What’s the biggest thing investors screw up?
I’ve thought a LOT about that question. And I know that the answer will help a lot of folks avoid big losses.
Investing is full of pitfalls. Even if you buy the right investment, your trade can go south in plenty of different ways. And after years of writing and talking to my readers, I think I’ve uncovered the most obvious issue…
Most investors have no idea when to sell.
It’s exciting to make an investment… No one wants to kill the thrill with the homework of selling.
The problem is that a great trade is made up of two things… a great buy and a great sell.
The biggest thing investors screw up is only worrying about the buy. But you can solve this problem with a simple step.
Let me explain…
Seabridge Gold (SA) is, to this day, the best-performing stock recommendation of my career.
I recommended it back in July 2005 in a high-priced, speculative newsletter I used to write. Shares of this best-in-class gold explorer went from around $3 to more than $30 by the time we sold in 2009. Subscribers who followed my advice locked in a 995% gain.
As you can see below, though, that decision to sell was important. The stock ultimately gave back all of its gains… It traded for around $4 a share in 2015. And it’s trading around $14 a share today. Take a look…
Today’s price is 50%-plus below where I told readers to lock in profits back in 2009. The problem is, I know many folks never sold.
I’ve spoken to dozens of readers at conferences who bought Seabridge on my original recommendation… and held on to it years after I recommended selling. They rode it all the way up… and all the way down.
Our subscribers at Stansberry Research often take our buy advice… But for some reason, they don’t always sell when we say sell.
Now, that’s fine… if you have a different exit strategy that happens to work for you.
But what I’ve learned is that most investors have no exit strategy at all…
Either they don’t want to sell when they’re up because they think more gains are coming, or they don’t want to cut their losses when they’re down.
Sometimes “holding and hoping” might work for you – by chance. The problem is, “hanging in there” is not an exit strategy. If all you’re doing is hoping, you have no control. You are not investing based on risk and reward.
So the day you enter a trade, make sure you know what will cause you to exit that trade.
This is how I’m approaching the Melt Up today…
I believe we’ll see a furious blow-off top in the market in the coming months. But I also know that the “Melt Down” that will follow could be swift. That’s why I use stop losses to know when it’s time to sell.
All this means is choosing a point where you’ll exit the trade. You can use a hard stop at a specific price (for example, a recent low). Or you can use a trailing stop that follows your investment as it rises. I often use a 25% trailing stop loss for my investments. That means if the stock falls 25% from its high, I sell – no questions asked.
It doesn’t matter which kind of stop you use. What matters is having a plan to sell… and sticking with it. That’s how we’ll hold on to our Melt Up gains. And if I’m wrong about the Melt Up entirely, we’re covered, too.
So make sure you have an exit plan for every investment. And don’t go against it… If you do, you will always come up with an excuse not to sell.
Good investing,
Steve
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Source: Daily Wealth