A Strategy for All Markets
August 05, 2010One of the great benefits of doing educational workshops is that I can share personal stories and strategies with large groups of people with the end result being that those attending often have more confidence in the investing strategies they employ.
So what are some of my strategies? Those of you reading this as you are having your favorite meal are about to find out one of the key strategies I use (and in my very humble opinion, one that the vast majority of successful investors use). That strategy is simply having what is called a “sell discipline.”
Let me give you a recent example. During a recent market downturn – such a rare event those are! – my wife and I decided that we wanted to look to purchase some solid companies stock that was undervalued (I didn’t name the investment to protect the innocent – or anyone going out and buying a stock because they saw it here). Now my strategy on what to buy is a separate issue but my sell strategy is generally always the same.
Here it is:
- DO MY HOMEWORK! I try not to buy “flash in the pans.”
- Decide on what profit is realistic in the long term. For me I am looking to hold over a year. Why? Long term capital gain rates.
- As I put my “buy” order in, I immediately put a sell order in to sell at my set upon price point. For this type of order I usually use a “limit” order.
Why do I place limit orders? I don’t watch the market 24/7 and sometimes I actually go on vacation, so I want to know that if my price point has been reached, I can enjoy my gains. Good stuff getting profits.
One last thing on strategy (and your reward for staying with me up to this point), I also minimize losses by employing the same basic strategy with the exception of thinking about the maximum loss my wife and I are willing to stomach.
This is a big part of my investment philosophy, locking in gains and minimizing losses and I have to tell you, in years like 2008, it helps when a strategy takes the place of emotion!