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How to Pick Winning Stocks Episode #71

by | Jul 29, 2021 | Podcast | 0 comments

Richard Koch Star Principle

Richard Koch Star Principle

Finding the right stock to invest in is the primary way to create long-term wealth. This can even be done quickly if you find the right stocks. I like to use Richard Koch’s Star Principle to choose stocks to invest in. It’s a simple two-step process that anyone can follow. Learn all about his process in this episode of How To Trade It!

How can you use Richard Koch’s Star Principle to choose the best stocks to invest in? Learn more in this episode of How To Trade It! #stocks #stock #trading #StockMarket #Investing #DayTrading #StockPicks Click To Tweet

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You’ll want to hear this episode if you are interested in…

  • [0:38] How to find a great stock to invest in
  • [1:20] Richard Koch’s Star Principle
  • [2:41] Find a company that’s in a growing or new industry
  • [9:13] Growth industries you can consider right now
  • [14:04] Invest in the leader in the industry
  • [17:33] The DreamTrades Monthly Research report

Richard Koch’s Star Principle

Richard Koch wrote a book called “The Star Principle.” The Star Principle consists of two primary factors to find the best businesses to invest in. If they fit his criteria, he made the investment. He’s been extremely successful using this strategy—and so have I. I cover more of this principle in an article I wrote on the best buy and hold strategies, but I’ll share the basics here. His principle consists of two parts:

  1. Find a company that’s in a growing or new industry
  2. Invest in the leader in the industry

Find a company that’s in a growing or new industry

Henry Ford was a pioneer in the auto industry. He didn’t create the first car or even start the first car company. When he got started, there were already many car manufacturers. But it was expensive to get a car because people didn’t have systems in place to produce them efficiently. Henry Ford made cars cheaper and faster by using assembly lines. It caused the explosion of the auto industry. If you had invested in Ford Motor, you would have done well.

Rockefeller took over the oil industry. It was used as fuel for lamps and it became useful for automobiles. Had you invested in standard oil you’d have made bank. What about steel? Andrew Carnegie created Carnegie Steel which blew up really quickly. What about some more recent examples? McDonald’s invented fast food and revolutionized the world. If you had put $100 a month into McDonald’s, you’d have made over $13 million in 50 years. If you had invested in Apple or Microsoft you’d be a millionaire and you could retire young. What about AOL? Google? Netflix? New industries are great because of their growth potential.

Why do you want to invest in a company that's in a growing or new industry? I share my thoughts in this episode of How To Trade It! #stocks #stock #trading #StockMarket #Investing #DayTrading #StockPicks Click To Tweet

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Growth industries you can consider right now

Part of my system of buying stocks is to go through and find new industries. Electric cars are still in the early stages of being developed. Another great sector to look into is the plant-based food industry. Why? Because the livestock industry is becoming harmful to the environment. We’re learning how to create plant-based meat. The industry is just getting started and there’s a lot of opportunities there. What about the biomedical industry? Battery technology? Crypto? New energy sources? These are all new industries that are taking off.

There’s always an opportunity for growth. When you’re investing, consider looking at the next big trend in industries. Trends take time to develop, mature, and grow. New inventions and technologies always have problems to work through. Things don’t happen so quickly that you’ll miss out on them!

Invest in THE leader in the industry

Koch also wrote a book about the 80/20—or Pareto Principle—that says 20% of your activity will yield 80% of your profit. Stocks are the same. Because of this, there’s only a handful of stocks you want to get into. So you want to find the leader in the field. If you have 100 kids in a classroom, the top 10 will be exponentially better. The greatest athletes are exponentially better than others. You want to invest in the companies that are exponentially the best.

The best tend to rise far above. When we look at McDonald’s as the leader of the fast-food industry, who was second? If you don’t invest in the best, you may still do well. But you always want to shoot for the best. Who’s the leader in electronic vehicles? Tesla. Who’s second? I couldn’t tell you. The best is so much better.

Let me know what you think about this strategy. Send me an email at business(at)tradingstrategyguides.com!

Why should you invest in THE leader in the industry? In this episode of How To Trade It, I talk about Richard Koch’s Star Principle. Don’t miss it! #stocks #stock #trading #StockMarket #Investing #DayTrading #StockPicks Click To Tweet

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Disclaimer: Trading carries a high level of risk, and may not be suitable for all investors. Before deciding to invest you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment. Therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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