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Should You Sell on Good News?

To wait for a little confirmation through increased price and volume in a stock is one thing; to wait final confirmation in the form of news announcement is quite another.

You are more likely to lose money if you insist on not buying until good news is officially confirmed. That’s why the Wall Street adage says “Sell on good news.”
Why do professionals sell on good news? Because, in the words of William A. Doyle of the highly popular The Daily Investor, “many other people (mostly non-professional) will jump in to buy the stock on the good news and they will sell out at a good price.”
“Also,” continues Mr. Doyle, “good news often leaks out and gets around before it is formally announced. If the people who have advance knowledge of the news do a lot of buying, that will often send the price of the stock up. Then, if they and others sell when the good news is official, the price of the stock may dip.”

The Growth Stock Concept

The growth stock concept is well entrenched, with the great majority of investors long having recognized growth stocks as a major type of investment opportunity. Everybody loves a true growth stock. Other things being equal, a growth stock is definitely preferred to a nongrowth stock. Generally, you are expected to pay some premium for a growth stock. The important think is not to overpay for it. Also, you should subject a growth stock to the same rigid standards of scrutiny as you would any other stock you buy.
Nothing but the most exceptional cases should induce you to buy into companies without a solid record of growth. Avoid companies which are largely based on expectations or “projected” growth. Even a good record of growth in the past is not necessarily necessarily indicative of its future trend.
Still, basic data is important. Perhaps the single most revealing and surest yardstick of industry or corporate growth is profit margin. A widening profit margin always means better cost control, lower production costs and other management features which are classic characteristics of a growth company.
This and other “fundamentals” about a company or industry are what make a situation basically attractive. Beginners would do well to get involved only with situations sound in “fundamentals,” though a brilliantly timed purchase of even a basically unattractive stock might work out well.
The market is always in the habit of overbuying stocks of

favored groups or overselling shares of “deflated” industries. It pays not to overreach for or chase after any stock. There is nothing permanent in the growth of any industry group. Just as yesterday’s glamour stocks have become today’s wallflowers, so today’s favorites could be tomorrow’s laggards. The glamour of uraniums, airlines, oils, etc., came and went. We have just witnessed the rise and fall, temporarily at least, of electronics, bowl-ing and boating” No one knows how long the market’s current favorites such as toys, department stores, banks, insurance com-panies, and savings and loan associations will _be able to occupy the center of the market spotlight.

“America’s Fastest Growing Companies” System

Another system for uncovering growth stocks is devised by John S. Herold, Inc.’s America’s Fastest Growing Companies, a monthly publication which concentrates on companies which are compounding their earning power and value at the highest rates. It is a good place to seek young but solid companies with excellent growth potential.
The publication’s selection of companies is based on growth in net income per common share, which is undoubtedly the most reliable yardstick of measuring a company’s real growth. Of 5,000 companies screened, only those companies recording the largest and most consistent year-to-year gains in earnings have been selected. An additional requirement is that every company, when first listed, show an uninterrupted gain in annual profits for three years immediately preceding.
Why a minimum of three years? Because any lesser period would be far too short to be indicative of any reliable growth trend. Stock buyers might be deceived by the temporary prosperity of a youthful growth company.