The Overlooked Key To Successful Investing (And Not Losing Your Shirt)…
The experience of investors in the tech sector over the past month or so can be summed up in one word: carnage.
The chart below doesn’t do it justice. Many household names that benefitted from Covid and the “stay-at-home” trade are down 25%, 35%, even 50% in some cases…
Although most of the carnage was limited to the tech sector, big selloffs last week began to drag down nearly every stock in the market.
That includes a few names we hold over in my premium newsletters. So to end the week, I decided to have a bit of an honest chat with my readers. And today, I’ll share some of I told them with you…
Some Uncomfortable Truths…
You see, while we saw the market stage a small relief rally to end last week — and we may even see that extend into this week a little bit — I have some bad news for you.
I don’t think we’ve seen the end of it. I think there’s more downside ahead.
Keep in mind that I hold onto this belief rather loosely. I know that I can’t predict what the market will do tomorrow, next week, or next month any better than the next guy.
What I do know is that risk and volatility are inevitable. Successful investing is more about managing these risks. Unfortunately, this is something most investors will simply never understand. They will hold onto that loser for years, or they’ll average down.
Sure, if you’re a die-hard long-term investor you can average down, or possibly weather the storm and hope that big loss eventually recovers. But most of us don’t have what it takes to do this in a bold but prudent manner. In fact, most of us aren’t really long-term investors, at least not in the way we’d like to think.
And some of us are just flat out looking to make big gains in a quick amount of time while keeping our losses small. Nothing wrong with that.
But, again, the important thing to keep in mind is that losses are inevitable. We’re going to take some. But it’s all about how you manage the losses that really matter.
As the saying goes, live to fight another day.
Why I Pound The Table On Risk Management
In my premium newsletters, you’ll often find me devoting more space to talk about cutting losing positions short than you will any of our winning positions.
That’s because, while I like to celebrate big wins as much as the next guy, I learned (the hard way) what a big loss can do to one’s performance. If you’ve invested for any amount of time (five years or longer) then you’ve probably taken some lumps. Sometimes those lumps will be big and shocking. Sometimes they will be unfair.
Only when you understand this… when you really know what it’s like to experience these losses… can you hope to succeed as an investor. And if you haven’t taken a major loss, that’s fantastic, keep it up. Or if you’re new to investing, then learn from my mistakes over the years…
I once lost around 70% (overnight) when one of my small biotech stocks turned out to be massaging the data on their new drug.
I got crushed by a mining stock when I didn’t have any risk management strategies in place.
I took a 63% haircut on a futures trade when I completely ignored my stop, holding firm in my belief that the trade would eventually go my way. I ignored what the market was telling me, and I got punished for it.
I could go on, but you get the idea. Any successful trader who’s been around for a while is going to have similar stories like this. Unfortunately, sometimes the best way to learn is the hard way. But the important thing is that we learn from it.
I know that most investors never talk their losses. Heck, even in the business of investment publishing we sometimes act as though nothing bad has ever happened to any of our recommendations. They take a loss and sweep it under the rug. After all, talking about losses doesn’t sell many newsletters.
But minimizing losses, knowing when to sell, and risk management are a massive part of successful investing. If you want to survive in this game, you need to understand risk management.
It’s crucially important for you to understand that investing — all investing — carries risk. Real risk. You will suffer losses. That’s why I stress risk management above all else.
There will be a time when we can get more aggressive. I just don’t think that time is right now. Sure, there are some short-term nibbles we can take here and there. And nothing really changes with the long-term winners we still like.
I like making money trading stocks, but I like keeping that money even more. Call me greedy, but once it’s in my account I have a hard time giving it back.
And if you are looking for some high-upside opportunities, then you need to check out my report of investment predictions for 2022…
While I think the tech selloff may continue, that doesn’t mean there aren’t other opportunities for mega-gains.
In last year’s report, for example, our predictions on copper, pipelines, crypto, and timber returned up to 391%…
Now, after three months of research, we’ve released a brand new set of predictions for the coming year. These are ideas you won’t hear about anywhere else… And if history is any guide, like last year, investors could have the chance to score some major wins.