I was completely green when I started working with Steve. I had just graduated with a degree in statistics… so I knew numbers. But I was young.
I didn’t know how the world worked. And I sure didn’t know how the complicated world of finance operated.
Steve took me under his wing. He put calls on speakerphone so I could listen in. He dragged me to meetings I had no business attending. He put me in the passenger seat, instead of the backseat. It seemed normal at the time. But looking back, man, was I lucky.
Back in 2010, when I started, fear still gripped the markets. The Great Recession was fresh in everyone’s mind. Unemployment was still above 9%. And so, one of the first things Steve instilled in me was the importance of protecting our readers.
His solution was simple and elegant. And it’s as important as ever right now. Today, I’ll share what it is – and the key to using it yourself.
If you want to protect your investments, there’s nothing better than trailing stops…
Trailing stops solve the hard problem of when to sell. They’re a mechanical solution. They’re not based on emotion… So by sticking with them, you never have to worry about catastrophic losses.
Trailing stops are not perfect though… mostly because of one fact: Not everyone follows them.
I saw that firsthand when I would hit investment conferences with Steve early in my career. A typical conversation with a reader would go something like this…
Reader: What do you think about XYZ stock right now? You recommended it a few years back.
Steve: We hit our stop and I recommended selling. I’m pretty sure we closed it for a gain. But I haven’t kept up with it since we sold.
Reader: Yeah, I saw that, but I couldn’t sell. I like the stock. I’ve just held it.
Steve: I’m sorry to hear that. I really recommend you sell when we issue that advice.
Reader: Anyways, it’s down about 50% since you said to close out… What should I do now?
I saw this happen time and time again.
Maybe you’ve made that mistake yourself. It’s easy to sell yourself so well on an opportunity that you can’t stomach letting go… Money is emotional, after all.
But the more you let emotion affect your decisions, the worse off you’ll be.
If you’ve never made that mistake, congrats. I’m glad to hear it. But if you have, don’t beat yourself up. All you can do now is vow that it won’t happen again. Trailing stops should make the job easier.
This is especially true in today’s painful and volatile market…
We can’t know if the bottom is in or if more pain is on the way. But we know the Nasdaq is already in a bear market. And the S&P 500 has gotten darn close to the “official” mark.
That means you need to focus on the near-term picture. Simply put, holding and hoping right now – in the face of a falling market – is a risky bet. And it’s a risk you shouldn’t take with your money.
The most important thing you can do in a rocky market is stay in the game… the smart way. You’ve got to avoid major losses so you can live to fight another day.
We have a simple way to do that and protect ourselves in times like these. It’s the No. 1 lesson I learned from Steve…
Always have stops in place. And always follow them.
That means you can’t make exceptions. Once you start, you’ll do it more and more. Emotion creeps in… And your strategy falls apart.
If you’ve hit any stops recently, then I hope you’ve followed that advice. But if you haven’t sold yet, you still can. You don’t have to hold and hope forever.
Please, sell any of your stopped-out positions now if you haven’t already. Live to fight another day. And follow any stops you hit in the weeks ahead. It’s the surest way you can survive a brutal market like the one we’re living through.
Good investing,
— Brett Eversole
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Source: Daily Wealth