When Should I Sell?

People are always asking me when should I sell my stock or mutual funds?

There are some relatively easy answers to this. In fact, so simple that you won't believe them, but they are things I have learned over the past 30 years as a professional trader on the floor of the commodity exchange in Chicago. These ideas apply equally well to stocks and mutual funds and to just about any kind of investment.

First let's examine what the Wall Street mavens tell you about mutual funds. Ever heard this one? Buy a good fund and stick with it even when it is going down. WRONG! Go with a good fund manager and follow him from fund to fund. WRONG! Don't buy the current "hot" fund, as it will go down when this fad is over and you will lose your money. WRONG!

Let's look at the one basic reason all these ideas are promoted. The mutual fund industry which is the biggest owner of individual stocks in the world doesn't want you to take your money out of their particular fund so they all band together to promote the above ideas even when you are losing money. Fund managers are not paid for performance. They are paid by the amount of your money the fund keeps.

Do you want to stick with anything that is going down in value week after week? The great cry of stockbrokers is, "The market always comes back". But when? In your lifetime?

I don't know of any individual fund manager that has made money for the investors every single year. They all run hot and cold, even the best of them. You can put the best jockey on a slow horse and he is not going to win the race.

The Wall Street gurus talk about "hot money" flowing from one fund to another and want you to feel guilty just because you want to make more profit. Hey, what is your money in there for - cold pizza?

There is one basic rule that will keep you outperforming the pack. If your mutual fund is not currently (meaning in the past 12 months) outperforming the S&P500 Index you should sell it immediately and buy a different no-load fund. Don't buy any fund that charges commission. You can buy directly from the fund itself (phone numbers listed in IBD very day) or through a discount broker such as Waterhouse, Datek, E-Trade and many others. The maximum commission charge should not be more than $25 no matter the size of the buy or sell with no restrictions on how long you must hold it.

Where do you find the best performing funds? Each day Investor's Business Daily publishes a list of these funds. Look for the day they publish the top performers for the past 12 months.

Don't pay any attention to the longer-term statistics. Each week you should look to see if your fund is still listed in the top 25. If it isn't, sell it and buy the one at the top. Simple. Forget the 3-year, 5-year and 10-year records. My philosophy is 'What have you done for me lately?'.

As far as selling stock this is what I do. I keep at 10% trailing stop which I change every Monday morning with my discount broker. The open stop is 10% of the previous Friday's close. This may or may not be the top of the move but I don't care. I'm either stopped out with a small loss or a profit, but my money is always protected. When I have doubled my money I will sell half my position and let the rest ride with the following stop. Protection of your capital is the most important thing you can do.

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.

1-888-345-7870; [email protected]

In The News:

Dumped mutual funds? It’s a bad idea  The New Indian Express

Enronization

Even if you don't own any of their stock or... Read More

Dividend Paying Stocks

I would like to share with the reader an article... Read More

Index Fund Trading Using Technical Analysis and Swing Trading Strategies

Index Fund Trading can be one of the most profitable...or... Read More

Stock Loans

Hedge current portfolio positions and gain access to capital resources... Read More

Planning Your Dive and Diving Your Plan ? Trading!

A colleague of mine just returned from a scuba diving... Read More

How to Evaluate Load vs. No Load Mutual Funds

If you have been dealing with mutual funds for any... Read More

You Don?t HAVE To Be Trading

As a novice trader, you'll often feel the need to... Read More

How We Eluded The Bear Of 2000

The date October 13, 2000 will forever be embedded in... Read More

Investing Basics - Stocks, Mutual Funds, Real Estate & Online Investing

Have you ever thought of investing? Do you have a... Read More

Will the Stock Market be Lower in October?

The stock market often closes a week in the middle... Read More

Swing Trading Strategies

Using Swing Trading Strategies and Technical Analysis when Trading Stocks... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control... Read More

The Stock Market is a Roller Coaster: Prepare for the Ups and Downs

IT'S REMINISCENT OF THE OLD children's tale about an old... Read More

Market Timing

Every broker and financial planner will tell you that you... Read More

How to Make Big Money Safely in Stock Market

(1) Stock Market is Tough Place to Make Any Money... Read More

Nest Eggs and Omelets

Do you have a nest egg? You know, a place... Read More

Good News?

As the man said, "I've got some good news and... Read More

The Seven Mistakes All Novice Traders Make and How to Correct Them

We learnt the following the hard way! If any of... Read More

Municipal Bonds

Because there are so many stocks that are NOT paying... Read More

Bull or Bear?

Cat or dog? Maybe Zebra. Shucks, I don't know, but... Read More

Complacency

During the month of January the Dow Jones Industrial Average,... Read More

What To Buy Now

I am sure that if you have a brokerage account... Read More

Laws and Efficiencies and Theories of Diminishing Returns

The basis of diminishing return discussions surround such simple notions;... Read More

Inertia Syndrome

When it comes to buying a stock or mutual fund... Read More

VIX

No, this is not a symbol for some Latin number.... Read More