Investing Advice From a Man With a 1,379% Return Over the Past 3 Years

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Here is the 11 step technique David Ryan used to generate a 1,379% return over the past 3 years.

Here is the 11 step technique David Ryan used to generate a 1,379% return over the past 3 years, according to Business Insider.

"To me it is like a giant treasure hunt. Somewhere in here [he pats the weekly chart book] there is going to be a big winner, and I am trying to find it," said Ryan, a renowned investor and winner of the 1985 and 1987 US Investing Championship. "The greatest thing about the market is that it is always fun to be looking for that next big winner — trying to find the stock with all the characteristics that are going to make it have a big move," he said.

However, Ryan hasn't always automatically picked winners. In 1982, he opened an account with $20,000. In 1983, he grew his account to $53,000. One year later, his account was down to $16,000. "The single most important advice I can give anybody is: Learn from your mistakes," he said. "That is the only way to become a successful trader."

In 1985 and 1987, he won the US Investing Championship with triple-digit returns both years. In 1986, he got second place in the competition with a return of 160 percent. During those three years, his compounded return was 1,379 percent.

The following are the 11 criteria Ryan uses to find market winners.

1. Don't buy 'overextended' stocks

"You should only buy stocks that are within a few percent of their base; otherwise, the risk is too great."

2. Steer clear of stocks under $10

3. Earnings strength

"I look at the five-year earnings growth record and the last two quarters of earnings relative to the previous year's levels," he said. "The quarterly comparisons show you if there is any deceleration in the earnings growth rate."

4. High relative strength

Ryan looks for relative strength of "at least above 80, and preferably above 90," he said.

5. Few shares outstanding

"I am looking for stocks with less than thirty million shares and preferably only five to ten million shares," he said.

6. Institutional ownership

"I would say 1 percent to 20 percent mutual fund sponsorship is the ideal range," he said.

7. Something new

"There should be something new that attracts people to that stock," he said. "For example, Reebok had shoes that were hot. Compaq had a fantastic portable computer."

8. Cut losses quickly

"The maximum loss I allow is 7 percent, and usually I am out of a losing stock a lot quicker," he said.

9. Don't be afraid to buy at new highs

"I want to buy it as soon as it goes to new highs," he said.

10. Let volume help tell the story

"You can tell a lot by the volume. If the volume doubles one day and the stock moves to a new high, it is telling you a lot of people are interested in the stock and buying it," he said. "If the stock moves to new high ground, but the volume is only up 10 percent, I would be wary.

"When a stock that has been moving up starts consolidating, you want to see volume dry up. You should see a downtrend in volume. Then when volume starts picking up again, it usually means the stock is ready to blast off."

11. Price-to-earnings ratios matter

Ryan avoids trades with P/E ratios two times greater than the market average. "I learned that most of our greatest winning recommendations started off with prices under thirty times earnings," he said.

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Economics, Finance and Investing

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