Stock Preacher

The sharp decline in the US economy is ending and recovery will come about slowly according to a report released by the International Monetary Fund (IMF) yesterday.

In an annual report on the world’s largest economy, IMF stuck to its earlier forecasts that the US GDP will contract by 2.6% in 2009 and then rise by 0.8% in 2010.

Due to the large monetary and fiscal stimulus and wide range of measures to restore the financial stability, “the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened,” the IMF said in its report after the Article IV annual consultation with US officials. However, “financial strains are still elevated and the outlook remains for only a gradual recovery, with risks still tilted to the downside,” it said.

Also on Friday, the US Commerce Department reported that the US economy fell at a more subdued 1.0% pace in the Y 2009 Q-2, a strong signal that the worst recession since the Great Depression has eased, and is coming to a close.

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If you cut your losses at 8%, it will always allow you to survive to invest another day. I have seen people go bankrupt or ruin their health because they’d fall in love with a stock, could not 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 are 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 at night.

If you cut all your losses at 7% or 8% below your purchase price, and then sell just a few of your stock 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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