When we go to the circus we see a trapeze artist working on a high wire or swing either alone or with other athletes. They know what they are doing because of constant practice, but every once in a while there can be a mistake, even a small one that can cause one of them to fall. The result is death or serious injury when they hit the ground.
When you look below them you will see a net. Thank goodness. No one wants to see them get hurt. As expert as they are they take precautions. In almost every profession or athletic event there is some kind of safety net available and this is true in the stock market for all investors. There is never any reason for investments to fall to the point the investor is hurt. Is there a net that breaks that fall and keeps the investor from losing all or part of his money? Yes there is.
It is called a Stop Loss Order. Brokers don't like them and never recommend them because it means he must watch your account and the average broker has too many customers to do that. However, you can instruct him to place an Open Stop Loss Order that means it is automatically in every day protecting your shares from loss. If you are not allowed to place this kind of order you should move your account to another brokerage house. They obviously don't care about protecting your money.
Let me give you an example. Suppose that last year you bought Cisco Systems (CSCO) at $50 per share. The first question to ask yourself is how much am I going to risk in case this stock goes down instead of up? You put up $5,000 and bought 100 shares. How much are you willing to risk? $500. $1,000. More? Well, today it is about $15 so if you did not have a loss protection you would be out $3,500 and that is too much. The Stop Loss Order is your Safety Net! If you don't have one you can be seriously hurt. One of the basic rules is never to lose more than 10%. Look at what you own to see if you would have more money today if you had placed a Stop Loss Order just below the highest closing price for your stocks. I know you would be money ahead.
There are literally thousands of stocks that have lost 80% and 90% of their value. For those poor people (pun intended) who did not have a safety net they are badly hurt and some are just about dead. Sorry, folks, it did not have to happen.
I don't care what you own. Now you should immediately look at everything in your portfolio and decide where you need to place those stops. If you don't put a net in place you could be hurt.
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
Culver prom limo ..At some time in your life you have been on... Read More
The bulls and bears of the stock market are both... Read More
When the stock market is going up and all your... Read More
Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More
Every broker and financial planner will tell you that you... Read More
If there is one term over-used when talking about making... Read More
Economists know more about how the fragments of society work... Read More
The basis of diminishing return discussions surround such simple notions;... Read More
You remember (they show it on TV every year) the... Read More
In one of my previous articles (Investing in the stock... Read More
You remember the story about the frog that was put... Read More
Are you paying any attention to your retirement savings? Do... Read More
Let's hope you did not have any of the Enron... Read More
Should the market turn against you, it is important that... Read More
Most people think the stock market is a zero sum... Read More
You probably have been told that options are risky. Even... Read More
The Law of Chaos is the theory of random unpredictable... Read More
There is a famous cliff on the ocean in Acapulco... Read More
The Surgeon General of the United States says that smoking... Read More
When it comes to stock market trading it PAYS to... Read More
In a previously written article, we expanded the use of... Read More
What a great statement!I just heard someone use it in... Read More
To begin, you might look at playing the stock market... Read More
Question: How does it get better when it gets worse?Last... Read More
What! Me worry?Many of you remember the cover of MAD... Read More
Wood Dale limo ..Just 30 years ago the stock market was a shadow... Read More
As GuruFocus updates the stock buys and sells of gurus,... Read More
This is the continuing story of our two imaginary traders,... Read More
How many times has this happened to you? You're at... Read More
As I said in Part I everyone in the insane... Read More
In one of my previous articles (Investing in the stock... Read More
Look back over the years and try to remember how... Read More
As an investor you will want to check out any... Read More
For some "long term" would mean holding a stock position... Read More
Robert Rodriguez likes to buy stocks at their lows. When... Read More
With an insecure job market, overworked employees, insufficient retirement savings... Read More
IT'S REMINISCENT OF THE OLD children's tale about an old... Read More
Just about everything you have been told about Social Security... Read More
Every day I hear someone on CNBC proclaim that "this... Read More
Right now there doesn't seem to be any "gold fever".... Read More
Have you been listening to the talking heads on CNBC-TV?... Read More
One Saturday morning, while he was sitting at his computer... Read More
Quick, look out the window. It's raining. No, the sun's... Read More
Never lose money in the stock market again. Yeah, I... Read More
Stocks breakout from properly formed bases everyday but many investors... Read More
I constantly hear the talking heads on CNBC-TV, the radio... Read More
Forget making a profit; instead focus on the income provided... Read More
You have decided to buy some stock or mutual funds,... Read More
Before we get into all the good news out there,... Read More
It is wonderful to be alive in the information age.... Read More
Stocks & Mutual Fund |