How to Enter into a Growth Stock

You can play this one in different ways.

The successful way for you will depend upon your risk profile.

What we will be discussing here is a kind of a value way for growth stock entry.

Fine. What sets growth stocks apart from value stocks?

Valuation.

Growth stocks have high multiples.

What does that leave us margin of safety people?

Will we completely have to stay away from growth stocks?

No.

There’s a way.

Loosen your margin of safety criteria slightly. Bring it up to, for example, PE < 15, amongst other things. (We’ll compensate for this loosening, you’ll see).

Now wait.

Let the stock correct.

PE goes under 15.

Don’t enter yet.

Now we compensate.

We let more margin of safety develop in the price.

We want price going down to a technically viable level for entry.

This can be a Fibonacci level, a support, a base, a pivot, or what have you.

Three things have happened.

You have identified a stock through your due diligence.

You have waited for it to reach desired valuation after raising your valuation criteria a tad to compensate for the growth aspect.

You have compensated for your compensation by waiting further for a technical level to be hit before entering.

Now, you enter.

Your entry price becomes your base. (Subsequent entries will always refer to the base-price average).

You have entered with your minimum entry quantum.

You will take many entries, each with your minimum entry quantum.

You will keep taking entry till all the above criteria keep being met.

When even one criterion is not met, you will stop entering and will sit tight.

You will keep watching the stock and its management.

If entry criteria are not met for a long time, but stock is still not over-valued as such, you can enter once for every shareholder-friendly act of good governance, upon an interim dip in price.

You will only stop entering when over-valuation rules and becomes obvious.

You will think of exiting when you are no longer convinced about the stock.

Exit will be done upon a market high only.

Hopefully, you won’t need to exit for a long, long time, so that your investment turns into a multi-multi-bagger!

🙂

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s