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Selling

The stock market has been going up for more than 7 months and many investors who held on through the big crash of 2000 are seeing their portfolios get back some of what had disappeared. Is now the time to sell those equities that are 'even' with what you paid for them? No.

The reason I say "no" is because that is a guess and to be a successful investor you do not want to be guessing. That is a sure way to go broke. Then what is a better way? When you talk with a broker he never advises you to sell. In that case you could have sucked into another huge downward move. There must be a way.

Yes, there is. You let the market tell you. No, you do not have to be clairvoyant. When you buy any stock or mutual fund the first question for your broker should be, "When do I sell?" If he says you should hold on "for the long haul" I definitely recommend you fire him and find someone who knows how to protect your capital. If you buy a stock or fund for $ 40 per share you must know immediately how much you are willing to risk (lose) if that equity starts down instead of up. The same applies to giving back any of the profits you have earned.

When you are playing poker you do not put more money in the pot when you have a mixed suit 2, 5 and 10. The best thing to do is fold.

Over the last few months almost everyone has seen his stock and funds go up and he thinks he is a genius for hanging on. Do not confuse genius with a bull market. So what do I mean let the market tell you? It actually is very simple. You place an Open Stop Loss Order with your broker on all your stocks. You determine the risk and place the loss limit at that point. Some people use 10% and others may limit their loss to 7% and yet others to 15%. That is your risk quotient.

You will find that if your stock or fund is sold as a result of the stop loss that in 4 to 6 months that equity will be lower than where you got even even if it went higher for a short period of time. When a stop is executed do not look back. Find another equity or keep your money in cash in a money market account. Cash is a position. Sometimes it will make you more money than owning any stock especially when the market is headed down.

People became confused by Wall Street into thinking that buying right is the way to make money. Wrong! The secret of success in the market is a well disciplined exit strategy. Know when to hold 'em and know when to fold' em.

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