4 Secrets of Million-Dollar Stocks

Stocks have turned thousands of investors just like you into millionaires. But how can you tell the companies that will make you rich from those that will just tread water for years -- or worse?

Given enough time, you don't have to find the perfect stock in order to build up an impressive portfolio. Although it's easy to forget after the big losses over the past year and a half, even broad market indexes have given investors strong returns over the long run -- solid returns that, when compounded over the years, can multiply your savings slowly but steadily.

Some investors, though, aren't that patient -- or want to shoot higher. Just look at what these top-tier stocks have done for their early investors:


Sure, these stocks have extraordinary stories. But that's the point: You want to find the companies of tomorrow that will tell similar stories down the road. Here are four secrets to tracking down these millionaire-makers.

1. You've probably never heard of them.
With the benefit of hindsight, the stocks that have paid off the most for investors seem obvious. Whether it's a dominant computer operating system or a ubiquitous retail chain, you might kick yourself for having passed up the opportunity to buy shares early in those companies' histories.

But with most millionaire-making stocks, by the time you've heard of them, you've already missed out on some of their most dramatic gains. For instance, just a year after Microsoft went public, it had already nearly tripled from its IPO price.

So you can't afford to wait until mainstream media sources tell you about a hot stock. By then, it's too late -- and those who'll see modest investments turn to millions have already bought their shares.

2. You have to hold onto them.
Even once you find the stock that could make you a millionaire, your job is far from over. To realize the full potential of your investment, you have to stay the distance -- and overcome the temptation to take profits all along the way.

For many investors, holding onto a winner is a lot harder than you might think. Along the way, you'll have plenty of chances to sell out, having seen your original investment double, triple, or even multiply tenfold. Plenty of people felt like geniuses selling their winning stocks after big gains -- until they kept going higher for years after they sold out.

3. They don't last forever.
Still, although a buy-and-hold philosophy is crucial to milking a millionaire-making stock for all that it's worth, that doesn't mean a buy-and-hold-forever strategy will keep you rich. During the dot-com boom, plenty of brand-new millionaires failed to heed warning signs and implement simple strategies that could have preserved their newfound wealth for years to come. More recently, many failed to see that former highfliers like Washington Mutual and Citigroup (NYSE: C) would come crashing down.

Yes, it's hard to tell a temporary setback from a permanent slowing of a company's prospects. You'll make mistakes trying to balance your fear and greed. But after staying with a stock all the way up, you don't want to ride it all the way back down.

4. They're not for the meek.
Stocks that have the biggest growth potential also bear huge risks. For every company like Microsoft, there are hundreds of similar start-ups that never get off the ground and cost investors every penny of what they put in.

But obviously, you don't have to pick a whole stable of millionaire-makers to get rich. With modest initial investments, all it takes is one or two to set you for life.
source from:fool.com