Every once in a while, we’ll get a message from a potential subscriber asking how it is that we can have different newsletters that use different investing styles.  When we’re trying to explain, we have a maxim that we sometimes cite.  The maxim is, “You can make money in any proven investment system if you follow the rules.”

This isn’t an easy idea to explain, but I’ll take a run at it.

And if you’re a new, or even just a potential individual stock investor, this topic should be of interest to you.  The big divide in buying individual stocks is between the growth investing style and value investing style.

Both growth and value investors are looking to buy stocks and then sell them for more than they paid.  But they go about it in different ways.

In general, growth investors buy stocks of companies that are expected to achieve higher earnings in the future.  They often buy stocks whose prices are already rising.  They aim to ride the rising stock price until it tops out and then sell it.  Growth investors typically own a stock for less than a year, although there are exceptions.

Value investors use a strategy that involves less risk than growth investing, but more time.  The value style involves calculating a company’s intrinsic worth, then buying the stock at as big a discount to that worth as possible.  Value investors buy undervalued stocks and then sell them when they appreciate to the point that they’re fairly valued.  They expect this process to take a long time, as much as three to five years.

As a rule, growth investors tend to be willing to accept more risk than value investors.  Growth stocks exhibit higher volatility (price swings) than value stocks, and a piece of bad news (a disappointing earnings report, for instance) can take a growth stock off at the knees, sometimes even at the hips.  As in a poker game, growth investors have to be prepared to take a big beat every so often.

A value investor hopes to avoid big beats, often by buying stocks that are already beaten down.  Value investors get interested when companies with sound business models and good revenue and earnings prospects fall out of favor for some temporary reason.

Both growth and value investors can be mild or extreme in their style.  The most aggressive growth investors are day traders and swing traders who try to ride the daily fluctuations of stock prices.  On the milder end, there are growth investors who share value investors’ enthusiasm for forecasting future earnings.

The most extreme value investors look for “fallen angels,” once-loved companies that have fallen on hard times and are facing a long, hard slog before they get back on their feet.

The growth/value dichotomy leaves out strategies like income investing, in which investors buy dividend-paying stocks and look to hold them indefinitely for the cash flow they produce.

And options … well options add a whole new dimension to the game that can’t really be explained in a few sentences.

But the big growth/value distinction is important for new investors because an investing style really has to be in sync with your investing personality if it’s going to work in the long run.

If you’re going to be a good growth investor, you’re going to need discipline, because knowing how to sell quickly and avoid big losses is a prime attribute for great growth investing. And you’ll need a relatively strong stomach and self-confidence to keep you on track when the inevitable bad stock hits.

If you’re going to be a good value investor, you will need patience, because once you’ve done the research, you can’t jump out of a stock just because it’s not moving up.

For new and prospective investors, a little time spent figuring out which style fits your temperament can make a huge contribution to your satisfaction with the outcome.

Cabot has newsletters that appeal to just about any investing personality, and we have a quiz on the front page of our website to help you get the right one for you.

Personally, I like a little more action, so the aggressive growth stance of the Cabot China & Emerging Markets Report (which I write) fits me to a T.  Good thing, too, because if I had to do the labor-intensive calculating and projecting that makes for a good value investor, I’d be up a stump.

If you like your stock market action with a little more hot sauce in it, you should check out the Cabot China & Emerging Markets Report.  After a long time in the doldrums, things are just starting to heat up in the fast-growing developing markets around the world.  Give it a try … but only if it fits your investing personality.

My investment idea today is a low-priced stock of a Chinese company whose presentation I attended at the 2010 China Conference put on by Global Hunter Securities earlier this month.  As with many of the presentations at the conference, the strength of the story isn’t matched by the performance of the stock (nor, frankly, by the earnings numbers), but a good story is enough to put a stock on your Watch List, and that’s what I’m recommending.

The company is AgFeed Industries (FEED), a Chinese pork-producing company that’s bringing advanced Western hog-raising techniques to China.

The background of the story is that 63% of the meat consumed in China is pork, amounting to about 63 pounds per person per year.  China harvested 625 million head of hogs last year.  (The U.S., despite my constant hunger for more bacon, consumed just 100 million head.)

AgFeed raises its pigs on two breeder farms, and has 31 producing farms.  Taken together, the hog producing side yielded 37% of last year’s revenues.

The other 63% of revenue came from the sale of the company’s premix, concentrate and complete hog feeds, which AgFeed markets through 1,400 retail stores to backyard farms, and 780 contracts with large commercial hog farms.

