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Reverse profit (01/18/2006)
By Al Thomas


     
How can anything "reverse" be a profit? I go to the Money Show every year to visit with

friends who have booths and are speakers. Then when folks are filing out of lectures I listen

to their comments about what I know the speaker has been saying.

The Money Show is for investors from all walks of life; however, my guess is the median age

is close to 60. Those who go have accumulated a nest egg and now are retired or very close to

retirement. They came to learn more about how to make their money grow.

Last year there were 256 separate events not counting what was given in the Exhibition Hall.

Almost without exception speakers were showing how cash can accumulate faster if the listener

bought his product whether it was a mutual fund, stock, bond, partnership, software or who

knows what. Are there that many money makers out there?

One speaker had an hour telling the market was due to crash and the thing to do was buy long

term put option. He also said if you would not do that to buy some government bonds which were paying about 2 to 3%. The exit comments I heard were pretty well summed up by one lady who said, "Is he nuts. How can we live off 2%?"

When in a bear market the old saying is, "He who loses the least is a winner". No, it's difficult to live on that small a return, but don't lose large sums by trying to be invested at all times. There have been many years in the past where cash with no percent return beat the heck out of the stock market.

Go back to 2000 and remember that the NASDAQ lost 78% of it value in 3 years. If you had

been in cash from 2000 to 2003 you would have saved about 40% to 60% of your retirement

account. The Buy N Holders have still not recovered their investments.

Selling out near (I did not say at) the top, say within about 10 or 15%, the account would have remained pretty darn healthy. Many investors lost 30 to 40% or more of their hard-earned money and they would have been able to buy back many more shares when the market resumed its upward journey. That is what I refer to as a "reverse profit". The profit is what was not lost by listening to the Buy N Hold brokers and financial planners.

There are hundreds of thousands of investors who have learned not to allow their portfolios

to depreciate more than 10 to 15% because they have learned to sell when their equities start

to go down. They sell and reinvest in a better stock or fund or sometimes just leave it in cash if there is not a good equity to buy. The winning principle of the stock market is having an exit strategy that will prevent losing money.

There are times when having cash at zero percent return will beat a negative 45% in the

overall market. What you don't lose is called a "reverse profit".

Al Thomas' best selling 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 and receive his market letter for 3 months at no charge at www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know. Copyright 2006 All rights reserved. 

 

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