Filene Plan For Stocks

By Al Thomas

In the 1930s a retail store in Boston, Massachusetts was having the same problem all retailers were. At the end of a season many of their seasonal garments were on the hangers with no buyers.

The store needed space for new merchandise. The Store Manager came up with an idea to move it out. By mid-August he started to mark down all the summer dresses and bathing suits by 10% each week. It was advertised in the papers.

Ten percent wasn’t much, but some sales were made. The following week another 10% was marked off and more sales followed. During the 3rd week the ladies were waiting at the door when the store opened and all the summer merchandise was sold.

In fact, during the second week many customers asked if certain items could be saved for them for the following week.

How about looking in your stock portfolio? Are there some stocks or funds that have been in there gathering dust, giving no return and tying up money that could be earning an investment return elsewhere? Isn’t it time to take your own “mark down” to clean out space for new stocks that will make you some money?

Brokers are always preaching the sermon about “buying a good stock and putting it away”. During the last 10 years many of the “good” stocks are selling for less that they did way back when. You can’t dance to that music.

There is a “Filene Plan” for you portfolio. When you buy any equity – stock, ETF, bond, commodity – you must know when you want to sell. That doesn’t mean at a profit. It means if the equity starts down after it is purchased the investor must know immediately where he will sell even if it is at a loss. Small losses will not hurt the portfolio; it is the big ones that hurt.

A $50 stock that drops to $25 means it must go up 100% to go to ‘even’. Even is not a winner and the chance of a 100% rally is almost zero.

Where does the smart investor sell? All professional traders will say 10% is a good number. If a stock was bought at $40 per share it must not be kept if it drops below $36. If it went up then each week the stop should be moved up.

Don’t sell just because it has a profit. It may go higher. Let the stock tell the owner when it turns weak. That 10% stop (or whatever exit method is chosen) will allow the stockholder to make a big profit once in a while. Those are the ones that help an investor become rich.

The Filene Plan applied to a retirement portfolio will have it invested it in profitable equities at all times.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy It!” has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he’s the man that Wall Street does not want you to know. Copyright 2009 Williamsburg Investment Co. All rights reserved.
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