What are these elusive "signals" that point to profit for you?

Most people will point the seeker in the direction of technical indicators, such as MACD or Volume or Force Index. Others will say the signals are things like Cramer hammering the head of a jack-in-the-box with a rubber mallet screaming "buy buy buy!" along with analysts from Goldman or JP Morgan.

Technicals are good, but only if you are the type of person who can have the discipline to interpret them PROPERLY. 80 % of people who try trading bust out their entire bank-roll in the first year. of the rest, only about 3% are left after 5 years. Of that 3%, about 50% of them actually make a living. It's a tough go.

Following the analysts on the other hand is also a pretty sour way to buy stocks if you want to make a decent return. The reason for this is simple - if you bought every stock an analyst "upgraded" and short sold every stock an analyst "downgraded" you'd end up being at about a 48% correct rate over a 6-12 month period. Meaning you'd actually LOSE a little bit of money over the long run.

That's no why we buy stocks, right?

So here's the REAL "7". These are basic criteria I have used for my entire investing life and they have served me very well.

Number ONE:

Is the company in a growth industry? Is it in an industry that is profitable and has the potential for development internationally? For example: Buy a typewriter company in 1995? Not so good. Buy Apple Computers in 1995? Even AFTER the Dot-Com crash AND the recent crash you'd still have netted yourself a nice EIGHTY TIMES your money.

So the sign is this: If you can answer YES to this question, you have the very basic foundation for a winner. If the answer is NO, chances are you want to stay away from this one.

Number TWO

Does the company currently generate a profit? Or at least do they generate enough revenue to pay down their debt and fund their day-to-day operations?

Obviously generating a profit is huge. Only about 10% of the companies I invest in are not turning a healthy profit. This is usually because they are an excellent future buyout candidate or have far more intrinsic value that the stock price is reflecting. For now we can stick to a simple YES or NO.

YES is good in this case too.

Number THREE

What is the Price to Earnings ratio of the stock? (Price to earnings is a ratio where you take the share price and divide it by the earnings per share. e.g. $75.00 share price / $7.50 per share earnings

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