First Rule Of Investing:Cutting Losses(3)

To make matters worse, when you do cut losses, half the time the stock will turn around and go back up.

Then you’re really upset.

You conclude you were wrong for selling and that the loss-cutting is a bad policy.


How you think about losses is critical.

Historically, this is where most investors go wrong and get confused.


Ask yourself the following:

Did you buy fire insurance on your house last year?

Did your house burn down?

If it didn’t, were you upset because you wasted your money on the insurance?

Will you refuse to buy fire insurance next year?

Why do you buy fire insurance in the first place, because you know your home is going to burn down?

No! You buy insurance to protect yourself against the remote possibility you could suffer a major loss.

That’s all you do when you cut short your losses.


Part 2


Investor's Business Daily