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Strategies & Market Trends : The Art of Investing -- Ignore unavailable to you. Want to Upgrade?

To: JEB who wrote (166)	10/13/1998 11:04:00 PM
From: Sun Tzu	Read Replies (1) \| Respond to of 10711

Thank you for a most excellent post. I'd like to add one more thing to your fine list. I've found it to be a must to set an expectation for how the stock is to behave before you enter a position. The moment the stock starts to behave differently, you should sell it as it indicates you no longer understand the trade. As an example, back in '96, I was watching GDT for the purpose of shorting it (I thought it was way overpriced and it was looking toppy). When it gapped down ~4%, I shorted it. The next day it did nothing. The day after that, it gapped up +5%. This was certainly not what I'd expected and I took the loss immediately. The day after that, GDT went up another 2%. It was clear then that the bear case I had constructed was wrong and so I went long. This led to a substantial gain over the next few months. More importantly, I prevented a total loss by closing the position early on, when it became clear that I did not understand the stock. Good luck to all Sun Tzu P.S. I've found that many people can't bring themself to take a loss and let the loss get out of hand. Could those of you who have conquered this psychological set back, give pointers to others as to how you did it. Also, may I ask those who do not take a loss, ponder and then elaborate as to why they cannot bring themself to do it. Thanks to all the contributors.