Another ingredient to a successful investment plan is knowing when to take a profit. I will admit this is one of the hardest parts of the game. If you’re a successful trader you will experience a few large gains every year that will count for the majority of your total gain for the year. If you let fear control you then you may sell too early. On the other hand if you become greedy you may hold on too long and allow your profits to slip away. Below you will see an excerpt from the IBD on how to take profits. I encourage you to use this example when you create your own investment plan.
> A simple, clear-cut strategy is to sell after your stock has gained 25%, unless the stock has gone up 20% in just one to three weeks.
> Stock charts are especially helpful in spotting signs of weakness in stocks, often providing clues much earlier than any fundamental indicators show.
> Remember to check the overall market. If the market comes under distribution and weakens, your stocks will have a hard time making any further advances.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
Every successful investment plan has an exit strategy. Knowing how to sell is arguably more important than knowing how to buy stocks. The below from the Investor’s Business Daily gives key points to think about when trying to protect your position from large losses.
* The first sell rule is to get rid of any stock that falls 8% below your purchase price.
* It’s critical to follow this loss-cutting rule regardless of how highly you value a stock. Personal opinions get in the way of smart selling decisions.
* The larger the loss, the higher the recovery you need to get back to the break-even level. (A 50% loss on a $100 stock, for example, requires a 100% gain to get back to $100.)
* Strong stocks sometimes initially retreat close to their buy point (as determined by the stock’s chart pattern). This doesn’t necessarily mean you have to sell, unless the stock goes 8% below the purchase price.
* Avoid making sell decisions based on tax concerns or commission rates.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
As I’ve mentioned in a previous blog the Investors Business Daily is an excellent editorial. The following 20 rules are the “IBD’s 20 Rules for Stock Market Success”. As an investor it is essential to have an investment plan and a set of rules that you follow on a consistent basis. Below is an excellent example of a set of solid rules to follow when investing in the stock market.
If all of IBD’s 20 rules are carefully followed (not just the ones you like), your investment results should materially improve:
1. Consider buying stocks with each of the last three years’ earnings up 25%+, return on equity of 17%+ and recent earnings and sales accelerating.
2. Recent quarterly earnings and sales should be up 25% or more.
3. Avoid cheap stocks. Buy higher quality stocks selling $15 a share and higher.
4. Learn how to use charts to see sound bases and exact buy points.
5. Cut every loss when it’s 8% below your cost. Make no exceptions so you can always avoid huge, damaging losses. Never average down in price.
6. Follow selling rules on when to sell and take profit on the way up.
7. Buy when market indexes are in an uptrend. Reduce investments and raise cash when general market indexes show five or more days of volume distribution.
8. Read IBD’s Investor’s Corner and Big Picture columns to learn how to recognize important tops and bottoms in market indexes.
9. Buy stocks with a Composite Rating of 90 or more and a Relative Price Strength Rating of 85 or higher in the IBD SmartSelect® Corporate Ratings.
10. Pick companies with management ownership of stock.
11. Buy mostly in the top six broad industry sectors in IBD’s New High List.
12. Select stocks with increasing institutional sponsorship in recent quarters.
13. Current quarterly after-tax profit margins should be improving, near their peak and among the best in the stock’s industry
14. Don’t buy because of dividends or P-E ratios.
15. Pick companies with a superior new product or service.
16. Invest mainly in entrepreneurial New America companies. Pay close attention to those with an IPO in the past 8 years.
17. Check into companies buying back 5% to 10% of their stock and those with new management.
18. Don’t try to bottom guess or buy on the way down. Never argue with the market. Forget your pride and ego.
19. Find out if the market currently favors big-cap or small-cap stocks.
20. Do a post-analysis of all your buys and sells. Post on charts where you bought and sold each stock. Evaluate and develop rules to correct your major past mistakes.
For professional investment advice on this topic contact: Allgen Financial Services, Inc.
888.6ALLGEN (888) 625-5436
advisors@allgenfinancial.com www.allgenfinancial.com
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