Livermore, like Gerald Loeb, Nicolas Darvas and many other top investors
of the past century, realized that some errors are inevitable, and always
took quick action to minimize those errors. They all had a system for
quickly cutting losses if a stock’s price fell a certain percentage below what
you paid for it. Some investors say 10%, other systems are adamant about
7%-8%, still others recommend keeping it much smaller. Keeping it below
10% is a good idea – and in shaky market conditions, a smaller percentage
is usually better.
Looking at it one way, that’s a very mechanical discipline that is a simple
way of saving yourself a lot of money and heartache, and lets you sleep at
night.
dropping below its buy point. One of the trickiest part about many growth
investing systems is that they expect you to monitor stock charts all day
long, so you’re ready to hit the “sell” button the moment a stock dips a
certain percentage below the buy point.
But that process can be more simple and manageable. It’s entirely possible
to buy at the right time and sell when necessary to protect your money –
without being chained to your computer 24/7, and without making the
stock market the focus of your entire life!
And beyond the mechanical process of selling
at the right time, there’s a true psychological
freedom that comes when you just expect that
you will occasionally buy a stock that doesn’t
work out. And of course, you will miss some
names that jump higher! That’s life, and
accepting it makes the activity of investing that
much easier. Why get angry at the stock
market? Why flagellate yourself over the big
one that got away, or the “sure thing” that
didn’t pan out?
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25
Seven Biggest Mistakes Investors Make
