IBD: "Work On Your Weak Spots For Best Results"
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Nasdaq Ends 2.4% Lower;
Breakout Stocks Struggling
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>>>In such a volatile environment, keep a close eye on the leading stocks. In a solid bull market, the best stocks can rise 20% or higher within a week or even days after their breakout. Now good-quality stocks that have broken out recently are struggling<<<
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investors.com
>>>Friday, August 11, 2000
Work On Your Weak Spots For Best Results
By Ed Carson
Investor's Business Daily
Waging battle in the market? Make sure there aren’t any chinks in your armor.
Many management consultants urge people to focus on their strengths and ignore their weaknesses. That may work in some situations, but not in the business of buying and selling stocks. The market has a way of uncovering your weak spots and exploiting them.
Your Achilles’ heel may be as basic as stock selection, or when to cut a loss. Perhaps reading the general market eludes you. For other investors, it’s knowing when to sell and nail down a profit. None of these or scores of other shortfalls can be ignored.
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Image: They All Fall Down
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At some point, a massive bear market will devastate your portfolio. A stock’s small loss will morph into a crushing sell-off. Or poor buying and selling will simply yield years of mediocre investment performance.
You must recognize and eliminate your weaknesses. An honest appraisal of past trades is the surest way to transform pitfalls into profits.
Investors often pick poor stocks. Instead of buying leading companies with excellent profit and sales growth, many will buy stocks with mediocre or weak fundamentals or technicals. At best, you may track the market. At worst, you’re stuck with dogs that go south.
Don’t jump in too early or too late. Bottom feeders try to find bargains well off their highs. But such stocks often keep falling. Other investors buy stocks well above their bases. These are ripe for a pullback.
Even if you buy the right stocks at the right time, always sell a stock that drops 7% or 8% from your buy point. If you don’t cut your losses, sooner or later you will get seriously hurt and it will take a long time to recover.
Knowing when to sell winners also is key. If you tend to sell stocks after they rise only 10% or so, you’re not going to beat the market. Keep in mind that your losers will offset much of your small gains.
At the same time, don’t let big gains vanish. If a stock rises 20% or more, don’t lose money on it.
Many investors make the mistake of focusing on their stocks but ignoring the general market. If you buy stocks in a shaky or bad market, you’re fighting the odds. Most stocks rise and fall along with the general market.
From the end of the second quarter of 1998 to the end of the third quarter, 7,699 stocks fell and just 2,433 rose. That was at about the same time as the 1998 market correction, in which the Nasdaq plunged 33% in 11 weeks.
A successful investment strategy must have sound buying and selling rules as well as an understanding of the general market. Think of it as a three-legged stool. If you’re missing a leg, you’re bound to tumble.<<< |
