeps your portfolio healthy and helps you remain steady with high highs and high lows – a balance that will determine your stock portfolio and your life in general.

Now do the exact opposite. Instead of going for normal distributions, opt for fat-tailed, non-normal ones. While this might seem like contradictory investment advice but this is exactly why you need to be disciplined about risk management in your portfolio. Mathematical proof shows that mixing things up can indeed help us to avoid fat-tailed losses.

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