How To Avoid What Most Investors Fail At Consistently

Jimmy Butts's picture

Monday, November 12, 2018 - 12:00am

by Jimmy Butts

Fear. Anxiety. Excitement. Relief. Then fear...

This gambit of emotions is likely what you've gone through the last few weeks if you've been keeping close tabs on your portfolio. Concerns over the mid-term elections, the trade war with China, ideas that the Federal Reserve will keep increasing interest rates, and slower growth prospects this earnings season... these have all shaken investor confidence.


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The market's volatility has definitely had an effect on our portfolio here at Maximum Profit -- the system has given us a secondary sell signal (a trailing 15% stop-loss) on a handful of positions.

On October 8, I sent Maximum Profit subscribers an alert letting them know that two of our stocks had hit their trailing stop-losses. The first was cybersecurity firm Okta, Inc. (Nasdaq: OKTA), which we closed out of with a 21% return. The other stock was Atlassian Corporation (Nasdaq: TEAM), which we cut short for a small 6% loss (the stock has continued to drift lower since then).

Then on October 10, U.S. stocks saw their largest drop since February. The downdraft caused us to hit our trailing stops in Square (NYSE: SQ) and Fortinet (Nasdaq: FTNT).

Including these four sells, we were closed out of nine holdings in the last three weeks.

We booked profits in Etsy (Nasdaq: ETSY) and Apptio (Nasdaq: APTI) after they hit their trailing stop losses:

Why I'm Glad We Had To Sell
It's no fun to watch gains evaporate nearly overnight -- telling ourselves in vain that we should have sold at the top -- but the fact is you simply can't see what's coming. It's better to get stopped out and book our gains (or cut our losses short) than it is to hold on and "hope" for it to get back to its old high because sometimes it never does.

That's the beauty of what we do at Maximum Profit -- and it's the one thing that individual investors fail at most consistently.

Take, for instance, former Maximum Profit holding Seadrill (NYSE: SDRL). Investors who got out of the stock when the system told us to were able to keep all their money (and even book a small profit). But those who invested with the "hope" mindset are still waiting... and have likely given up all hope as their investment is pretty much worthless:

Here's another more recent example with semiconductor firm Ultra Clean Holdings (Nasdaq: UCTT).

Think about that for a second. With the Maximum Profit system, a $10,000 investment in UCTT turned into $15,224 in only 185 days. That's a 103% annualized return.

Yet, those investors who didn't follow the system's rules -- or worse yet, didn't have any sort of rules in place at all -- got absolutely crushed.

Imagine the mindset you would have had with this stock if it weren't for any sort of concrete rules. Be honest. When the stock started to show some weakness, it would have been very easy to think to yourself "It's OK, I'll hold on until shares are trading for north of $30 again." If that would have been you, then you would have not only seen all of your gains evaporate, but a $10,000 investment would have shrunk to a measly $6,839.


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The Takeaway
Look, I know I probably sound like a broken record, but it's so imperative that you follow a clearly defined set of rules for buying and (especially) selling stocks. Don't wait until you already own a stock -- by that point, your emotions could easily cloud your judgement.

It's better to book gains or cut losses short than end up with a portfolio of hope -- that is, a portfolio of "I hope to get back to even someday."

You can always get back into a stock once the dust settles. Or better yet, move on to a better opportunity.

P.S. Despite the uneasiness in the market, my system has still identified a handful of stocks that are poised to rally. In fact, we just identified five new buys to add to the portfolio. To learn how to get the names of these picks -- as well as learn more about how Maximum Profit works, go here.

Jimmy Butts does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.