One Way Street
Ever turn down a street, get half way and suddenly realize it is one way and you are going the wrong way? Is that the way you feel when you look at your stock brokerage statement?
In either case don't panic. You can get out of that one way street by carefully backing out. Recouping your stock market losses also means you must back out. Many people lost 50% of their investment in the last year because they were going the wrong way and could not back out. You must admit you are doing it wrong and stop immediately just as you did in your car. In a car you have been taught there is a reverse gear so you know how to get out of this bad situation. No one has ever taught you how to extricate yourself from a losing position in the stock market - certainly not your broker and most financial planners don't know either.
Let's look first at how you got here. You bought stocks or mutual funds without an exit plan. I'll put it away "for the long haul" and won't worry about it. The nicest thing I can say about that type of investing is "STUPID". You have an exit plan for the one way street; now you need an exit plan for your remaining money. It is the same. Back out. You have to acknowledge you are doing it wrong. Hiding from this mistake means you will continue to lose money. Do you want to do that or would you rather find a solution to not losing money again?
O.K., you have looked in the mirror and you say I am ready. Look at that brokerage statement and sell every loser you have. Every one! This takes emotional courage. Do it. Now you have cash. Don't do anything until you have a plan and that plan has an absolute, set-in-concrete foundation: never buy any stock or mutual fund unless I limit my risk from the day I purchase it. One of the best rules is a 10% Good Until Cancelled Stop-Loss Order. Brokers hate these because it means they will have to check your account daily. Don't believe him when he says, "Don't worry, I will watch your account". He won't. It is not his money.
Using this very simple technique you will never lose large sums of money. Also as your stock moves up you raise (never lower) the stop-loss order each week following it 10% under each Friday's closing price until you are eventually taken out of the position with a profit or, at worst, a small loss. The stock itself will tell you when to sell when it turns weak.
You have been driving for a lot of years and have gotten out of some tight places. Now you know how to not lose money in the stock market. Back out. Do it today. Put in your stops.
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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