by Mike Kapsch, Investment U Research
Thursday, June 7, 2012
I know stocks aren’t exactly a fun asset class to be in right now.
Since April, the S&P has dropped 9%. And you can sense the roller coaster ride isn’t going to end soon either.
What’s worse, investors like you and I have been dealing with the same old issues for a few years.
The Eurozone is still a mess. The possibility of it disbanding heats up and cools off almost every other day.
Meanwhile, the U.S. economy merely keeps sputtering along. And as the U.S. government attempts to spend its way to prosperity, the next recession feels like it’s just around the corner.
These days, there’s even more to worry about too. China’s economy is slowing. New and expensive wars could begin in Iran and North Korea. There’s also no telling whether or not the U.S. housing market has found a bottom.
Everything mixed together is the perfect recipe for volatility in the stock market.
But I don’t care how bad things seem, nobody knows where stocks will be 12 months from now or even tomorrow.
And just as things could get worse, they could get much better as well.
For example, from October 2007 to March 2009, who could’ve predicted stock prices would plummet over 50%?
By the same token, did anybody foresee stocks turning around in 2009 and soaring up around 80% today?
That’s why it’s so important to forget about our emotions and trying to time the markets altogether. And instead, stick to following a proven strategy when approaching our stock investments.
It’s All About The Plan
Today, there are two common mistakes novice investors make that really burns them when the markets go sour.
First, they don’t know how much money to put into any given stock. And second, they don’t know how to protect their profits – exit strategies are of utmost importance.
So, here are two very important elements of any successful investing strategy:
- Never put more much more than 4% of your total portfolio into any single stock purchase. For example, if you have $50,000 set aside to invest in stocks, limit the amount of money you put into any stock to $2,000. You may not see it now but you’ll appreciate this when that high-flyer turns out to be the next Enron.
- Next, always protect yourself with a trailing stop around 25%. This will automatically sell your shares whenever one of your stocks pulls back 25% from its closing high. By doing this, you’ll instantly limit your losses on any stock to 1% of your total portfolio.
With just these two principles in place, you can maximize your earnings by letting your profits run. And you can minimize the risk you take on by not overexposing yourself to any one investment.
Because, no matter how uncertain things seem, there are still plenty of opportunities to profit out there.
Already this year, Investment U Plus subscribers have had the opportunity to cash in on 40 different stocks that could’ve returned single and double digit gains as high as 34%, 57%, and 60%.
Marc Lichtenfeld even recommended a pharmaceutical company at the beginning of the year that has jumped as high as 105%.
At our sister organization under Oxford Financial Publishing, The Oxford Club – also directed by IU Chairman Alexander Green – members are averaging gains of 35% across 22 open positions. In fact, Alex has been ranked by The Hulbert Financial Digest – the industry’s top watchdog – as high as 3rd in the nation overall for his stock selections. And currently his Oxford Club portfolio ranks 5th for performance based on their 10-year, risk-adjusted return.
Risk isn’t always rewarded. But with the right strategy, you can cut your losses off at the knees and keep ride your winning positions to massive windfalls in the future. And that’s advice that you can take to the bank for the rest of your life.
Mike KapschA Proven Investment Strategy for Uncertain Times,