People invest in the stock market because they
want to make money but many times that does not happen because stock prices
start falling and investors start losing the money they have invested. To guide
against losing money in the stock market, here are some tips from the book
“101+ tips for the smart retail investor”.
want to make money but many times that does not happen because stock prices
start falling and investors start losing the money they have invested. To guide
against losing money in the stock market, here are some tips from the book
“101+ tips for the smart retail investor”.
Set limits
Determine the upper limit you will want to take
your profits and the lower limit you want to cut your losses. For example, you
can decide that you will take your profits when your stock moves up 25 percent
and cut your loss when the stock drops 10 percent. Also draw a defensive line
at which you will sell a stock if it falls below. Your best strategy is to have
a defensive line at which you will not allow your stock to fall below. This
helps you cut your losses. Move the defensive line upwards as the stock
appreciates.
your profits and the lower limit you want to cut your losses. For example, you
can decide that you will take your profits when your stock moves up 25 percent
and cut your loss when the stock drops 10 percent. Also draw a defensive line
at which you will sell a stock if it falls below. Your best strategy is to have
a defensive line at which you will not allow your stock to fall below. This
helps you cut your losses. Move the defensive line upwards as the stock
appreciates.
Do not sell in
a hurry
a hurry
Beware of selling in bearish market; it may just
be an emotional reaction to a disappointing result. When everyone is running,
hesitate to join the race, it may just be the best opportunity for you to hold
and even buy more.
be an emotional reaction to a disappointing result. When everyone is running,
hesitate to join the race, it may just be the best opportunity for you to hold
and even buy more.
Obey the 20%
rule
rule
Any stock that rises above 20 % of your buying
price should not be allowed to fall back into your loss zone. This will ensure
that you will maximize your return on a stock and avoid unnecessary losses.
price should not be allowed to fall back into your loss zone. This will ensure
that you will maximize your return on a stock and avoid unnecessary losses.
Caveat emptor
Be careful making new purchases when the general
market is at the beginning of a bearish trend. This is because there will be
better buying opportunities at the bottom of the bearish run rather than at the
top.
market is at the beginning of a bearish trend. This is because there will be
better buying opportunities at the bottom of the bearish run rather than at the
top.
Buy at the
right time
right time
The aim of buying a stock is not just to be right
but to make big money when you are right. So always try to buy at the right
time
but to make big money when you are right. So always try to buy at the right
time
Hold longer
when you see the bulls
when you see the bulls
Hold longer in a bullish market and be defensive
in a bearish market. The longer you hold on in a bullish market, the higher the
returns you will make. Selling fast in a bearish market will cut your losses.
in a bearish market. The longer you hold on in a bullish market, the higher the
returns you will make. Selling fast in a bearish market will cut your losses.
But be bold
Be bold to sell your least attractive stock for a
more attractive one when the opportunity comes along. Like a garden, never fail
to weed out non-performing stocks from your portfolio
more attractive one when the opportunity comes along. Like a garden, never fail
to weed out non-performing stocks from your portfolio
Keep it clean
Keep your stock portfolio clean like the garden,
take out the weeds as soon as you notice them before they kill the flowers.
This simply means take out the non-performers before they eat out the profits
from the high performers.
take out the weeds as soon as you notice them before they kill the flowers.
This simply means take out the non-performers before they eat out the profits
from the high performers.
