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  Thursday December 18th, 2014    

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The Alchemist (11/28/2007)
By Al Thomas

THE HOPEFUL AND THE SKEPTICAL

When a person puts on a new position in his portfolio he is both hopeful and skeptical.

Mostly he is hopeful because he has done everything that the Wall Street mavens have told him to do. His research has been impeccable. He knows all about the P/E ratio, what the sector is doing, the cash flow ratio and how much experience management has. And many other "important" facts. The investor has become intimate with the stock. His broker has helped (?) with his research.

Just to be extra sure Mr. Investor ordered reports from Morningstar and the broker sent him the pink sheets, blues sheets, Annual Reports and any other pieces of paper he had lying around the brokerage office.

Now what?

He was still a little skeptical, but now very hopeful that this is the right equity that is going to make him rich. Hope has overcome skepticism so he bought.

Was this another one like he bought before? One that went down, down, down and never looked back. It couldn't be. He knew it could not. He even knew how many lumps of sugar the company CEO put In his coffee.

He would watch the price every day and hoped it would go up. It

went along sideways and up at first and then started a slow decline. He knew (hoped) it would come roaring back. This was a good stock. He knew it because he knew all about it.

In all of his research his broker had not once mentioned anything about an exit strategy just in case he might be wrong.. (Brokers never do.)

Joe Sixpack knew if he did his research there should be no worry about losing money. It couldn't go down.

As his wonderful stock continued to drop both hope and skepticism grew. Hope that it would rise up again so he could get out even and skeptical that it never would.

Joe had broken the cardinal rule of investing. He had no exit strategy. Every successful investor has a plan of action on what to do when his equity starts going in the wrong direction. He knows just how much money he will leave on the table when things go wrong.

Most of the time it will be with a trailing stop loss order and for others it might be with a certain amount of money or the use of a technical indicator such as a moving average. No matter what, the successful trader will protect his investments from any initial large loss or to keep profits that have accrued.

The successful trader is always skeptical. He wants to see when he is wrong. He does not want to lose. The word ‘hope' is not in his lexicon.

Hope is the most expensive word in the investment dictionary.

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 at www.mutualfundmagic.com to discover why he's the man that Wall Street does not want you to know.

Copyright Williamsburg Investment Co. 2007 All rights reserved.

 

 

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