| This Simple Investing Tool Can Help You Beat the Market | | By Richard Smith, founder, TradeStops | | Tuesday, May 23, 2017 |
| Today, individual investors can access more information than ever, more quickly than ever.
Yet they continue to dramatically underperform the markets.
According to CNBC, individual investors underperformed the S&P 500 again in 2016. Were you one of them? What went wrong?
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The underperformance was huge…
The S&P 500 gained almost 12% in 2016… yet individual investors gained less than half of that.
I hate to say it, but I'm not surprised.
Investors are never going to beat the market until they learn the right way to think about investing… and realize that they routinely think about investing the wrong way.
It comes down to cognitive biases that investors hold in their minds.
For instance, I recently began a presentation at an investment conference by talking about basic 25% trailing stops… and how even a simple trailing-stop strategy can limit losses. Very quickly into the presentation, an attendee asked if I use a 20% gain to lock in my profits.
I explained that there is something even more essential than limiting losses… You must learn to un-limit your gains.
Many investors zero in on a specific percentage that they believe is reasonable for their profits and sell when the stock hits that target. In other words, they unconsciously act against their own best interests by limiting their potential gains.
That's a terrible mistake. To show you why, let me give you an example…
In mid-2011, Stansberry Research analyst Dan Ferris recommended beer and wine maker Constellation Brands (STZ) to his Extreme Value subscribers when the stock was trading at $21.24.
Dan held the position through a startling drop in early August, and then through a strong climb back up. By the end of March 2012, he was sitting on gains of around 15%.
But after that, things took a turn for the worse… Just one month later, those gains were completely erased. And by the beginning of June, the position was down more than 10%.
I see this kind of situation all the time. An investor gets some decent paper gains… and then hits a rough patch. All too often, he panics and bails.
But Dan didn't blink. His focus is on steady businesses trading at good values. He didn't lose that focus, and as you'll see, he was rewarded.
My point today is that you can use an even simpler method to limit your losses – and un-limit your gains.
Here's a look at Dan's STZ position by the beginning of June 2012…
You can see STZ never fell 25% from its April high, or even from Dan's original recommendation. It came close. But if you had used a 25% trailing stop loss – that is, if you decided to sell only when the stock fell 25% from its highest recent price – you would still be in the position. You wouldn't have had to think twice.
Not everyone realizes this – or understands how to use a simple stop loss.
Dan could have recommended selling at any point that year. Instead, he un-limited his profits… and held on to the position. A little less than a month later, it was up 35%.
But it didn't stop there. Dan held STZ for years… He didn't sell at 35%. He didn't even sell in July 2015 at a return of 446%. Instead, he held STZ until last November, when he finally sold the position – for a huge 631% gain.
The good news is, you don't need this kind of iron conviction to avoid selling too soon. All you need is a simple stop loss.
We never know when a stock will become a huge winner. But if you sell a stock every time you hit a certain threshold, you're limiting your gains. You'll never know the joy of sitting on a 631% winner, like Dan's Extreme Value subscribers did. And you'll remain part of the group of "average" investors who chronically underperform the market averages.
Using trailing stops is the easiest way to un-limit your thinking and un-limit your gains in the market.
Regards,
Richard Smith
Editor's note: Richard's work is designed to help individual investors un-limit their gains – and limit their risk. Tune in as he joins us for a live interview tomorrow, May 24, at 8 p.m. Eastern time. We'll discuss exactly when this historic bull market will end... and how to safely capture the last of the big gains ahead. Click here to learn more. |
Further Reading:
One simple – but dangerous – investing pitfall can allow knee-jerk market movements to limit your gains. "Think of it like playing poker with your hand showing," Richard writes. Learn how to stay in your winning trades right here: Two Strategies to Avoid a 'Flash Crash' and Sleep Well at Night. "Investors are leaving money on the table all the time... with nearly every investment they make," Richard says. Are you missing out on big profits? Learn how two simple strategies can help you avoid common mistakes – and take every opportunity to maximize your gains – right here: How to Take Back Your Unclaimed Money in the Stock Market. |
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WINTER IS OVER, BUT THIS COMPANY KEEPS GOING UP
Today's chart highlight's one of our favorite gauges of consumer confidence... Regular readers know we look at several sectors that tell us what's going on in the U.S. economy. In the past, we've discussed how cruise lines, hotels, and outdoor equipment can show us a lot about the confidence of American consumers. And that's true for the ski business, too. Add up the costs of equipment, winter clothing, lift tickets, hotels, and food... and you can see that when people are skiing more often, it's a good sign the American economy is doing well, too. For proof, we'll look at popular ski-resort operator Vail Resorts (MTN). The company owns resort hotels in the U.S., Australia, and Canada... And its ongoing expansion is paying off. In its second-quarter results, Vail reported a nearly 25% increase in lift revenue and a nearly 16% rise in visitation compared with the same period last year. As you can see below, Vail has been enjoying long-term success. Shares are up nearly 400% over the past five years and are now trading at new all-time highs. It's a sign that things are going well in the U.S. economy... |
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| Become a better investor by using this trailing-stop secret... It's important to know how big or small to make your trailing stops. Today, Porter reveals what size trailing stops tend to increase your portfolio's performance... Click here to get immediate access. |
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| What Happens to Stocks After Panics Like Wednesday's | | By Dr. Steve Sjuggerud | | Monday, May 22, 2017 |
| | I asked our True Wealth Systems computers a simple question... "What has happened to stocks in the past after one-day falls as big as Wednesday's (or bigger)?" |
| | You Shouldn't Be 'Super Excited' About This Record | | By Justin Brill | | Saturday, May 20, 2017 |
| | It took nearly 10 years, but it finally happened... |
| | All-Time Record Bets on Silver... Here's What's Next | | By Dr. Steve Sjuggerud | | Friday, May 19, 2017 |
| | Traders are making "extreme bullish bets on higher silver prices. And history says lower silver prices are likely, starting now." |
| | How This Ratio Can Dramatically Increase Your Income Every Year | | By Dr. David Eifrig | | Thursday, May 18, 2017 |
| | Watching the market flip and flop all over the place leads to bad decisions. People buy high and sell low. But there's an easier way... |
| | Think Like a Business Owner, Not Like a Trader | | By Dan Ferris | | Wednesday, May 17, 2017 |
| | "Multibaggers take time. If you can't be patient, you can't get rich in stocks. Period." |
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