OUT PERFORM THE MARKET WITH GROWTH STOCKS
Restoration Hardware ($RH)
Growth Stock investing is one of the best ways to Out Perform the overall market as measured by the performance of the $SPY.
It requires one to:
- Invest in the leading stock in the leading sector.
- Buy correctly at its ideal buy point.
- Scale into the stock as the stock continues to attain higher price.
- Concentrate the portfolio by getting rid of the laggards and invest into the leading stock that continues to attain higher highs.
- Mitigate risk by taking partial profits when the stock attains gains of +20 to +25%.
- Reduce the position size prior to earnings to mitigate the risk of a downside reversal in a stock from a nasty surprise during earnings.
$RH was one of the leading stocks in late 2019. I had highlighted this stock in the summer of 2019 with my published stock watch list in my blog post. It was also highlighted in details at one of my IBD (Investors Business Daily) Meetup groups in the Tampa Bay area. Here are the details of the stock to illustrate how one could have successfully handled such a stock to attain profits of +242.77% in the last 72 weeks. $SPY on the other hand has gained +19% in the same time frame.
- 6/12/19 Stock gapped up +16% with 9 times the daily average volume during earnings. This was a confirmation that institutions were accumulating a position in this leading stock.
- 6/14//19 Friday initial position taken at $109.82
- 9/10/19 Mitigate risk by taking the position off at $152.89 (+39.22% gains) a day before the earnings announcement.
- 11/18/19 New position taken at $188.43.
- 11/22/19 Scaled in a new position at 199.52. Stock trading above the 10 day sma (simple moving average) indicating institutional support.
- 12/4/19 Hold the position through the earnings on Thursday and close out the position Monday morning at $240.02 (+25% gains) after earnings volatility subsided on previous on Friday.
- 4/7/20 We had a "Follow Thru" day. Initiated a position at $110.56.
- 6/3/2020 Mitigate risk by taking the position off at $251.56 (+127% gains) a day before the earnings.
- 6/8/20 Reenter a new position on Monday at $250 once the volatility subsided on Friday - the day after the earnings announcement.
- 7/1/20 Scaled in with a new position at $250.29.
- Tried but was unsuccessful in getting entry orders for 270/280/310/315 while the stock was trending along the 10 day sma. It never retraced to the 21 day sma which would have been ideal entry points technically.
- 8/26/20 Scaled in at $320 a very small position just few days prior to earnings report. Exited the position on 9/9/20 a day prior to earnings anouncement for a loss of -1.83%, since the market tune had changed to "Market Under Pressure".
- 9/10/20 Held onto the position of $250/$250.29 through the earnings report (average price for 2 positions is $250.15). Stock was behaving very well with institutional support. It had bounced off the 50 day sma on 9/4/2020.
- 9/10/2020 Stock gapped up +22.79% with earnings announcement. Trading volume was 7 times the daily average trading volume. The 2 positions is now +53.97%. It will take a couple of weeks to digest this high volume before the stock can resume it's upward trend along the 10 day sma.
- 10/5/20 Scaled in a small position at $375. 10 day sma and 21 day sma are now merging and the stock is building a flat base for the last4 weeks. Have a stop order at $356.25 to mitigate risk since the market is treading sideways with indecision.
- 10/15 Scaled in a small position at $382.50. Have a stop loss order at $359.55 to mitigate risk since the market is treading sideways with indecision
All time high attained was on 9/10/20 at $410.49 while the market was under pressure. General market performance - utilizing the $SPY as a proxy - had sliced below the 34 day ema (exponential moving average) and very close to undercutting the 50 day sma. If the market conditions improve and the stock continues to show a strong institutional support, the next scale up in position would be at the $385 level.
Good luck trading!
Amin