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THE GREAT STOCK MARKET SECRET
THE ALCHEMIST by AL THOMAS THE GREAT STOCK MARKET SECRET When the stock market is going up and all your stocks and mutual funds are making money you feel like a genius. It is too bad that some folks don’t remember what happened in 2000. Of...
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Funding Your Retirement: The 401K and 403B Way
Saving for your retirement doesn't have to be a nightmare as long as you are aware of your options. For now, we're focusing on 401K and 403B retirement plans. These two plans are essentially the same except that for-profit companies use 401Ks and...
Investor Guide to Financial Health
Step 1: Spend less than you earn Perhaps the simplest financial concept is the toughest for us to conquer- spend less than you earn. After paying your living expenses (bills, loan and mortgage payments, cost of food, charitable contributions, taxes,...
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Mid-Cap Stocks: Asset Class with an Identity Crises
Much like the middle child, mid-cap stocks have long struggled to find their identity. Carved out from the upper echelons of the small caps and the lower end of the large caps, the mid-cap sector has a rough definition of stock with a market...
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PORTFOLIO INSURANCE
THE ALCHEMIST by ALTHOMAS
PORTFOLIO INSURANCE
For the past few weeks the market has had a very nice advance breaking out of an eight month sideways pattern. Then the brick wall. Several
days of slamming down taking back some of the nice profits that have been accumulating.
Now what? We know which way is up, but we don’t know how high is up? Don’t think you are confused. So am I and I am considered a professional trader.
The market is giving mixed signals. Some technicians claim their signals are bullish and
others say their signals are bearish. The fundamentalists (those folks including many economists) are also on both sides of the fence.
Is there anything folks can do to protect their investments?
Wall Street says buy and hold. We have seen what happened with that scenario in 2000. Many investors lost their shirt, pants and underwear.
Less than 1% of brokers called their clients to tell them to sell. They did not know either because they have not been taught how to protect
portfolio profits. Many investors said I can’t sell here because I will have to pay huge taxes. Well, they didn’t have to pay any taxes because
they gave back all their profits and in some cases much of their original investment. Can that happen
again? You betcha sweet bibby it can. Has your broker learned anything since 2000? More importantly have YOU learned anything from the 2000 debacle?
There is what I call portfolio insurance that helps you identify how high is up. Really? Yes,
really. Having been an exchange member
and floor trader for 17 years I learned very quickly (or you go quickly broke) that I had better have my exit
strategy planned before I buy.
Did you know that when a general makes a battle plan he also has a retreat strategy for his
troops? If the battle does not go well he wishes to withdraw with as many of his troops in tact as possible. The same strategy should be employed for
your investments. When you buy any stock or mutual fund you must have a plan to sell before you lose
all your money. Any fool can buy. It is the wise investor who knows when o sell.
Your automobile may cost $15,000 and I will bet you have a policy that has a deductible amount to protect you from a total loss in event of an
accident. This also the way you should think about buying stocks or mutual funds. The deductible is
your stop loss order for every position in your portfolio. No one is 100% right when buying so you must know how much you are risking before you buy
and place the open stop loss the moment your order is executed.
When you buy your portfolio insurance (and it is free) it is also prudent to raise that stop as
your stock advances so you will not give back your profits. Every professional trader uses stops. You
can too.
About the Author
F*R*E*E investment letter www.mutualfundmagic.com
Author of best seller "IF IT DOESN'T GO UP,DON'T BUY IT!" Never lose money in the market. Copyright 2004 Albert W. Thomas All rights reserved.
Former 17-year exchange member, floor trader and brokerage company owner.
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