Learn To Love The Loss – It’ll Make You Money
I was out walking about 5.30 yesterday morning and bumped into a friend from long ago. We hadn’t seen one another for 30 or more years. But that didn’t matter … the conversation just picked up where it had left off.
In the briefest of catch-up conversations (not much can be covered in 350 metres), we somehow brought up the state of the stock market.
She said, “I sold RIO … for $64.00!”
“Very wise,” I muttered. “The iron-ore price is pretty terrible, and looks like staying that way for a bit.”
She turned her face to me and, with a ‘I-shoulda-done-it-sooner’ look, said, “I bought them at $112.00 in 2008.”
At that point, and with a promise to have a longer conversation over tea in the New Year, we parted – she heading away to get ready for work and I to a park bench which tolerates my 20 grunting push-ups every weekday morning.
Back at my house I flicked on Pro-Trader, my charting programme, and checked RIO’s share-price trail. “Good Lord,” I exclaimed to no-one in particular (I live alone). “She bought them just before the crash.
Hold onto that story.
Last Saturday, I addressed a share-trading seminar in Perth. My opening question to the 80 or so people attending was, “How many of you know people who lost money in the 1987 and 2008 share-market crashes?”
Nearly everyone put their hand up.
Looking up into the audience, I asked, “Why? Why? What did they lose?”
Additionally, I’ve talked one-on-one to many people who lost 30 or 40 per cent of their capital in those two crashes.
They didn’t have to. They needn’t have. Even better, they shouldn’t have.
The All Ords (the All Ordinaries Index – the first port-of-call Australian index just as the FTSE (or ‘Footsie’) is in Great Britain and the DOW in the US) was down from its peak in both cases crossing below my preferred moving average – the 30 day exponential moving average (the ‘30D’). Individually, RIO’s share-price had crossed below the 30D, too, just prior to both share-price drops.
When the market turns against you, sell. That first loss is the smallest loss, and you will still have most of your capital for the next rainy day.
Believe your sell signals. They stop the pain.
There’ll be more about stop-losses on my share-trading webinar on the 27th of January, 2015. Write to me at email@example.com if you’d like to be notified about it.
Until next time.
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Disclaimer: The comments, ideas and thoughts expressed by me in these share trading blogs are for educational purposes only. I am not a qualified financial adviser, and therefore the content of this blog should not be perceived as a recommendation or advice, financial or otherwise. The content of this blog does not take into account your personal circumstances. No responsibility will be taken by me for any losses arising from reading my share trading blogs. I recommend that you consult a qualified financial adviser before buying or selling shares.
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