First Rule Of Investing:Cutting Losses(2)

Q: What is the single most important thing an investor should know?


O’Neil:

Loeb was a highly successful investor and preached cutting all your losses short.

And for me, this is Rule No. 1.

You must always protect your investment account.

Particularly if you invest on margin (use borrowed money), cutting losses is absolutely essential.

Whether you’re a new or experienced investor, the hardest lesson to learn is that you’re simply not going to be right all the time.

And if you don’t cut every loss quickly, sooner or later you’ll suffer some very large losses.

I’ve known seven highly intelligent, educated men in their 40s who were wiped out because they invested on margin and had no sell discipline.

Brains, education, ego, stubbornness and pride are deadly substitutes for having and following sound selling rules.

The problem is, you always hope to make money when you buy a stock.

And when you have to sell and take a loss, you find it gut-wrenching and hard to admit you were wrong.

You’d rather wait and hope the price will come back.

Part 1

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