Readers who have run businesses of their own recognize that companies often find a profitable niche and work it for all it's worth, then something changes that completely alters their outlook. That "something" could be a disruptive new technology, the rise of tough new competitors or just changing consumer tastes. But once a company starts losing market share - for whatever reason - it is often difficult (if not impossible) to get it back. That's why few companies are worth hanging on to forever. (Just ask any buy-and-holder of Montgomery Ward, Circuit City, Borders, RadioShack, Shearson Lehman, Kodak or Sears, to name just a few.) The two things every investor needs to beat the market with individual stocks are a strict set of criteria for what to buy... and a strict discipline for when to sell. In my 35 years in the business, the three best methods I've found for selecting stocks are momentum investing, value investing and riding the coattails of industry insiders. Momentum stocks are companies that lead the market in sales and earnings growth, product innovation, and price action. They tend to rise faster in a bull market and fall harder in a bear market or correction. Value stocks are companies that are cheaper than most on the basis of price-to-sales, price-to-earnings and price-to-book value. They often pay bigger-than-average dividends too. These stocks may rise less in a bull market but hold up better in a bear market. They are a fine example of why the tortoise beat the hare. And insider stocks are ones where the officers, directors and beneficial owners are buying substantial amounts of their own companies' shares with their own money at current market prices. Given that these individuals have access to all sorts of material, nonpublic information about their companies' future business prospects, it's no surprise that these stocks tend to outperform in good times and bad. These are three different approaches requiring entirely different metrics. Yet they all work over time... and none involve trying to outguess the market. Of course, anyone can plunk for a few shares of stock. Successful investing also means knowing when to get the heck out. Good investing, Alex P.S. I've got my eye on three stocks as we prepare for another wave of "Super Momentum" to strike the market... If you want to know the exact moments to get in - and get out - to score big, click here. | 
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