It has been a very emotional and trying time over the last few weeks. I unexpectedly lost my older brother (my only brother) to complications from bypass surgery. My 94 year old mother feel and broke her hip, and has gone downwards since. The last time I saw her, she could only say my name. At least this time she knew it was me. The family had gathered to say good bye to mom last April, but she rallied. It won’t happen this time. When this happens it rocks your world and you think things will really change. Fortunately, or unfortunately the rest of the world continues on. Stocks still rise and fall.
With this being the beginning of a new year we often take stock of what happened last year and try and make changes for the next year. One of the biggest changes I want to make is to reduce the number of stocks I own. Having to monitor 81 different stocks is just too many. Many of these stocks are ones I have had for a long time. They are ones that have dropped so far, it is just as cheap to keep them, as it is to sell them. I have also seen where I have finally sold them, only to see them go way up a month later. Stocks really mess with your mind.
Last year I took an investing course from Technitrader. It was an excellent course, and I recommend it highly. During the course they did an excellent job of explaining how to set up a “Stop Loss” sale. Since, like a lot of other investors, I have a real job, I can’t monitor every stock, every minute. Yes, there are phone apps for that, but if you spend all your working time on your phone, you have a tendency to get FIRED. So you often have to set up a sale, before the market opens. Technitrader explained a simple process, not available on the CSE, (Canadian Securities Exchange) where you can set a trigger price, and let that ride for several weeks. Learning how to do that alone, has saved me more than the price of the course. It is a strategy that I am using more and more this year.
Like every strategy that involves stocks, it comes with a big Asterisk. Stock prices fluctuate all trading day. That is why they give you a Daily Range. The Trigger price you set is active all day. Lets use an example. Say you bought a stock a week ago at $1.00. The stock closed yesterday at $1.25. You have made a profit. To protect that profit, and yet still benefit from a possible increase in price today, you set a sell trigger limit of $1.20. If the stock continues to go up, the sell is never triggered, you benefit from the rise. Great, you can then set a new higher trigger tomorrow.
But if the price were to drop through the day, and it gets as low as $1.20 you trigger the stock to sell. So you would sell the stock. This is great if the the price of the stock continues down and closes at $1.15. You think you’re pretty smart. The catch is, what if it only goes down for the morning, then in the afternoon, the stock rallies and closes at $1.30. You are already out of the stock at $1.20. In this case you feel kind of foolish. But your definitely not foolish. The crux of investing is to protect the principle, while trying for profit. Trying to chase the highest highs and lowest lows is a fools game. Over the last 2 months I have missed out on 2 stocks that went higher. But I made money on 5 that went lower.
I set the limit because I was not going to be able to monitor the stock for a few days until the market closed. I may have missed the peak, but I made a profit. If it drops back to the $1.40 range again, I will rebuy it.
I have started to do this for every stock that is profitable. Limiting losses is the key to winning.