The quality of food is very important to Chinese consumers, and AgFeed considers its business plan to be a food safety story.  While efficiency increases are important—the company was founded by animal nutrition experts—it’s the production of high-quality, disease-free pork that can command a premium price that will make the difference in the company’s results in the long run. And management knows it.

FEED had a great four-month run in 2009 that rocketed the stock from penny status to within a few cents of 8.  But since that run, the stock has meandered its way down to below 3.  It’s not really an unappreciated stock (its P/E is still 15), but it needs to deliver better earnings than the 76% dip it reported in Q1.

The next quarterly report is scheduled for August 9, and a good report could provide the fuel for another blastoff.

And if the stock catches fire and begins to stage a strong rally, you might just read about it in Cabot China & Emerging Markets Report.

But I’d rather not invest in the automotive industry (which I discussed yesterday), where high debt levels remain a problem and profit margins seldom top 5%.

I’d rather invest in an industry that’s booming, an industry where the profit margins are high and the stocks are strong.

Today, the industry that best fills the bill is “cloud computing.”

Which is what, exactly?

Well, there is no “exactly.”  Cloud computing, in general, refers to the increasing migration of computing resources (hardware, software, data storage, computing power and expense) away from the user and toward a provider … who might be located all the way across the country.

Cloud computing thus minimizes upfront financial expenses for users, while maximizing computing capability.  Users typically pay using one of two models.  They can pay based on usage, as you do for your electricity service.  Or they can pay a set monthly or annual fee, as you do for your cable TV.

In some respects, the evolution of the computing industry is akin to that of the electric industry long ago.  Originally, electric power was consumed where it was generated.  Eventually, the build-out of the electric grid allowed the concentration of generating facilities as well as the distribution of consumption.

Now, how far this trend to cloud computing will go, no one knows.  Will all data be stored at big central locations eventually, or will we continue to control some locally?  All you need to know today is the trend is powerful, that numerous companies in the (admittedly roughly-delineated) industry are enjoying rapid growth of both revenues and earnings, and that many of their stocks are strong.

I’m keeping an eye on eight of them right now.

One provides “scale-out network-attached storage systems.”

One provides “application acceleration services.”

One manufactures “network storage and data management hardware.”

One provides products and services that “improve the accessibility of data over wide area networks.”

One provides “enterprise mobility software that enables secure access to data, voice and video applications over networks.”

One provides “on-demand customer relationship management software.”  Yes, it’s the famous Salesforce.com (CRM).

And one provides “virtualization software that enables organizations to run multiple operating systems on a single computer.”

Some of these I’ve written about before and some I’ll write about again.

But today I want to focus on Acme Packet (APKT), the market leader in the “session border controller” industry.  A session border controller is hardware and software that allows real-time communications across different IP networks, whether the content is voice, video or plain old data.  These networks might be wired, or they might be wireless.

The company also makes session-aware load balancers, multiservice security gateways and session routing proxies.

Obviously, there are not household items.  The biggest customers for this equipment are telecommunications companies, including Alcatel-Lucent and Nokia-Siemens.  But if you consider the growing amount of IP networks and traffic traveling on these IP networks, and the prospect that this growth can continue for a very long time, you’ll understand why revenues have grown every year since the company’s first sale in 2003, why they grew at an impressive 65% rate in the first quarter, and why analysts are now projecting that earnings will grow 94% for the full year!  Also, profit margins hit a very healthy 20.9% in the third quarter.  And that’s a profit margin the folks at Tesla can only dream about.

I wrote about Acme Packet here back on May 10, when it was trading at 26.  After that it pulled back to 24 several times, but it’s been generally trending higher, propelled by the buying of investors who are learning about its great growth potential.

If you bought it back then, congratulations.  I suggest you hang on tight.

If you didn’t buy, and you think you’d benefit from hearing the fuller story—as well as getting regular updates, so you know when to sell—I suggest you take a look at Cabot Top Ten Report, which first recommended the stock in March when it was trading at 17.

For more on Acme Packet and other top stocks, click here!

While Thomas Edison is arguably the best-known American inventor, a cult following has grown up around Nikola Tesla, the Serbian engineer whose skills as an inventor, perhaps superior to Edison’s, were undermined by his inferior business sense.

And this cult MAY have reached its peak on June 29, when the electric car company named Tesla Motors (TSLA) came public, raising $226 million from investors large and small who see great profit potential in the business.

I say MAY because there’s a POSSIBILITY that it will be years before this stock (TSLA) closes higher than it did on its very first day of trading.

And I say this because of three basic facts.

First, while every other automobile company on the planet has a market capitalization of LESS THAN one year’s revenues—they range from 33% of revenues for Ford to 59% of revenues for Honda—Tesla’s market capitalization is now more than $1.9 billion, which is more than 17 times revenues.  In other words, TSLA is 38 times as expensive as the average automotive stock.

