Below are a set of hypothetical trades to illustrate how cutting losses can boost your portfolio.

As you can see, even if you had made these seven trades over a period of time — and taken losses on five of them — you would still come out ahead by more than $3,700. That's because the two stocks that worked out resulted in a combined profit of $5,500. And the five losses — all capped at 8%, except for one that was cut early at 7% — added up to $1,569.

You see the point? It would take several 8% losses to wipe out the profit from just one or two good stocks.

 

Stock	Shares	Cost/Share	Sell Price	Profit/Loss	%Profit/Loss
A	100	$50	$46	-$400	-8%
B	100	$43	$40	-$300	-7%
C	100	$57	$98	$4,100	+72%
D	50	$24	$22	-$100	-8%
E	30	$110	$101	-$279	-8%
F	70	$85	$78	-$490	-8%
G	100	$65	$79	$1,400	+22%
			Total	$3,731

 

Related Resources:

Review IBD's 20 Rules For Stock Market Success.

Go to the Investor's Corner Archives to read IBD's "editor picks" of classic Investor's Corner columns.

Search our archive of Ask Bill O'Neil Q & A's organized by topic.