Holding Stocks: You've Bought a Stock--Now What?
To be successful in the stock market, investors need
a strategy based on sound rules. Too often, investors
fail to make money in stocks because they follow precisely
what they should ignore: rumors, tips and their own
emotions.
Success In The Stock Market Doesn't Happen By
Accident
Stock investing is a humbling experience. How many
times have you hit it big on a stock, only to watch
your gains evaporate because you didn't act on time?
Ever sell a stock and afterward watch it soar to new
heights? Or have you ever grown frustrated because your
stock was going nowhere?
Huge profits don't happen by chance. You need a monitoring
plan to capitalize when you are right and safeguard
yourself against heavy losses when you might be wrong.
These guidelines will give you the structure to make
sound decisions that will maximize your profits.
Cutting Losses — The Key To A Successful Portfolio
Being a successful investor isn't about being right
all the time. Rather, it's about capitalizing when you're
right about a stock and reacting fast when you're wrong.
As the famous investor Bernard Baruch once said, "Even
being right three or four times out of 10 should yield
a person a fortune if he has the sense to cut his losses
quickly on the ventures where he has been wrong."
The No. 1 rule: Sell any stock that falls 7%
or 8% below your initial purchase price.
This is a threshold that stops losses at a tolerable
level, yet allows for normal fluctuations in price in
most cases. The rule, though, requires self-discipline.
If you're like most investors, this is easier said than
done. To be successful, you must recognize when you've
made a mistake and move on. If you buy a quality
stock at exactly the right time, it will
rarely ever fall 8% below your cost.
True, you may sell a stock that drops 7%-8% below your
cost, then goes up substantially. But that's a price
you pay for having an insurance policy against catastrophic
losses. This sell rule will in effect limit any portfolio
losses to no worse than 8% — something many investors
wished they'd had in place before suffering large losses.
The lesson titled "Using Stock Charts To Round
Out Stock Selection" teaches you how to buy stocks
at the proper time.
investors.com
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