First Rule Of Investing:Cutting Losses(7)

Q: Why did you pick 8% as the rule?

O’Neil:

If you cut your losses at 8%, it will always allow you to survive to invest another day.

I’ve seen people go bankrupt or ruin their health because they’d fallen in love with a stock, couldn’t face up to and admit mistakes, and couldn’t make the hard sell decisions.

Vacillating when it comes time to sell is how you will sooner or later experience big losses.

And big losses will cause you to lose your confidence, which you absolutely cannot let happen if you expect to continue investing.

If you’re worried, the old adage, “Sell down to the sleeping point,” is the best way to relieve some pressure.

You don’t have to sell it all, just sell something so you can sleep.

If you cut all your losses at 7% or 8% below your purchase price, and then sell just a few of your stocks when you’re up 25% to 30%, you can be right once and wrong twice and still not get into trouble.

Your best-performing stocks should be held longer for a larger possible profit.

Always sell your worst-performing stock first, not your best-performing stock.


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