Being a successful investor isn't about being right all the time. Rather, it's about capitalizing when you're right about a stock and reacting fast when you're wrong. 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 he has the sense to cut his losses quickly on the ventures where he has been wrong."
The No. 1 rule: Sell any stock that falls 7% or 8% below your initial purchase price.
This is a threshold that stops losses at a tolerable level, yet allows for normal fluctuations in price in most cases. The rule, though, requires self-discipline. If you're like most investors, this is easier said than done. To be successful, you must recognize when you've made a mistake and move on. If you buy a quality stock at exactly the right time, it will rarely ever fall 8% below your cost.
True, you may sell a stock that drops 7%-8% below your cost, then goes up substantially. But that's a price you pay for having an insurance policy against catastrophic losses.
This sell rule will in effect limit any portfolio losses to no worse than 8% — something many investors wished they'd had in place before suffering large losses.
The lesson titled "Using Stock Charts To Round Out Stock Selection" teaches you how to buy stocks at the proper time.
