In 1960 an engineer working for a watch company in Switzerland discovered that a small crystal would vibrate at a constant rate. He found this was so accurate that it could be used to calibrate time so he took it to company management and said it would make an entirely new kind of watch that had no springs and no gears. They could not imagine who would want such a thing. Swiss watches dominated world commerce. “Why change?”, they said. The bosses did not even bother to patent it.
The inventor took his new idea to a commercial trade show, set up his booth and tried to interest manufacturers to produce his new kind of watch. Of the thousand people only 2 were willing to try it – Texas Instruments and Seiko Corp. of Japan. Ten years later the Swiss manufacture of watches had shrunk to 10% of it former production.
It took a complete change of thinking to produce this new model. Most people are rooted in the old way they have always done it and are reluctant to change. The new model, the new paradigm is refused.
Now I want you to think about another paradigm. This time a model for your investment portfolio.
Wall Street has been teaching since time began to Buy and Hold. When your stock or mutual fund heads south you are not to worry about it because “the market always comes back”. But my question is, “In your lifetime?” There are thousands of stocks that go up than go down and never recover. You might have some of those in your bank vault.
Here is the change in thinking you need to incorporate. Place a stop-loss order about 10% or 15% below the price. This is especially true when you first buy. The most important thing every professional investor does is protect his capital. You never need worry about how much you will make. Your major concern is how much can I lose if this turns in a mangy dog. After you have owned this gem and it does go up then you can replace the stop-loss order to a higher level and continue to do that until you are finally stopped out (sold out) with a nice profit when it starts down.
Your broker will not want to do this for one very simple reason. He then becomes responsible to see that the order is executed because if it isn’t he will have to make up the difference out of his pocket. He will actually have to watch your account. If he gives you a hard time then find another broker.
Customers like you are not taught this simple method of thinking about the stock market. It requires a change of thinking. There is a better way than how the big brokerage houses tell you. This paradigm will allow you to make more money because when you are sold out and have cash in your account you will be able to find a better stock or mutual fund.
Al Thomas’ book, “If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.
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