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To: PAL who wrote (327)	6/20/2000 11:53:00 AM
From: Didi	Respond to of 1115

Paul-re: minimize loss The hardest thing in the market is to admit to oneself that one makes a mistakes. The worst action is lying to oneself, yet in the market many are doing it every minute. That turns a small loss into a huge loss. Yep, well written article below. di ----------------------------------------------------- investors.com >>>Cast Your Ego Aside: Cut Losses Quickly By Ed Carson February 14, 2000 No one likes to sell a losing stock. It means admitting you made a mistake. But everyone commits errors, even the best professional investors. The goal is to learn from your miscues and keep losses as small as possible. When a stock falls by 7% to 8% from your buy point, sell. You don't need any other reason. The stock's slide is reason enough. A strategy of selling while losses are small is a lot like buying an insurance policy. You may feel foolish selling a stock for a loss -- and downright embarrassed if it recovers. But you're protecting yourself from devastating losses. Once you've sold, your capital is safe. If you cut your losses, it's relatively easy to bounce back. A 7% loss on a stock takes only a 7.5% gain on the next purchase to break even. But a 25% loss requires a 33% gain. And you'll need a 100% winner to repair the damage of a 50% plunge. How many stocks doubled for you last year? It's hard enough to find and stick with a winner. Don't waste them on making up lost ground. By keeping your losses small, you can buy more losers than winners and still come out ahead. And when you land a huge stock, the gains will go straight to your portfolio's bottom line. Many investors are reluctant to sell because they're convinced the stock will recover and take off. After all, now that the stock has fallen 8%, it has to bounce back, right? Wrong. The market is littered with stocks that may take years -- if ever -- to regain their former glory. Every 50% swoon starts out as a small 8% loss. There's no sure way to tell the difference. Even well-known stocks may continue to fall, shrinking your capital. Goodyear Tire & Rubber, J.C. Penney, Xerox and Philip Morris are all big-cap stocks that had lost two-thirds of their value by early 2000. America Online broke out of a long base Dec. 9, 1999. The stock rose the next two days, but then started to pull back. If you bought at 86, you could have held until Dec. 27, when AOL fell past 79 1/8 (8% below 86) to as low as 74 3/4. The stock should have been sold. Even though it's the biggest Internet service provider and a huge winner of the 1990s bull market, the loss-cutting rule still applies. AOL crawled as high as 83 3/8 the following week. But the sell-off resumed before it could have gotten you back to the buy price. The Internet giant continued to fall. You may decide to hold a loser until you're even. But if it does recover, you'll still have missed out on dozens of healthy stocks racking up huge gains. Indeed, as AOL pierced its 50-day and 200-day moving averages, chip, telecom and computer stocks have been blowing out of bases. The 7%-8% sell rule is a maximum, not an average. Time your buys right, and the average loss might be limited to only 3% or 4%. Don't sell a winning stock just because it pulls back a little bit. The 7%-8% sell rule applies to only the buy point.<<<