Complacency

During the month of January the Dow Jones Industrial Average, usually referred to as the DOW, had an almost 1,000 point range, most of it down and the average investor has yawned and said 'so what, this has happened many times before'.

Is there any reason to worry now?

The terrible event of September 11 shocked investors who sold heavily and then watched the market climb back to where it was on September 10. The investing public as well as many professional money managers now believe that soon this year we will see the DOW move back up for another bull market like we had in 1999. Let's hope they are right, BUT suppose they are wrong. What will happen to the stocks and mutual funds you own now?

What will be the valuation of those equities if the DOW smashes through the 8,000 level and goes even lower? Do you have anything in place that can protect you from such a catastrophe? Is there a solution to that potential disaster?

Yes, there is. And it is very simple.

If you believe that the market is going lower you could sell every stock you own and buy some bonds, but no one knows for sure. If the stocks and mutual funds you own go up you will kick yourself. Here is a sure-fire way to protect your money. Place an open stop-loss order of about 10% under its most recent low price. That way if it goes up you will be able to move the stop up to lock in additional profit and if it goes down you will not take a bigger loss. This is how every professional trader makes money. You allow yourself to take big winners and only small losses.

The biggest problem with doing this is YOU. Huh? Yes, it is the fact that few people want to sell even with a small loss. They prefer to sell with a big loss. I'm not joking.

I know the story all too well. Investors say, "When it goes back up, I'll sell and get out even" Or "It can't go any lower. I'll hold on." How about this one, "How can I sell it now when it has dropped this far?" Folks, things aren't going to get any better. If you had had that stop-loss order in you would have been out at a much higher price. With mutual funds you cannot put in a stop order so you must call in your order when it breaks the price barrier you have set. Do not rely on your broker to do it for you and do NOT let the broker talk you out of it unless, of course, he wants to guarantee in writing that it won't go any lower. And pigs can fly.

You cannot become complacent and believe the great Wall Street lie that the market always comes back. It may, but it might not be before you retire. Only you can protect your money.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

In The News:

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Is it a good time to invest in small-cap mutual fund schemes?  Economic TimesDespite the slide in the Nifty Smallcap100 index, fund houses seem to be placing faith in small-cap funds again. Should investors take the cue?
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Why stock market volatility is beneficial for mutual fund SIP investors  Economic TimesWhile investing through systematic investment plans, you make more money precisely because the markets are facing volatility.
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Gold, mutual funds, equity - where to invest in 2019?  Moneycontrol.comAs we enter 2019, the question on everyone's mind is: can we say goodbye to market volatility that 2018 unleashed upon us? The answer may not be that simple ...
Sebi issues new format for mutual funds' monthly report  Economic TimesFrom April 2019 onwards, AMCs will have to submit the MCR to Sebi in the new format by the third working day of each month.
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How your mutual funds played the balancing act during stocks crash  Economic TimesAs with market cap allocations, equity funds seem to be maintaining their sectoral exposures.
Sebi seeks to make mutual funds' valuation process fairer  Economic TimesThe Sebi board approved easing of norms for raising of funds through instruments like real estate and infrastructure investment trusts.
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Why HDFC Bank stock is among the top picks of mutual funds  Business TodayPrivate sector lender HDFC Bank, the third-largest Indian firm by market capitalisation, is among the favourite stocks in the portfolios of mutual funds. Despite ...
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Mutual funds that destroyed most investor wealth in the September selloff  Economic TimesThe recent selloff in the stock market has raised fears of a rush for redemption in mutual funds.​
Top fund houses are busy lapping up PSUs; what’s behind this new-found love  Economic TimesNEW DELHI: India's top three mutual funds, which manage over Rs 9 lakh crore in debt and equity assets, added a number of PSU stocks to their schemes in ...
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Watch Out: 3 More TFSA Mistakes to Avoid  The Motley Fool CanadaInvestors need to watch out for high fees and other mistakes that can compromise the growth potential of their TFSAs. Even stocks like Royal Bank of Canada ...

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