Just Say NO to Your Stock Broker

We have all heard that slogan that started back when Nancy Reagan was in Washington. It was all about drugs. Now I want to remind you this can be your slogan when you get one of those telephone solicitations from a strange broker or even your own stockbroker who is acting a little strange. By that I mean he wants you to buy something.

Currently we are in an advancing stock market and we all hope it is going to go higher and higher. None of us, definitely including me, knows for sure where it will end up this year. Barron's, the weekly financial publication, has declared on their front page that "THE BULL IS BACK". They are also guessing. But it makes you feel good.

It makes me wonder when I study the fundamentals of the economy how they have come to this conclusion. Unemployment just had an uptick, most companies have yet to declare a dividend, the American dollar is losing value against many foreign currencies, manufacturing capacity utilization is still low and shows no signs of increasing, balance of trade is way out of whack and on and on.

Yes, there is some good news. Many companies are "beating the estimates". That means they are showing greater sales and profits than the brokers on Wall Street thought they would have. This is good press and usually has the effect of pushing stock prices higher. Many of these better profits are at the cost saving of laying off hundreds if not thousands of workers. And worst of all we don't know if these profits are true. Many are profoma meaning management is guessing.

If you are one of those people who hopes the market will go back up so you can get out "even" you are going to find that hope is the most expensive word in the dictionary. But what can you do about it? You are now being given the opportunity to save what is left of your retirement account. On any stock or mutual funds you have it would be a guess to say this is the place to sell. The smart thing is to listen to the market and do what it tells you.

When any equity is advancing you want to set up a trailing stop-loss order and move it up each week as your stock advances. Suppose you bought a stock at $100/share and watched it drop to $15. Pretty disheartening! It has now risen back up to $30 and your broker has assured you it will continue to rise. Maybe. But what if it doesn't?

Tell your broker to put in a stop-loss order about 10% below its current price. He will say you don't need to. This is where you just say 'NO'. Brokers don't watch any but their biggest and most active accounts. He must do as you ask according to regulations.

Put in a stop-loss order today. Protect your retirement account with a simple 'NO'.

INVESTMENT LETTER 3 months free at http://www.mutualfundmagic.comCopyright Albert W. Thomas All rights reserved. Author of "If It Doesn't Go Up, Don't Buy It!" Former 17-year exchange member, floor trader and brokerage company owner. Copyright 2002