Selection Vs Direction

As I have said many times before in this column it really doesn't make any difference what you buy ? stocks, funds or indexes - it takes smarts to know when to sell. Direction of the general market is more important than selection of any equity.

Everyone from the multimillion dollar analyst on Wall Street to your broker to your barber thought he was a financial genius from 1982 to 2000. Anyone using the stock page from the Wall Street Journal as a target could have picked a winner even if his aim was terrible. Just hit the page anywhere and buy that stock. We were in a secular bull market. History shows these last about 16 to 18 years and , unfortunately, are followed by a secular bear market of about the same period of time.

During the up time the case for "the market always goes up" becomes crystallized in their brain so that any set back is viewed as a "correction" that will be soon be overcome and the market will be making new high prices again. Unless you are willing to limit the amount of loss from those high prices you will give back all your profits and many times even more.

The price of a stock will fluctuate for many reasons usually involving how much profit they are making or anticipate making in the near future. During the past 5 years we have seen tremendous ups and downs in many of the major issues. When a "good" company's stock goes down it doesn't mean it is a "bad" company, but it does mean you will be losing money if you hang on to it. The reason you bought the stock was to make money, not lose it, so you must be willing to sell when it goes against you.

Knowing the general direction of the overall market is the key to selling success. An excellent indicator is the S&P500 Index. In the last 5 years it has gone from 920 up to 1550, down to 800 and the recent price is 975. What a ride! I have written in previous articles how to determine market direction so you will be in cash with your profits in the bank while the market is going down.

Let's compare what some of the "good" stocks have done during that same 5-year period. AT&T from 40 to 100 to 20; Merck from 60 to 95 to 40, now 60; General Electric from 25 to 60 to 22 and, 30; Coca Cola from 88 down to 38, now 45. And there are thousands more that fit this category of losing 50% or more.

These are all "good" companies, but you can lose your shirt, pants and underwear if you stick with the Buy and Hold philosophy. By placing a trailing stop loss order of 7 to 12% as your stock advances the stock itself will tell you when to sell. Whatever stock or fund you select remember to exit when the direction changes.

Al Thomas

Author of "If It Doesn't Go Up, Don't Buy It!"

Never lose money in the stock market again.

http://www.mutualfundmagic.com

---

Seecrets on Investment: Tired of Making Huge Losses in the Stock Market ? Part 2

Fundamental analysis.Fundamentals analysis says the best way to predict the... Read More

How We Eluded The Bear Of 2000

The date October 13, 2000 will forever be embedded in... Read More

Hedge Funds

You read and hear a lot about hedge funds. Unfortunately,... Read More

Analysts - Do They Really Know The Stock Market?

When you become interested in a stock or mutual fund... Read More

Series 7 Exam

What is the Series 7 Exam? If you... Read More

Choosing A Fund

For years I have been saying you must have a... Read More

The Secret Art of Backtesting

If you have not back tested your trading system, you... Read More

Laws and Efficiencies and Theories of Diminishing Returns

The basis of diminishing return discussions surround such simple notions;... Read More

Lights of the Stock Market

There are red lights, green lights, blue lights and spot... Read More

Inertia Syndrome

When it comes to buying a stock or mutual fund... Read More

Making Outsized Returns in the Stock Market - Using the Dow Theory

The Dow TheoryCharles H. Dow... Read More

Prospering with Mutual Funds: How Anyone can ?Afford? an Investment Advisor

Recently I was invited to appear on a live CNNfn... Read More

Market Globalization

Just 30 years ago the stock market was a shadow... Read More

E-mini Day Trading - Day Trading for Beginners - Stock Market Timing Software

I mean it when I say that. While plastic silverware... Read More

How Much Information Do You Need?

You have decided to buy some stock or mutual funds,... Read More

Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of... Read More

How Eating Bitumen Made Me a Better Trader

Trading is a fascinating activity.There are so many layers to... Read More

Market Success

Who are the successful investors?There are those who follow the... Read More

Investing in Dividend Paying Stocks

I was recently interviewed for a press release through a... Read More

Price Targets

Every day in any financial publication you will find the... Read More

Price to Earnings Ratio - P/E

After finding the price of a particular stock, usually the... Read More

Big Buildings Can Mean Big Economic Disaster

AS BUILDERS BEGIN WORK ON THE FREEDOM TOWER in New... Read More

VooDoo Training For the Stock Market

If you go to Haiti or other places in the... Read More

Dispelling Illusions of the Stock Market

How can you dispel an illusion unless you look directly... Read More

How Much Money Can I Make With Trading? What Account Size Do I Need To Start?

What account size do I need?How much money can I... Read More

The Next Bull Market

We are already in it, but you can't see it.... Read More

Discipline

One of the great "secrets" of successful people is discipline... Read More

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all... Read More

Stock Trading - Daddy, Why Arent We Rich?

One Saturday morning, while he was sitting at his computer... Read More

Money, Insanity and Wall Street

Money: the most charged word in the planet. It means... Read More

Structured Settlement; Lawyers in NY and Mutual Funds

Minority Report the movie may not be far off if... Read More

Paddle Your Canoe

At some time in your life you have been on... Read More

So, What is This Stock Market Thing Anyway?

We've all heard of the stock market and probably have... Read More