Last week, stocks were more volatile than we’ve seen in years…

In my True Wealth newsletter, we hit several stop losses. And while many folks don’t like stopping out, I don’t view it as a bad thing.

[ad#Google Adsense 336×280-IA]I believe this is a major teaching moment…

I’d like to teach you with a story.

Please read this story closely and don’t forget it…

Two out-of-work cowboys went into a bar.

The sign above the bar said, “We Pay $25 for Bear Hides.”

The cowboys hatched a plan to get some bear hides… They rode deep into bear country the next day and set up their tents.

“Early the next morning, they heard a rumble, so one cowboy looked outside to see what it was. When he opened the tent, he saw 10,000 growling bears. He looked at all the bears… and then looked back at the other cowboy… and with a grin, said, ‘WE’RE RICH!'”

The cowboy – blinded by greed – didn’t see the risks in front of him that were (literally) staring him in the face.

(This story is from Ned Davis’ book Being Right or Making Money, 2014 edition. Ned Davis is one of my investing heroes. You can learn more about him at www.NDR.com.)

This is the big difference between amateur investors and successful ones. Amateurs are only concerned about the potential rewards. Successful investors already know they are going to make money – their only question is about RISK.

A great trade is made up of two things… A great buy AND a great sell.

We achieved this in my True Wealth newsletter with my recommendation of local Chinese A-shares. We bought AND we sold… We bought the Deutsche X-trackers Harvest China A-Shares Fund (ASHR), pocketed 100% profits on half our money, and sold the rest up 60%-plus, all in less than a year.

Now China is DOWN for 2015. It fell 9% in one day last week… Yes, one day. (It would have fallen even further, but China has a 10% daily limit on share-price movement.) You have to have a great buy AND a good sell. You have to manage your risk.

You need to be on board with this. We may need to concede some battles to win the war. That is how you make money.

You have to sell when it’s time to sell.

It is extremely dangerous out there right now. We need to be more concerned about risk than reward. And we need to follow our trailing stops.

And please, don’t forget the cowboy story…

Good investing,

Steve

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Source: Daily Wealth