Letting a stock fall further below your purchase price is the number one way to lose money in the stock market. That’s obvious, but there’s more to this, challenging investors who pick their own stocks.
At Thornton Wealth Strategies and Investor Boot Camp Online, the number one rule for investment success is sell losers before the loss gets large. However we have another number one rule. Buy right!
Executing sells on stocks falling below the purchase price is a practice that separates the great investors from everyone else. But this won’t keep the portfolio from potentially losing a lot of money, if buys fail one after another.
Our observation of investors, including investment industry professionals is the decision making on stock selection is essentially all over the place. It’s also surprisingly speculative given the level of work some investors put into their research process.
We didn’t invent the winning investment process, but we have organized it to empower investors to manage their own portfolios like a business. We also continue to study and refine analysis, strategy and communications, matching decision making to a higher level of reliability in buying, selling and holding stocks. Long term studies show, the most significant component in buying stocks is the location within the price trend. Here’s what it looks like.
In the chart below, the single session event referred to as the "break out", is the surge from the range. A range that features a decline of at least 20% from the high to the low is called a base (a price base). The break out marks the beginning, or resumption, of the uptrend following a period of base building that started with a downtrend.
The challenge for many investors is to get their head around buying a stock that is not only significantly higher than it was, but may in fact be at a new high. Much can be said about this, but consider big investors are loading up on a stock during a break out. Those big investors aren't day traders, and history shows they add to their position over time. If they like it, why wouldn't you?
Investors may travel the road of success by studying the online resource at their convenience. An entire section is devoted to the analysis and interpretation of bases. The most successful investors continue their learning over the long term, even if it’s just five minutes once in a while.
Here are other entries in the series on how to lose money in the stock market.
How to Lose Money in the Stock Market.
Unbiased independent market analysis for investors who want to know what works.