We all know the expression, "My country, right or wrong", but have you ever thought about the stocks or mutual fund you own and said to yourself, "My stock - right or wrong" and held on to your position even as you saw your hard-earned money disappearing?
This is the Buy N Hold strategy and, in case you haven't noticed, lost from 40% to 60% and more of investors' money from 2000 to 2003. Fortunately, for the past year stock markets around the world have gone up and folks have recovered about 25% to 30% from those low numbers. They are still about 60% out-of-pocket.
The market is now in an uptrend and who is to say how long it will last. A long time I hope. Never fight the trend. What the smart investor does is learn to spot the trend and go with it either up or down. What do I mean go with it "down"? The most important advice one can receive about the stock market (and I am not joking) is not to lose money. If you teach yourself to find major trends you will never lose any big money. Small losses are acceptable, but big losses are the killers.
When I was a floor trader on the exchange I had many small losses and I had an equal number of big gains. The difference was I made $3.00 profit for each $1.00 loss. At the end of the year I had doubled or tripled, sometimes quadrupled my trading account. You don't have to be a Wall Street expert to do this. Anyone can.
The simplest way is to learn to use stop loss orders. Brokers hate them and never recommend them because it makes extra work. Hey, isn't that why he is there ? to service your account?
Until you become flexible with your thinking you are doomed to be caught in the next down cycle. We ARE going to have another despite what any Maul Street says. Right now conditions look good, but some time in the future (and I don't predict when) we will have another serious bear market correction. At that time the smart investor is either in a money market account or bonds.
There is a very simple way to understand the language of the market. It talks to you every day, but few take the time to comprehend. Just these few words from Mr. Market will save you countless thousands ? "200-day Moving Average penetration". If you will look at this simple method as delineated daily in the Investors Business Daily Mutual Fund Index you will not only be wiser, but also richer. Each time the index is above the 200-day line you own equities and when it is below you are in cash. Does it get any easier than that? This will always tell you the major trend and then it is up to you to choose which equities to own.
My stock right or wrong? Don't be wrong.
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
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