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Author: Al Thomas Article source: http://www.kabish.com/. Used with author's permission.
When it comes to buying a stock or mutual fund most people act pretty quickly. There are some who will take the time to get a report from Morningstar (it is worthless) or get reports from their broker (also worthless) or even do a search on the Internet (if you know what you are doing). When your broker says "buy" you buy and when a friend gives you a "tip" you buy.
Any fool can buy. It is the wise man who knows how to sell. One of the old masters of the market Bernard Baruch used to say, "I sell too soon", but he died a multimillionaire.
There is a reason folks are slow to sell. They fall in love with their position and know all the reasons why they should hold on. "My broker said it will come back". And pigs can fly.
With all these symptoms that have turned into syndrome diseases like acid reflux for which there is one of those purple pills to cure you in a hurry. When you buy a stock or mutual fund that doesn't go up or, worse yet, goes down we need one of those purple pills. People have contracted Inertia Syndrome.
The symptoms are terrible. Each day as you look on the financial page of your paper and see your stock has gone down another point your stomach begins to act up and you need one of those pills. You keep putting off going to the doctor (broker) to tell him to sell so your symptoms will go away, but you don't. Things continue to get worse and worse until your money is almost all gone. Then you decide to sell. By then it is too late. What should you have done?
When it comes to your health you can change your diet and stop eating all those lovely sweet gooies that have no nutrition. When you own a stock like that and you lose sleep the best thing to do is to get rid of it. Maybe you have a profit and you are seeing it disappear. There is a way to relieve yourself.
Most people don't know when to sell so the best thing to do is have the market tell you. It is very easy. The first rule for making money in the market is to cut your losses short. As soon as you buy any stock or fund you must decide how much you are willing to risk. Five percent? Ten percent. Fifteen percent? That number should be calculated from the closing high of the move or never lower than where you bought it. If you paid $50 per share your risk should be no more than $5.00 per share.
To overcome Inertia Syndrome put the medicine in play as soon as you buy your position by using an Open Stop Loss Order. By limiting your risk you will never have a really bad belly ache. 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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