Traders can find lessons from all over the market. They range from Apple stock's persistent growth to the triple-digit gains in ARM stock and the roller-coaster ride of Skechers stock. David Saito-Chung, deputy markets editor at IBD, tells Investor's Business Daily's "Investing with IBD" podcast that it's not just about the big winners, but the pivotal moments learned the hard way: through profits and losses in stocks.
Lesson #1: Stop To Take Some Gains
First, it's key to take profits on the way up. Even successful stocks can fall prey to unexpected declines, Saito-Chung says. Footwear maker Skechers saw its stock climb shortly after its market debut in 1999, reaching an early peak in May 2001. The stock was easy to understand: It made trendy shoes with celebrity endorsements and sizable margins.
However, Skechers stock was among those businesses pummeled by reduced consumer spending after the 9/11 attacks. "That's an indelible memory for me and just a lifelong lesson," said Saito-Chung. "Make sure you're taking at least some gains on the way up."
Skechers stock is currently extended after it broke out of a double-bottom chart pattern in April on earnings. The stock currently ranks No. 3 in the Apparel-Shoes and Related Manufacturing industry group, according to IBD Research, with a Composite Rating of 98.
Lesson #2: Don't Watch Every Tick
Next, another lesson is commit to stocks where you hold conviction. Chipmaker ARM Holdings is an example. After making its market debut in 2023, the stock began forming a noticeable cup-with-handle pattern. Saito-Chung says he began buying into the stock at the end of November 2023 and added to his position in December. However, he decided to exit the stock after a move to the downside shook him out — just before ARM stock skyrocketed more than 130% following its earnings report.
"One thing I should have done was not look at it too often," Saito-Chung said. "It was very volatile, and it could move three or five percent up or down each day."
Rather than overanalyzing a stock's intraday moves, Saito-Chung says think about the bigger picture around stocks and build conviction in trades.
"It's part of this incredible new transformation of the semiconductor industry, and possibly this new wave of AI technology," Saito-Chung said. "More research would have probably given me more willingness to be patient and just hold the stock, even though for weeks I would not have been up more than a couple percent."
ARM stock continues its recent climb, fueled by generative AI enthusiasm throughout the market. Its shares rank No. 1 in its Electronics-Semiconductor group, according to IBD Research, with a Composite Rating of 99.
Lesson #3: Focus On The Biggest Winners Like Apple Stock
Lastly, the biggest lesson comes from IBD founder Bill O'Neil himself. "Look for the stocks that are big in every way," said Saito-Chung. He cites stocks with big years of earnings growth and big valuations, especially companies that tap into something truly innovative.
Apple stock is one example, with the consumer electronics giant marching higher following its launch of the iPhone in 2007. The company successfully shifted its business away from relying on computer sales for revenue to relying on smartphones, and now is in the midst of expanding revenue from apps, subscriptions and services.
Apple Reinvented Itself, With A New Name
"They took the 'computer' off their name because their main business shifted," Justin Nielsen, host of the "Investing with IBD" podcast said. Apple stock currently ranks No. 2 in the Telecom-Consumer Products group, with a Composite Rating of 78, according to IBD Research. Investors are now intently focused on how the tech giant is responding to the recent generative AI craze among investors.
Additionally, Saito-Chung says not to be put off by the high price tags premium stocks can command. "The market just continues to confound a lot of people because they think that something that's cheap or at a bargain price is truly a bargain, whereas what we're trying to do is invest our hard earned money in the most magnificent, excellent and premium price merchandise."
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