Thanks for stopping by the only investing website on the 'net designed by working folks for working folks. As more and more companies dump their old guaranteed pension plans and move their employees into 401(k) retirement plans, it's more important now than ever to learn how to manage your own investments. Come on in and get started!
We'll show you how to get a better understanding of the markets and become a confident, competent investor. And we lay it all out for you in plain English (well, a Southern variety of English, anyway). Hey, you work hard for your money - learn how to make your money work hard for you!
When Investors Should Act Like Traders
Act III: Cut Losers, Let Winners Run
Long-term investors (like us working folks) and short-term traders are two very different animals. You might say traders move like a cheetah while our pace is more like a three-toed sloth. And there’s nothing wrong with that: slow and steady works quite well in the markets!
While we don’t recommend short-term trading, there are some techniques the cheetahs use that us sloths should consider adding to our long-term approach to investing. That’s the purpose of this special series of blog posts. Here’s our latest, Act III, entitled ‘Cut Losers, Let Winners Run.’
Successful traders know that money management is as important to their bottom lines as their stock picks. They realize those picks may not always move in the direction they expected, so they plan each trade based on all possible outcomes. Their money management guidelines require them consider these 4 points before they put a trade on:
1. risk/reward (is the amount of moolah spent worth the possible amount gained)
2. position size (how many shares to buy)
3. time frame (how long the trade will stay on – for a couple of hours, a couple of days, etc.)
4. stop loss (how much moolah the trade can lose before it is taken off)
#4 is critical.
Since traders know all of their picks aren’t likely to pan out, they figure how much they can afford to lose on a trade and mark that point on a price chart. If the stock does drop and hit that point, they automatically exit the trade and take a small loss – no hesitation! They understand that small losses are part of short-term investing – they also understand that keeping small losses from becoming big ones saves them from going broke!
Winning trades, on the other hand, are handled differently. Short-term traders let their winners ‘run’ – that is, as long as prices are going up, they keep those trades on. While they may have an idea of where prices could top out, they don’t really know for sure, so they’ll let them run until their charts ‘tell them’ it’s time to sell.
Author Michael Covel (see the latest edition of his trend following ‘bible’ in the Fall Reading List below) loves to use baseball analogies when writes about trading. He reminds us that the best hitters in the game only average .350 over the course of a season – that means the best hitters in baseball are only successful…about a third of their at-bats. Short-term traders can ‘hit .350’ and make very good money being correct only a third of the time – as long as they keep their losses small!
> Jill put on 6 trades last week. Four of them were losers, each hitting her 2% stop. Her two winners ran for 9% and 12% each. By cutting her losers quickly and letting her winners run, Jill made a tidy 2.25% gain for the week.
> John has 4 stock funds in his 401k portfolio. Despite the overall market being in a strong bull trend, one of the four funds is consistently losing money. When it comes time for John to rebalance his portfolio, he carefully checks the charts of all 4 funds and decides to:
* take some profits from the 3 profitable funds (sell a few shares of each and let the remainder of those winners run)
* sell the fund that is losing money (cut his loser)
Neither Jill nor John put their money to work and ‘blindly hope for the best.’ But they realize not all of their picks will pan out, so they make sure to keep the inevitable losses at a minimum. Despite the fact they approach the markets in totally different time frames, they both stick to a basic, but very important money management guideline: they cut their losers and let their winners run.
NEWS YOU CAN USE
"Morningstar Updates Ratings on
158 Funds & 2 Target-Date Series"
from Morningstar Newsroom
"Dow Sees Important Change to How it's Calculated"
"NY Teamsters Weigh Pension Cuts
in Groundbreaking Vote"
"Vanguard to Offer Corporate Bond ETF-of-ETF"
from Financial Planning
"Investor Sues Prudential, Morningstar
over Bad-Choice Retirement 'Robo'"
VIEWS YOU CAN USE
"A Company that's Trying to Teach Millennial 'Noobies' How to Invest is Growing Like Crazy"
"The Creator of Wall Street's 'Fear Guage' Says People Don't Understand it as Well as They Should"
from Business Insider
"How to Invest in Stocks: Start With a Simple Routine"
from Investor's Business Daily
"7 Tips for Investing an Inheritance"
"Dow Bull Session:
What Does 22,000 Points Mean Anyway?"
from the Associated Press
Fall Reading List
This is our favorite time of year: cool evenings, football...and more time to read! Make the most of it with any of these 4 great books!!
Learn all you can about investing because,
hey - it's your money!!!
>>>>> And just so you know:
Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a few coins for sending you there - and that helps us cover the costs of keeping our website running free!
HEY, TAKE A BREAK!
('Cause nobody can read this boring investment crap all the time.)
A new twist on a
Labor Day standard !
A little something different from the always awesome Ms. Chungah over at damndelicious.net:
Bacon Wrapped Teriyaki Hot Dogs with Pineapple Salsa
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)