In each American Consequences magazine, we tackle an important idea or problem…
We try to look at all sides… think through what might result… and find the best financial experts we can find on the subject. Then we let them loose.
Of course, we do take things to absurd levels at times. As P.J. says:
I make fun of things for a living. But over the years I’ve found that making fun of things can be an excellent way to understand them. And making fun also causes me to be a neutral referee. I don’t take sides. The absurd is the absurd whether you find it on the left, on the right, or in the middle.
But one thing we’re united on is the idea that you know what’s best for your money.
Not Wall Street. Not the politicians in Washington, D.C. And not the commentators on CNBC or even the writers in the pages of our magazine.
We do our best to give you the information in American Consequences we’d want if our roles were reversed.
Because when it comes to your money, you’re the one who has worked for it. You know how much effort it took to save.
We’re simply here to give you more perspectives than mainstream analysts with ever-rising price targets on stocks that everyone owns and seemingly can’t go down. (That is, until they do.)
It’s one of the most difficult… and most important… decisions of your life.
How should you invest your hard-earned money?
Most folks think they’ve got the “buy” part figured out. They see that a lot of folks at the grocery store are all buying this new coffee system… or they hear an interesting story on the evening news about a new medical treatment… or maybe they subscribe to a research service that analyzes companies and recommends which to buy.
But the next step is harder…
When should you sell that investment?
That is… How can you make sure that you don’t wind up losing all your hard-won gains when this bull market ends?
One rare bit of agreement among our American Consequences contributors is that no matter what you buy, you must have an exit strategy.
One of the simplest strategies is what’s known as a “stop loss.”
This is simply a specific price or percentage loss that you’ll use as a trigger for when to sell an investment. There are two types of stop losses – hard stops and trailing stops.
Hard stops are based on a set price or percentage below your initial purchase price. If the stock falls to that amount at any time, you sell. For example, if you buy XYZ Corporation shares at $100 and set a 25% hard stop, you’d sell once it fell to $75.
Hard stops work well for income-generating investments. If you purchase a stock that pays huge dividends, you may not care if the share price bounces up and down because you’re earning income no matter what.
But if you’re investing in growth companies for capital gains (that is, you need the stock price to go up to make money), then a better strategy is to use trailing stops.
They help protect your gains…
Trailing stops are initially based on a percentage from your purchase price, but then as the price rises, the trailing stop follows it.
So if you bought those same XYZ Corporation shares at $100, you’d initially set a 25% trailing stop – at first, it’d be for that $75 level, the same as a hard stop. But then as the price of XYZ Corporation increases, your trailing stop would increase too. So if the price climbed to $200 per share, your new trailing stop would be at $150.
Trailing stops only adjust upward, based on the highest price the stock hits. So in the case of XYZ Corporation, you’d sell if it fell to $150 – locking in a 50% gain.
The specifics of what stop loss to use is up to you. But they’re an easy way to keep emotions out of investing. You figure out your “rule” before you buy… then you follow it.
It’s a nearly foolproof way to cut your losses and let your winners ride.
And right now, with the bull market getting old… many folks are worried about another big crash and how to know when to sell their investments.
If that describes you, reserve your seat for a live talk tomorrow night – Wednesday, May 10 at 8 p.m. Eastern time – with Dr. Richard Smith. You’ll learn a lot more about stops and exit strategies, as well as how to know when to sell.
Richard studied math at Berkeley and went on to receive a Ph.D. in Math and Systems Science – studying complex systems and mathematical uncertainty.
In short, he knows numbers. But that didn’t save him in the dot-com bust in 2000. Like many investors, he got “burned.”
He vowed to never let that happen again. So he set out to figure out how to avoid similar losses in the future. He wanted to prevent other people from making the same investing mistakes he did…
And for the past 14 years, he’s worked on creating a system that’s incredibly easy to follow. It lets you know when to let your winners run, cuts your losers, and helps you know exactly when to sell.
This bull market has run for more than nine years now. Many folks have a lot of money on the line that could vanish if a crash comes.
That’s why on Thursday night, Richard is going to show you the exact moment to sell some of the most widely held stocks… stocks like Apple, Microsoft, Johnson & Johnson, Bank of America, and popular ETFs.
More important, Richard’s system doesn’t tell you to buy any new stocks – it’s simply a way of keeping the gains you’ve made in the stocks you already own… And to protect yourself from a sudden, gut-wrenching decline like we had in 2008.
Now here’s the latest news we’re reading and watching…
More about why risk tolerance is so important… and a surefire way to ruin your financial future.
No stock purchase will ever be risk-free… Taking risks gives investors opportunities to succeed. But different stocks have different levels of risk… And those levels can vary dramatically. So how much risk is the right amount?
Ray Dalio has released an animated mini-series that summarizes his “Principles.” Well worth watching…
Whatever success I’ve had in life hasn’t been because of anything unique about me – it’s because of principles that I believe anyone can adopt. I created this animated series to share them with you.
Another sign of incredible debt and pending crisis in America. If this is necessary in a “good” economy… what happens when the next recession hits?
Each of these pity stories should be pitted against each other, a veritable Fight Club or battle royale of misery. Read together, it’s a catalogue of despair that also can represent the redirection of our social rage to penny-ante altruism.
Want to hire someone in Seattle? There’s a tax for that…
Councilmember Kshama Sawant—a self-proclaimed socialist who has endorsed the nationalization of another Seattle-area corporate titan, Boeing—was less subtle. Sawant calls Amazon’s refusal to passively accept the taxation “blackmail,” and she organized a Thursday rally outside Amazon’s headquarters.
Buffett’s returns have slowed in recent years… and the meetings have become less valuable… but they’re still making plenty of headlines:
Buffett also beat back the notion that Berkshire would ever pay a special dividend to release it mountains of cash to investors. He argued that if it were put to vote, shareholders would support Berkshire’s existing system of investing excess cash, historically at high returns. Of course, that doesn’t mean all is rosy…
Buffett has turned his plain-spoken, “folksy” public persona into a bulletproof public brand… a brand that nothing can stain. As good as Buffett is at investing, he’s even better at PR. And that’s why no one has noticed…
And let us know what you’re reading at [email protected].
With P.J. O’Rourke and the American Consequences Editorial Staff
May 9, 2018