Two, while the company has posted cumulative revenues of $148 million by selling 1,063 two-seat electric sports cars (currently priced at $109,000) to customers in 22 countries, it has yet to make a profit, and it has no proprietary technology that can prevent other companies from competing, especially in higher-volume lower-price mass markets.  In fact, it now looks like there will be a substantial time gap (and thus a revenue gap) between its two-seat Roadster and its four-door Model S (priced at $56,500)—promised for delivery in 2012; driving into this gap will be the Chevy Volt, the Nissan Leaf and others.

Three, and most important, the stock’s chart isn’t going up, which tells me that the public’s appetite for the stock has been satisfied for now.

Now, I hope I’m wrong.  I admire Tesla’s Roadster, impractical though it is for my lifestyle.  I’ve toyed with the idea of reserving a Model S.  And I do expect to see some Teslas on the road in the years ahead.

After all, there’s already serious money behind the company.  Elon Musk, the founder of PayPal, is a major investor as well as the company’s CEO; he’s in for about $75 million.  Also on board are Google co-founders Sergey Brin & Larry Page, former eBay President Jeff Skoll, Hyatt heir Nick Pritzker, Daimler AG, Abu Dhabi’s Aabar Investments, numerous venture capital firms, and the United States Department of Energy, with $465 million from its Advanced Technology Vehicles Manufacturing Loan Program.

Also, management’s decision to launch with a high-priced niche product—the same model used by the electronics industry—and then grow by driving costs down and targeting larger markets—has proven smart.  Hopefully, they’ll make many more smart choices in the years to come.

But it’s important to remember that the stock is not the company.  Even if the company does well, the stock may not.

The ideal investment, in my book, is an unheralded company whose products are in increasing demand, whose profit margins are large, and whose public perception grows as its business succeeds.

The risks of investing in Tesla today are that the company is already well-known, and well-thought-of, thanks to its A-list connections, and that increasing competition may make the road ahead bumpier than anticipated.

If I had to invest in a car company, I’d invest in the one with the strongest chart.  That’s Ford (F), which broke out to recent highs on Thursday and Friday after a great earnings report and is the cheapest of the bunch.

Speaking of being better off waiting, I also wanted to touch on something that hurts many investors, especially in this type of environment.  That something is the ability to do … nothing.  That’s right!

It’s hard for most investors to do nothing because, let’s face it, in life, success is usually defined as the ability to get things done.  If you’re a salesperson, you go out and sell stuff.  If you’re a teacher, you teach people.  It’s not often you find a profession where the right move is to do nothing.

Moreover, just think of the ways people involved in the stock market are described—investors (you invest) and traders (you trade).  Nobody describes themselves as “somebody who occasionally buys stock and sometimes does not.”  Doesn’t quite have that catchy ring, does it?

Yet the lesson I’ve learned many times (too many times, unfortunately) is that the more you trade, the worse you’re likely to do.  I don’t mean, necessarily, that a swing trader will make less than a long-term investor.  What I mean is that, if you normally make 10 trades in a month, and then kick that up to 25, your results are likely to decline markedly.

Really, so much of garnering above-average investing results comes from not losing money.  Part of that, to be sure, is to cut all losses short.  But part of it involves avoiding the “churn periods”—those times when you seem to be buying and selling, buying and selling, buying and selling, but not making any real progress, often taking a bunch of small losses each time.  The end result:  Poor performance and larger drawdowns.

Usually, this churn comes about because an investor fears missing an upmove; he or she sees a good-looking stock with an attractive story, and thus buys the stock even though its chart or the market isn’t quite right.  Or, in the current environment, that investor might get sucked into buying a bunch of stocks every time the market stages a solid up day … only to be forced to sell a week or two later when the downtrend reasserts itself.

Here is a vital point:  Having studied my monthly results for my own trading, I can tell you that it’s usually just a couple of months each year that “make” my year.  In other words, in a decent year, there are usually two or maybe three months that I really make good money, while the rest are either right around breakeven, or have small losses.

Thus, while most people think that doing nothing is an investment sin, I actually think the opposite:  If I could eliminate or cut back on my trading during those “bad” months, I could boost my results in a big way!  This is actually one of the hardest lessons for me to implement, partly because it’s my job to sit in front of my computer.

Nevertheless, I’ve been working hard to trade less—forcing myself to wait for the proverbial fastball down the middle of the plate—which has helped me avoid more serious losses during challenging market environments like we’ve been in since early May.  I think it’s a good lesson for everyone; more trading is not always better … in fact, it’s usually worse!