The Best Thing I Ever Learned About Investing

By Al Thomas

Way back when the dinosaurs were running around and I started to trade there was no Internet where I could find classes or receive advice. I had to do it on my own.

At my wedding reception I was introduced to a friend of my wife who was a stock broker. A few months later he suggested I open an account with him and he would help me. Being a novice I believed him. He was a very good burner and churner.

Burner and churner? Oh, that is a broker that is always making trades for your account and generating lots of commission and burn your money away. He would call me with a “suggestion” and, of course, I told him to go ahead. He was very good. He gave me action and kept my account “even” which is more than most brokers can do.

One day when I was on LaSalle Street (that’s like Wall Street in Chicago) I stopped into his brokerage office. He showed me the charts he was using to make trading decisions. WHAMMO! It was an epiphany I immediately saw the regularity of the chart patterns.

Chart subscriptions were very expensive so I bought some chart paper and started making my own. For years I made 40 dailies and 200 weeklies with no help from anyone. Very few people knew or understood technical analysis.

Then I took a 6-week class with a broker who came from Detroit every week. It was very expensive, but his material could be taught today. Wish I could find it.

Bert taught several important technical methods, but the single most important investment method was to always use stop loss orders. I learned that the stock market is not about buying. Any fool can buy. The successful investor is the one who learns how to sell.

About 99% of people who buy stock think about how much it is going to go up. Very few ask their broker where to sell if it goes down. Furthermore when it does go up how do you take you profit? How do you protect that hummer if it has been bought at $10 and starts up steadily going to 40 or higher? Has your broker ever mentioned a trailing stop loss? Probably not. The same technique applies to mutual funds.

Full service brokerage companies do not like stop loss orders, but it is your money and they are there to serve you. You must keep in mind two ideas: protect your profits when your stock or fund goes up and protect your capital should the stock go down after it has been bought. Small losses an investor can live with. It is the big ones that that will make him poor.

Become a successful investor. Always place a stop loss order as soon as you buy any stock.

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 2010 Williamsburg Investment Co. All rights reserved.