During the month of January the Dow Jones Industrial Average, usually referred to as the DOW, had an almost 1,000 point range, most of it down and the average investor has yawned and said 'so what, this has happened many times before'.
Is there any reason to worry now?
The terrible event of September 11 shocked investors who sold heavily and then watched the market climb back to where it was on September 10. The investing public as well as many professional money managers now believe that soon this year we will see the DOW move back up for another bull market like we had in 1999. Let's hope they are right, BUT suppose they are wrong. What will happen to the stocks and mutual funds you own now?
What will be the valuation of those equities if the DOW smashes through the 8,000 level and goes even lower? Do you have anything in place that can protect you from such a catastrophe? Is there a solution to that potential disaster?
Yes, there is. And it is very simple.
If you believe that the market is going lower you could sell every stock you own and buy some bonds, but no one knows for sure. If the stocks and mutual funds you own go up you will kick yourself. Here is a sure-fire way to protect your money. Place an open stop-loss order of about 10% under its most recent low price. That way if it goes up you will be able to move the stop up to lock in additional profit and if it goes down you will not take a bigger loss. This is how every professional trader makes money. You allow yourself to take big winners and only small losses.
The biggest problem with doing this is YOU. Huh? Yes, it is the fact that few people want to sell even with a small loss. They prefer to sell with a big loss. I'm not joking.
I know the story all too well. Investors say, "When it goes back up, I'll sell and get out even" Or "It can't go any lower. I'll hold on." How about this one, "How can I sell it now when it has dropped this far?" Folks, things aren't going to get any better. If you had had that stop-loss order in you would have been out at a much higher price. With mutual funds you cannot put in a stop order so you must call in your order when it breaks the price barrier you have set. Do not rely on your broker to do it for you and do NOT let the broker talk you out of it unless, of course, he wants to guarantee in writing that it won't go any lower. And pigs can fly.
You cannot become complacent and believe the great Wall Street lie that the market always comes back. It may, but it might not be before you retire. Only you can protect your money.
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
Oswego taxi to Midway ..In one of my previous articles (Investing in the stock... Read More
I have a 2-car garage. There are nice shelves on... Read More
The Shadow knows. There used to be a radio program... Read More
Every day I see in the financial section of newspapers... Read More
The World Bank claims that some two billion of the... Read More
I have watched my cat play with a bag of... Read More
It is finally catching up with them. The brokerage companies... Read More
If you are serious about making and keeping money by... Read More
Let's first define insanity. It is doing the same thing... Read More
Hello Inflation, it has been awhile, I see you on... Read More
The Macedonian Stock Exchange (MSE) is not operating successfully. True,... Read More
The Surgeon General of the United States says that smoking... Read More
We all know the expression, "My country, right or wrong",... Read More
If you have been watching the stock market at all... Read More
It seems that every day I turn on the TV... Read More
As GuruFocus updates the stock buys and sells of gurus,... Read More
Have you bought any mutual funds this year or late... Read More
If it walks like a duck, quacks like a duck... Read More
You probably know the story of Sherlock Holmes and the... Read More
Maximizing a stock market investmentThere are several factors an investor... Read More
The stock market can present you with a lot of... Read More
For the last 12 years we have seen the Japanese... Read More
Before they go over the cliff to their destruction these... Read More
It depends on your level of understanding of the market... Read More
For the last few weeks we have seen the stock... Read More
shuttle from Midway Morris ..If you've ever flipped on the television to CNN Financial... Read More
Because there are so many stocks that are NOT paying... Read More
You may have wondered why your mutual funds have been... Read More
Where is the beef? Or maybe it should be where... Read More
The debate rages all over Eastern and Central Europe, in... Read More
Has your broker been calling you recently with the "great... Read More
We are already in it, but you can't see it.... Read More
Because you don't feel too sure about which stock or... Read More
What are you thinking when it comes to your no... Read More
If you haven't heard of the technical indicator with the... Read More
I constantly hear the talking heads on CNBC-TV, the radio... Read More
You must take the time once a month to review... Read More
In 1960 an engineer working for a watch company in... Read More
Invest in the stock market for the RIGHT reason, using... Read More
Any online investor / trader seeks an excellent off or... Read More
We've all heard of the stock market and probably have... Read More
If you are serious about making and keeping money by... Read More
I mean it when I say that. While plastic silverware... Read More
Every day I see in the financial section of newspapers... Read More
Intervention. Now don't let that big word scare you. The... Read More
Mutual fund investing is a lot like Thai cooking. Everyone... Read More
Trading is a fascinating activity.There are so many layers to... Read More
Every successful trader has a winning system. There are of... Read More
That sounds like good advice doesn't it? Don't lose all... Read More
Now where have I heard that before? I know. It... Read More
Stocks & Mutual Fund |