There are many ways you can apply Long Term PowerRatings. The following guide will provide you with some insight and ideas about how to apply PowerRatings to your investing.

For safety and growth, only invest in stocks with high PowerRatings, especially those rated 9 and 10.

For long-term capital appreciation, you ideally want to invest in well established companies which are both safe and have the potential to increase in value. These two features have been the cornerstone of Long Term PowerRatings. From 1995-2007, 81% of stocks with PowerRatings of 10 increased in price one year later. And, 79.1% of stocks with PowerRatings of 9 increased in price one year later.

Even though there is no guarantee of future performance, PowerRatings have historically done a superior job of identifying stocks which have risen in value over the next 12 months. Focus on the 9's and 10's, as they have been the most consistent performers for more than a decade.

Avoid stocks with low PowerRatings, especially those rated 1.

Stocks with a PowerRating of 1 are highly volatile and potentially unsafe to invest in. In fact, many of these stocks are risky, relatively new companies. From 1995-2007, some of them have risen spectacularly, but the majority dropped in price. In fact, more than 65% of stocks with a PowerRating of 1 lost value over the following one year period. And, in spite of the strong bull market during that period of time, these "hyped up" stocks lost an average of more than 5% in value one year later. While some of these stocks did very well, on average they lost money. These stocks should be avoided by conservative, long-term investors.

Build a portfolio of stocks with PowerRatings of 9 and 10. Once a stock's PowerRating declines, replace the stock with another stock rated 9 or 10.

As we have seen, stocks with PowerRatings of 9 and 10 have historically outperformed the market with a high degree of safety. Therefore, one ideally wants to be focused primarily on these stocks. If you build a portfolio of stocks rated 9 and 10, there will come a time when a stock's PowerRating moves lower (or as has happened in the past, it has been bought out by another company). When this happens, you may want to consider replacing that stock with another company that has a high PowerRating.

Advanced Strategy

Invest in stocks with PowerRatings of 10 and use a 100% profit target and a 20% protective stop.

This strategy is based upon the simulated results of buying a stock with a PowerRating of 10 and exiting either after the stock has doubled in price or after it has dropped 20%, whichever comes first. By combining these two rules, you can potentially achieve a 5:1 reward/risk ratio.

An exit target is the price where you will exit your investment. For example if you bought a stock at $50, your profit target is going to be 100% higher, or $100/share.

The simulated results show that 81% of the time stocks rated 10 have increased in price one year later. But you may want to protect yourself from serious market drops or from the stocks which have underperformed. One way to do this is with a protective stop. What is a protective stop? It's simply putting in an order to exit a stock if it trades at a specific price. This means that if you buy a stock at $50 and wish to risk 20% on your investment, you will place a protective stop at $40 (50 x 0.2 = 10), ($50 - $10 = $40). Once the stock trades at $40 or lower, you exit the trade. Please note that you are not guaranteed to exit at $40. For example, if the stock gaps down and opens at $30, you will likely be filled at $30.

From January 1, 1995 through March 31, 2007, combining a 100% profit target with a 20% protective stop has proven to be a successful strategy. In fact, this strategy has been profitable nearly 70% of the time with stocks rated 10. The average gain per trade using this approach has been more than 41% per stock, with an average holding period of about two years. These statistics include all positions still held open and all positions entered up through March 31, 2007. This strategy uses the long time wisdom of cutting losses from your portfolio and letting your winners run.

If you would like to learn more about these and other investment strategies using Long Term PowerRatings, you can attend free live online classes we conduct, or you can watch these classes on-demand. Please click here for more details.

Recent examples:

Goldman Sachs (GS), one of the world's leading investment firms, signals a Long Term PowerRating of 10 in December 2004 at 109.40. A protective stop is placed 20% below our investment price. As you can see, the stock doubles in value over the next 25 months, achieving a 100% gain in January 2007.

Nordstrom (JWN), one of the world's top retailers, signals a Long Term PowerRating of 10 in April 2005. Over the next 21 months the stock rises more than 100%, and profits are locked in.

MetLife (MET), one of the world's leading insurance companies, signals a Long Term PowerRating of 10 in January 2004. Over the next three years, the business continues to successfully grow, and the stock reaches our target by doubling in value.

As you can see, there are many excellent ways to apply PowerRatings to your investing.

Click here for today's top Long Term PowerRatings stocks .

 

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