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How to lose money in the stock market

If you want to lose your shirt in the stock market, it’s easy. There are many ways you can do it and whichever way you might choose, you won’t be alone.  

#1 Cause for losing money in the stock market: Riding Losers Lower

The obvious way to lose money is to hold a stock that is below your purchase price and continues to fall. Clearly that will erode your capital. The affect is compounded when the entire portfolio rides the stock market lower in a correction, or worse, the dreaded bear market. Mutual fund investors will remember the credit crisis in 2008-2009 when mutual funds suffered their worst performance in history. But wait, there’s more!  

It’s true the stock market goes down sometimes, but ultimately what underlies the damage to investor portfolios are the decisions investors make. Consider this;

The ability to change your mind, is one of the best traits a successful investor has!

Easy to say, but it’s another story to actually sell a stock you have a loss on. Here’s a strategy I developed to assist investors in this situation. Here’s how it works;

Sell the stock and immediately place an order at a lower price to buy the stock back. Subscribers use a template for determining what the buyback price is. The process may be repeated in the event of a deeper decline.  

Rather than attempt to erase the attachment to the stock, an investor stays focused on the stock, keeping it in play for them psychologically.

This strategy is quite effective for building profit from our screens for the stock market’s highest ranked stocks. By selling them early in pullbacks, the top ranked stocks are targeted for buys at a lower price. Using the template for establishing the new buy price, the number of shares in the buy order is increased by the percentage spread between the sell and buy price.  

Other tactics that don’t work in the financial markets will be addressed at another date.


Unbiased independent market analysis for investors who want to know what works in good and bad markets. Email for a promo code to set up a free subscription to the premier online investor research resource.

Market action to ponder

Here is the latest on the markets.

  • U.S. and Canadian stock markets have had a good run. How long will it last? The end is likely closer than farther away.
  • Mutual funds have done well in 2014. In fact, the relative performance of mutual funds has been better than normal versus alternatives such as stock picking. Many inferior equity market sector E.T.F.'s have also done well. Sometimes investors get lucky, but unfortunately luck doesn't last long in the financial markets, especially the stock market. Mutual funds are on the verge of entering a period of lackluster performance.
  • When will big investors who made seed investments during the credit crisis cash in?

Stock Action

Bigger and boring companies have been the leading performers in the stock market's current rally. Many of the hot growth stocks remain entrenched in deep corrections with bearish longer term implications.

Commodity Markets

  • Nickel is the best performing commodity market. It is currently in a consolidation after a surge from the February low. iPath Dow Jones-AIG Nickel ETN (symbol JJN) is how investors may participate in the nickel market.  
  • Gold and silver broke down recently with implications for trading in a range, at best, in the near term. Most commodity markets remain in 3.5 year bearish declines.


Unbiased independent market analysis for investors who want to know what works in good and bad markets. Email for a promo code to set up a free subscription to the premier online investor research resource.


Cotton ETF Trend

The cotton market and cotton E.T.F. BAL have been hammered in a freefall decline that has shaved nearly 20% from the price since early May.

The iPath Dow Jones-AIG Cotton E.T.F. (BAL) is shown below in a six month chart. An identifiable sell signal is marked with a red circle. This session featured a gap lower at a price point in the trend that is decisively bearish. Three sessions later it gapped lower again in a relatively large loss confirming the sell signal. But there's more to the short term decline in BAL.

The decline since early May is more significant in the context of the downtrend from the September 2011 high. This is reflected in the three year chart below. From the chart, you can see BAL had staged a partial recovery from the June 2012 low. Historically, the recovery is normal for a deep decline. From the 2011 high to the 2012 low, the loss was approx. 42%.

The Bear Was Disguised as a Sheep

A normal behaviour in a market or security, is the persistence of power. Given the relatively large loss in the correction, of 42%, the probability of renewed selling was high. Notice, that despite the relatively long period of holding the advance from the low, the tendency to weakness returned. BAL provides a lesson for investors, through two important elements for managing a portfolio;

  • recognizing predictable market behaviours.
  • being organized which includes remembering what has happened previously.

Predictably, BAL is on the verge of retesting the low. Based on the reappearance of severe weakness, what comes next?

 Unbiased independent market analysis for investors who want to know what works in good and bad markets. Email for a promo code to set up a free subscription to the premier online investor research resource.

Rising rates hurts bond portfolio

The bond market establishes interest rate trends, ultimately influencing returns on investment portfolios. Investors who rely on income from their investment portfolios tend to buy and hold, using time to collect cash flow. But there are certain times in the market's trend when action is required to manage risk. This appears to be one of those times.

The U.S. interest market benchmark is the 10 year Treasury Bond. The chart below is an E.T.F. (TLT)  representing this particular bond term. You can see the market peaked (i.e. the price) in July 2012. Since then it has been range bound, currently in a recovery attempt from the September 2013 low. But here's where a pivotal decision making time comes into play.

The 5.5 month rally has bumped up against resistance defined by the red line connecting peaks in the nearly two year basing period. A sell signal was indicated, and presented in the full service research, in August 2012. But investors who still hold mid and/0r longer term maturities in the bond market, have reached another pivotal price point.

Selling when a systematic signal is presented, enables investors to improve a portfolio's ability to generate income. Here's how it works: using TLT as an example, investors could sell near the current price ($112/share). In the event, the market pulls back, re-entry in the market can, for now, be targeted near the low which is $100/share. That's approx. 10% lower than the current sell price.

By reinvesting the proceeds at a 10% lower price, investors have more capital to invest at a higher yield. In the bond market, price and yield are inversely related implying falling prices correspond with rising rates.

The second chart below is also TLT but it is a six month period with the 50 day moving average (blue line) imposed on the price trend. This shows the market is still technically holding its uptrend even though it is clearly into the fourth week of a shallow pull back. This may be the ideal scenario for investors to reposition their capital. Strategically, it is designed to manage risk using objective systematic criterion. Why not build the portfolio and improve returns? To find out more, use the fixed income research or get one-on-one guidance.


Canadian Bond Market; Long Term Bond E.T.F.

The Canadian and U.S. interest rate (bond) markets are linked. The Canadian market is closer to its high, but volatility has been lower than the U.S. counterpart and, like the U.S. market, Canadian bond prices are at resistance with the implication prices may fall and rates will rise.


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Commentary including ideas, historical and other market indications are not investment advice. Statistics and other data may be from other sources and may be inaccurate or incomplete. See Full Disclaimer.

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