Know When To Fold 'Em

Nobody's right all the time in the market, not even veteran market professionals. But as the famous investor Bernard Baruch once said, "Even being right three or four times out of 10 should yield a person a fortune if they have the sense to cut losses quickly."

Being a successful investor is just as much about limiting losses as it is about riding a winning stock. Downturns are a part of life in the market, and you must act decisively to shield yourself from excessive losses. If your stock selection doesn't work out and you're faced with a loss, don't let your pride stop you from admitting you've made a mistake and acting quickly. Cut your losses early and move on. You must make rational decisions, instead of trying to rationalize your way out of a costly mistake.

It's not just your own personal opinions that can be wrong. Analysts or market commentators can be just as erroneous, and basing your decisions on their opinions can often lead to disastrous results. Investors often buy loser stocks, justifying their decision with remarks like, "All these Wall Street analysts are saying great things about this company," or "This technology is the greatest thing since sliced bread. The market doesn't realize it yet, but it's bound to become a household item." Famous last words.

Related Resources:

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