When I was on the trading desk at Goldman Sachs, we had one cardinal rule: Cut your losses and let your winners ride.
Most of the world's great investors follow this rule. The point is, you never want to get stuck with a worthless investment, nor cut off a success before you've wrung every bit of profit from it.
Statistics show even the best traders are right on only 55% to 60% of their trades. Given these odds, the key to making plenty of money as an investor is to get the most out of the pick you get right... and dump your misfires when the losses are small.
The key to managing your winners and losers is planning and discipline... In every trading situation, we have to form an exit plan in case we're wrong. Few investment advisories tell you how to form a plan in case a trade doesn't work out as expected. But in my opinion, that's a huge mistake. Forming a plan for all kinds of situations is vital.
Once you have the plan, you must have the discipline to stick with it. That's harder than it sounds. It's hard to admit when we're wrong on a stock... And it's easy to rationalize our losses by saying, "Oh, it just needs time to rally back." That's how small losses turn into catastrophic ones.
Similarly, it's easy to get nervous when a stock's up big... Many investors get "itchy trigger fingers" and sell too soon to lock in a decent-looking return... only to watch the stock soar higher still.
Remember... planning and discipline are key.
For weeks, I've warned you that you need to be cautious... I'm seeing signs of euphoria and all of the conditions are in place for rising. Neither is good long-term news for your portfolio.
That's why you need your protection plan in place now.
I'm not the only one getting worried. My friend and colleague Steve Sjuggerud is warning his readers of an inevitable Melt Down.
In a just-released video, Steve says he's seeing signs of a bull market nearing its end. In his video, Steve details his plan for the Melt Down, including exactly what you need to do to prepare.
If you've been enjoying raking in profits, but not preparing for the market's next downturn, you need to watch this video today.
Do you have a protection plan in place? Tell us what you're doing at [email protected].
Q: Can you cite examples of "safe bonds"? – EJ.
A: When you're looking at bonds, you want to look at the likelihood that you'll get your money back at maturity and how much income you'll collect along the way.
There are a few types of fixed-income instruments that are considered risk free. That means even if a nasty recession hits, you'll get your principal back. You'll never have to lose a night's worth of sleep.
The most common risk-free fixed-income instruments are Treasury bills, notes, and bonds.
Treasury bills (T-bills) are short-term bonds that mature within one year or less from their time of issuance. They are considered risk free because they are fully backed by the U.S. government.
T-Bills are always a safe place for your money. They won't make you rich... But they're riskless and will pay you more than a standard checking or savings account.
You can also consider most investment grade corporate bonds to be safe. You can invest in debt from companies like Microsoft (MSFT) and Apple (AAPL), well-established businesses that are flush with cash, so you can feel safe about your investment. They aren't going to default on their obligations anytime soon.
The only problem with these traditional, safe bonds is that they don't yield very much today. Rates across the board are historically low. That's why your mindset has to be capital preservation for the bond allocation of your portfolio.
One thing you don't want to do is reach for yield with junk bonds. If a crash is coming, your money will be in serious jeopardy.
Finally, since rates are on the rise, and since I expect some inflation to kick in... I would be very careful holding bonds – and consider selling anything with more than two years to maturity.
Q: Send me the article about the danger of [fish oil pills]. – S.C.
A: You can read why I don't recommend fish oil supplements here.
There are two key risks to keep in mind when taking fish oil: high toxin content and bleeding.
As I've mentioned before, fish-oil supplements can be full of toxins like polychlorinated biphenyls (a once-common component of plastics, banned by Congress in 1979), mercury, and dioxin. Several watchdog groups have found supplements that contain dangerously high amounts of these toxins.
Fish oil also alters your bleeding and coagulation functions. Take too much and you could induce strokes from bleeding into your brain.
If you want the benefits of fish oil, I'd recommend going right to the source and eating fish once or twice a week.
Q: I like your meal chart as it is. Any chance you could let us download it in full size? Thanks. – G.W.
A: So glad you enjoyed our issue on meal planning. Lots of folks wrote in asking for a downloadable version of our meal planning chart. We've created a blank one you can use right here. We'd love to see how readers use it... Send us your photos to [email protected].
What We're Reading...
- "The Melt Up will end in 2021."
- Something different: The epic story of Vikings in America.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
March 12, 2021