The Number One Killer Of Portfolios... And How To Avoid It

Jimmy Butts's picture

Friday, December 28, 2018 - 12:00am

by Jimmy Butts

Are you controlling your investments, or are you just holding on tight letting the market jerk you around?


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With high market volatility and the uncertainty of whether the market will keep tumbling is keeping many investors up at night. These long sleepless nights are filled with anxiety, fear, and uneasiness.

And the worst part is that it paralyzes you. You're undecided on what to do, so you don't do anything. You simply watch your profits vanish, while watching your small losers turn into large ones. Your investment strategy turns into a "hope strategy," that is you hope the market turns around so you can break even and never invest in stocks again.

But that hope strategy is really a "hopeless" strategy. To become truly successful at investing -- and regain those good nights of sleep -- you can't allow your emotions to take control of your portfolio.

Emotions are the number one killer of portfolios.

One of the best ways to alleviate this massive problem is to have plan in place -- more importantly, an exit plan.

You see, buying a stock is the easy part...

Anybody can go out and type in a ticker symbol and hit the buy button. But where you'll really separate yourself is knowing when to sell.

One of the best ways I've found is to use a rules-based, systematic approach to the market. This is the exact approach my readers and I use in my premium advisory, Maximum Profit.

Not only does this it provide us with which stocks to buy, but it gives us clear buy AND sell signals. It takes all of the emotion out of the equation. Sure, we bag more than our fair share of winners. But more importantly, it gets us out of trades before they really tank. And it helps move our portfolio into cash when things become dicey.

For instance, going into the first week of October, our portfolio was already at 37% cash. By the first week of November our cash position moved up to 54%. That means our portfolio has been taking the blows that the S&P 500 has been handing out much better than your traditional "buy-and-hold" portfolio.

Meanwhile, our equity allocation is in stocks with annualized returns like 18%, 28%, 45% and 90%. In fact, our "worst" holding is currently down only 6%, and that's a stock that we added to the portfolio at the beginning of December.

The bottom line is that nobody cares more about your investments and your money more than you do. That's why you need to take control of it, instead of it controlling you. There's a reason your financial advisor has gone quiet during this period as well. They are likely balled up in the corner of their office waiting for this all to be over... Hoping for this market to turn around.

If you don't have a plan or system in place, then I urge you to get one. Even if it's as something as simple as a stop loss. Don't be afraid to sell a stock for a loss. You'll be much happier to sell it at a small loss than watch it turn into a massive one, all because you were "hoping" for it to get back to even.

Take control of your investments, don't let them control you. Stop losing sleep over the market volatility and get a plan in place.

P.S. If you're interested in our rules-based, systematic approach that we use in Maximum Profit, then I urge you to give it a try for 30-days. Even if you don't act on a single one of my recommendations, I promise you that what you'll learn about investing, trading and your emotions will have a significant (positive) impact on your portfolio. To follow our plan, 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.