Most important things an Small-cap Stock Investor should know?
Tom was a highly successful Small-cap Stock investor and preached cutting all his losses short. And for us, this is rule #1. You mush always protect your investment account. Particularly if you invest or margin (use borrowed money), cutting losses is absolutely essential.
Whether you are new or experienced investor, the hardest lesson to learn is that you are simply not going to be right all the time. And if you don’t cut every loss quickly, sooner or later you will suffer some very large losses. I have known seven highly intelligent, educated men in their 40s who were wiped out because they invested on margin and had no sell discipline. Brain, 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.
To make matters worse, when you do try to cut losses, half the time the stock will turn around and go back up in price. Then you are really upset. You conclude you were wrong for selling and that the loss-cutting policy is a bad one.
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 would be difficult to recover form. That’s all you do when you cut short your losses.
Tom was a highly successful Small-cap Stock investor and preached cutting all his losses short. And for us, this is rule #1. You mush always protect your investment account. Particularly if you invest or margin (use borrowed money), cutting losses is absolutely essential.
Whether you are new or experienced investor, the hardest lesson to learn is that you are simply not going to be right all the time. And if you don’t cut every loss quickly, sooner or later you will suffer some very large losses. I have known seven highly intelligent, educated men in their 40s who were wiped out because they invested on margin and had no sell discipline. Brain, 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.
To make matters worse, when you do try to cut losses, half the time the stock will turn around and go back up in price. Then you are really upset. You conclude you were wrong for selling and that the loss-cutting policy is a bad one.
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 would be difficult to recover form. That’s all you do when you cut short your losses.
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