Quick lesson - Cut loss at 7-8%, always
One common mistake made by many stock investors is the inability to realise their "buy" was infact the wrong "buy" at the wrong time.
Lets take this example. You own 2 stocks, Stock A and Stock B. Stock A grew +10% over the last 1 month, while stock B fell -5% over the last 1 month. What would a usual investor do? Sell Stock A for the profits and buy Stock B in a hope to reduce his/her average price. That is infact the wrong thing to do. What you should sell your underperforming stocks and buy your performing stocks
"Never Average Down,instead, you should Average Up"
and
"Never answer a margin call. Don't let your mistake run deeper"
The fact that Stock B went down vs stock A that grew, means either your stock selection was wrong, or investors are simply not interested in the stock.
"Always remember there must be interest in a stock"
Back to the topic of cutting loss at 7-8%, based on the fact that you have a target growth for stock you buy of 30%, you can be wrong 2 times (by cutting loss at 7-8%), and be right once (selling at +30%), and you'll never run into financial difficulty.
Remember, a 50% fall would require a 100% rise for you to break even
7 comments:
Great lessons! good fun!
Could i have your email?
hey my email o n g p e h o n (at) g m a i l . c o m
hi, wat's your tip on taking profit? do u have a trailing stop loss strategy? say u take profit once a performing stock comes down x% fr the high? wat is your x? jus wondering...
Hey. Yup maybe i should talk about it today.
Nice stockie site, i just started on playing stock too..hopefully can learn from u guys
hey do check the site for updates!
Just discovered your great blog site. Agree with most lessons from you. I learnt new stuff.
Would also like to add from my own painful lesson that sometimes it might be better to cut loss at the amount of money we can afford to lose.
Keep your great lectures coming!
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