Investing for Organizational Sustainability

wall street survivor • investing 101
5.6 Don’t fall in love with any particular
stock, and watch for market tops
Avoid falling in love with any one particular stock, as the
market can turn on it very quickly. While you may love a
particular stock, millions of others may develop a dislike on a moment’s
notice. You must be prepared to cut ties with an investment when as this
condition starts to emerge.
Mark’s Tip!
Placing a stop loss order
or a trailing stop at 8 to
10% below your purchase
price is a routine you must
practice religiously.
As we noted earlier, your possible first reaction — sell the winner and keep
the loser — is the wrong one. Remember, your winners deliver profits “on
paper,” but your losers involve real money you’ve already invested. It’s critical
that you cut (or minimize) your losses to safeguard your overall portfolio
value. For this reason, you should develop effective exit strategies.
This brings us to the only exception to Rule #1: Market Tops. As you
become more experienced, you’ll get a feel for those times when one of
your winners is at a market top. As you watch stocks day after day, month
William O’Neill, the father
of technical analysis and
the founder of Investor’s
Business Daily recommends
the 8% point, but others
say 10%. Yes, you will get
burned at times; if the stock
falls 10%, you get stopped
out, and the stock may
recover, but more often
then not, a stock that falls
10% will continue to decline
even further.
Sure, it’s OK to buy the
stock back later at the
cheaper price, but don’t
buy it on the way down.
Wait until it has bottomed,
formed a base pattern on
the chart, and then shows
signs of life again.
$10,000 over 12 Months at 10% Annual Interest
$11,000.00
$10,500.00
$10,000.00
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
10% Annual Return with Market Volatility
$12,000.00
$11,425.00
$10,850.00
$10,275.00
Jan 2009 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan 2010
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