Comments on: The Three Rules That Will Lead to Long-Term Profits

By: Market Fear

Market Fear — Sat, 11 Oct 2008 13:03:07 +0000

[...] Use trailing stops to let the market tell you how and when to make your move. Ideally, the key to the current situation is finding a way to get through this mess without sacrificing every bit of [...]

By: S.H. Tan

S.H. Tan — Mon, 01 Sep 2008 03:16:53 +0000

Agree in general. Also be aware however that we can “stop out” until we have nothing left to invest. I think the bottom line in equity investing is that is highly risky and few can succeed. And only those who genuinely think they can win in equity, ie. pick stocks, I think there is few option except to place your bet in the stocks you think is going to win and hope to win out against the time you would require for your chosen company to finally deliver – because price is not equal to value in the shorter term. I think what this means subtlely is that unless you can ride a stock to the bottom of its price performance, you will never ride a stock to the top of its price performance. Within a reasonable portfolio construction, it is the riding of the stock up its price performance that is the answer to making money in equities. If you can’t endure this, it is just too difficult to win investing in equities. It does say finally that unless you can pick a stock, no amount of risk management can save your equity money to retirement – imagine retiring during the period of 1930s or 1980s. One needs the inate ability to identify a successful company to retire nicely with money in equities. Risk management like cut-loss, is necessary but not sufficient.

By: Robert Shive

Robert Shive — Fri, 29 Aug 2008 11:07:53 +0000

u are obviously correct that: “The biggest stock-market returns go to investors who put capital into play when the markets are at their worst ”

But you, and the rest of the media, advise people to “buy and hold”, so where are they supposed to get the capital at the bottom when they are fully invested in a pile of losers?

You fail to point out that if you are going to panic, panic early. When you panic early, you will have cash at the bottom.

By: Gordon Foreman

Gordon Foreman — Thu, 28 Aug 2008 18:47:03 +0000

Yes, the investors who buy when the market is at its worst do the best, but the “worst” is only evident in hindsight. I would suggest that if you are buying in today’s market, then keep a very tight initial stop of no more than 6-7%, and maybe even less. Then, for every 2% the price of the stock goes up, raise your stop by 1%, so that when it is up 12-14% you are at break-even, and after that in profit. Following this pattern, once your stop reaches 20-25%, then keep it trailing at that level.

The advantage of this is that if you are wrong about the worst already being behind us, then you lose much less of your investment capital, and are better prepared to look for other opportunities. The disadvantage is that random volatility is more likely to stop you out.

Gordon Foreman

By: Barry Harmon

Barry Harmon — Thu, 28 Aug 2008 13:57:03 +0000

This is a good investing outline.

I wish you had added a small tag about the short periods of time when the market is profitable. My reaseach, and I’m not claiming to have discovered this line of thought, shows that most of the returns in the market are made over very short periods of time. Most of the time the market waffles around doing nothing, like from 1966 to 1982. If you miss the profitable time, you lose.

Of course, what this indicates is that one should be out of the market except for those profitable periods, but very few people can succeed with market timing.

Cheers,

Barry Harmon