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Wednesday, October 30, 2013 | Issue #2154
You're Your Own Worst Enemy
Marc Lichtenfeld, Chief Income Strategist, The Oxford Club
|  There are few things more frustrating in investing than being "right" about a stock, but not making any money. You do your research, pick a stock and buy it.
Then for any number of reasons you end up selling it, only to watch it soar after you've sold (usually right after).
And then you feel like an idiot.
But this happens to every investor. Anyone who tells you they've never experienced the pain of being right and not making any money is lying to you.
The Greatest Biotech Investment of All Time, Part 2:
 At his last company, this entrepreneur and Nobel Prize-winning scientist created once-in-a-lifetime 7,547% returns for early investors. You won't believe what this "Wizard of Biotechnology" is up to now... and why it could be the NEXT greatest biotech investment story of all time. Details here. |
It has happened to me many times. In fact, it took me about 15 years to stop doing it on a regular basis. When I think about all of the gains I've left on the table in my life, it makes me sick to my stomach.
But there are steps you can take so that you stop getting shaken out of stocks too early. Hopefully, the steps below will help you cut down the amount of time it takes learning market lessons the hard way, and you won't spend 15 years kicking yourself like I did.
Step 1: Place a stop loss. There are many ways to do this. The Oxford Club's typical trailing stop is 25% below the entry price and is moved up as the stock climbs higher.
For example, if we buy a stock at $20, the initial stop loss is $15. That gives the stock plenty of room to move due to market noise without having to sell. If it does drop to $15, the trade clearly isn't working and it's time to exit.
As the stock rises, we adjust our stop upward, to protect our profit. So if the stock is trading at $28, we move our stop up to $21. That way, if the stock slips, we can still get out with a gain.
Step 2: Put the ear plugs in. There is so much bad advice out there, it's truly amazing. When the market crashed in 1987, a team of 30 economists issued a joint statement that the next few years would be as bad as the 1930s - the Great Depression!
They couldn't have been more wrong. Analysts, pundits, economists and advisors all have opinions, and often those opinions are tied to an agenda. If you've done your own homework, stick with your opinion. You can always change your mind as new facts emerge. But just because some guy quoted in The Wall Street Journal doesn't like your stock doesn't mean he's right and you're wrong.
In fact, Wall Street analysts have a long history of being late to the party, so ignore them.
Step 3: Know your history. Markets go up over the long term. In fact, they go up over the intermediate and short term.
Since 1926, the market has gone up 74% of the time over one-year periods. It's been up 83% and 86% of the time over three- and five-year periods, respectively. And over 10-year time horizons, the market has gone up 92% of the time. In fact, the only 10-year periods when the market didn't go up were during the depths of the Great Depression and Great Recession.
Bonus Step. You can always sell part of your position if you have a big gain and take some risk off the table. I do this frequently with options in my trading services because options can be volatile. That way you put some money in your pocket and have less capital at risk, but will still participate in the upside.
Generally speaking you want to let your winners run, but if it will help you sleep at night and stay in the position by taking a little money off the table, then go ahead and do it.
You're never going to time the markets perfectly. No one can. But by sticking to the rules above, you'll hang in there longer and when you're right, you'll actually make money.
Good investing,
Marc
Editor's Note: One common fault of using your broker to track trailing stops is that most brokerages allow market makers to see the stops. Many traders have been artificially stopped out of a position because of it.
But several years ago, Oxford Club Member and renowned mathematician Dr. Richard Smith created a platform that keeps your stop prices entirely secret... out of the eyes of unscrupulous market makers. It's been a huge hit.
To learn how you can use it to boost your profits, click here. | | | Recent Articles:
Investment U | A Near-Perfect Portfolio: It never pays to be an emotional investor rather than a rational one. Find out why The Oxford Club was so successful in the worst year for the stock market in modern history.
Watch Out for "The Thief That Robs Us All": There is a greater danger than a stock market sell-off lurking in your future. How do you make sure your portfolio doesn't kick the bucket before you do?
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Wealthy Retirement | Why These Morbid Investments Are Beating the Market: Two "spooky" portfolios have managed to crush the markets over the past year. Find out why these plays should continue to outperform in the coming year.
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| How One U.S. Company Will Bail Out China
For over a decade, economists have predicted that - any day now - China will overtake the U.S. and become the world's No. 1 superpower. But the truth is: Soaring energy demand and "off the charts" pollution levels have put China in a tough spot.
And its best shot at survival is an undervalued U.S. company sitting on a revolutionary power source. To get all the details, click here. | |  It's Not Gambling if You Know You're Going to Win | The Tiny Company Solving High-Tech's "Doomsday Scenario"
Your smartphone's been getting smaller... your computer faster... and your flat-screen TV cheaper. Problem is, all these gadgets are running out of space for more memory and computing power. It's an "end of the road" scenario where electronics STOP getting smaller, faster, and cheaper. But now one small company has the answer. A patented material that will keep the $357 billion consumer technology market marching forward. As it does, we expect the company's shares to rocket from their $9 position to monumental levels. Details here. | | |
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