Let's hope you did not have any of the Enron stock. Maybe you know someone who did and lost everything, but you certainly might know several people who owned stock that lost almost everything. They probably aren't talking about it.
According to Investor's Business Daily newspaper there are 1,387 companies that lost more than 90% of their value from the highest point during the last 5 years. That is almost as bad as Enron except the folks that own this junk have hopes that someday their stock will go back up. And pigs can fly.
Do you realize that if a stock loses 50% from its high it must gain 100% to get back to the old high? And there are literally thousands of stocks that fall into that category. The people that own these dogs are waiting for them to rally so they can get out "even". What this means is that the stock has an effective cap or ceiling on it's price. Each time it sticks its head up it will meet with thousands of folks who will sell. The chance of it ever getting back to the old high is almost nil, never, nada, zip. From my experience as a professional floor trader on the exchange I can tell you it will take a minimum of 5 years of repeated rallies before the investors who are waiting to get out are finally exhausted.
There is a better plan. Why would anyone buy something and let it go against them 60 or 80%? Why do investors believe the greatest Wall Street lie of Buy and Hold? Psychologically people don't want to admit they are wrong. Your broker tells you you don't have a loss until you sell. Believe that and I have a nice bridge in Brooklyn I will sell you.
If you consider yourself a conservative investor then you must set limits on how much you are willing to lose if the stock you buy does not go up and instead goes down. One of the best rules of thumb is about 10% either from where you bought it or from its most recent high. That 90 dollar Enron stock would have been sold at about $80 and you would have a nice profit instead of a loss.
Your broker will discourage you from putting in a loss limit order called a stop-loss because then he will have to watch it which he won't. You see, and I know you know this, there is only one person who cares about your money and that is you.
Setting small loss limits when you buy something and following up a winner with a stop-loss so you won't give back profits you have made are the way to guarantee that your investments will grow every year.
Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
Copyright 2005
al@mutualfundstrategy.com; 1-888-345-7870
The World Bank claims that some two billion of the... Read More
If you've ever flipped on the television to CNN Financial... Read More
One of the basic laws of physics is that a... Read More
You have heard about a particular mutual fund from a... Read More
When it comes to stock market trading it PAYS to... Read More
During the month of January the Dow Jones Industrial Average,... Read More
Are you one of those many people who dread reading... Read More
If you have talked to a stock broker or financial... Read More
"If you don't know where you are going, any road... Read More
Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More
There are formulas for just about everything, but it has... Read More
A common problem I often see when working with living... Read More
Recently I watched my favorite football team lose a vital... Read More
You should ignore analysts on TV, the radio, the newspaper... Read More
Every broker and financial planner will tell you that you... Read More
An investor can find and research the best stock on... Read More
On November 17 I bought 7 different mutual funds and... Read More
People are constantly asking me why is the stock market... Read More
Did you know you can make money (and a lot... Read More
Someday you may want to retire and continue to live... Read More
How do you invest? What do you really pay? At... Read More
I was recently interviewed for a press release through a... Read More
Professional stock options traders use the term lean to refer... Read More
Having lived aboard a sailboat for 2 years I was... Read More
Just about now everyone is confused as to which way... Read More
In 1960 an engineer working for a watch company in... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
Most people think the stock market is a zero sum... Read More
You have a lock on your house. You have a... Read More
Is really not as important as to how you invest... Read More
One of the greatest challenges of investing in stocks is... Read More
Most stock market traders have a favorite technical indicator.The one... Read More
Today we are inundated with tons of information about the... Read More
The Surgeon General of the United States says that smoking... Read More
Refuse is a serious issue in any society, about as... Read More
Today's society gives special recognition to alcoholics, sexaholics, binge-aholics, shopaholics,... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
Unfortunately, most of you who are reading my column are... Read More
There is a famous cliff on the ocean in Acapulco... Read More
The stock market can present you with a lot of... Read More
The Shadow knows. Remember him? It seems a shadow has... Read More
I know there are a lot of you out there... Read More
What account size do I need?How much money can I... Read More
Picking a beaten-down stock requires a different kind of selection... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
When you become interested in a stock or mutual fund... Read More
This is the continuing story of our two imaginary traders,... Read More
Minority Report the movie may not be far off if... Read More
It has fallen upon the consumer to make our economy... Read More
Did you run out to buy that duct tape yet?... Read More
Four blind men were asked to give a description of... Read More
The bear market that showed up at the end of... Read More
You'd have had to be living on a desert island... Read More
Congress recently passed another new law that is supposed to... Read More
You must take the time once a month to review... Read More
I mean it when I say that. While plastic silverware... Read More
Having lived aboard a sailboat for 2 years I was... Read More
It looks like the market is ready to start up... Read More
Right now there doesn't seem to be any "gold fever".... Read More
I read a comment by a forum member on another... Read More
Since I can remember, and that's a long time ago,... Read More
"Buy and hold" is one of the most heralded investment... Read More
Ever notice how behavior in one area of life can... Read More
Trading is a fascinating activity.There are so many layers to... Read More
What! Me worry?Many of you remember the cover of MAD... Read More
Inverted interest rates? What's that? Who cares? Even if you... Read More
Stocks & Mutual Fund |