THE ALCHEMIST                           by AL THOMAS
                    EMOTIONAL TRADING
     The single most expensive stock market trades
are those made with emotions, but, of course, you

are not an emotional trader are you?
     Before you bought that stock, mutual fund or
Exchange Traded Fund (ETF) you did your research
to be sure that what you were buying would return
a good profit over the long haul. You bought it
and over time you look at it less and less.
     Ask yourself: when you plunked down your hard
earned money did you have any idea where you would
sell it or where you might exit the trade should
the stock go down instead of up? And suppose it
has gone up have you made any plans to protect
those profits?
     There were many geniuses in 1999 who bought
a tech stock at $20 and saw it run to $200 only to
come back down to $2. Those who had an exit
strategy probably sold out as it turned over and
dropped like a rock. They kept most of their
profits as well as their original investment.
     What kept those BuyNholders in? It was
emotion. They fell in love with the stock because they
“knew” it was worth more and would “come back up”.
 Investing is not an “I hope, I hope” business,
but it is a business. Never become emotionally
attached to anything you buy. If you were in the
buggy whip business in 1900 and saw the automobile
putting the horse out to pasture you easily knew
it was time to sell out. That also applies to any
investment you make in the stock market.
     Once each month you should be checking to
see if your various stocks are advancing as planned.
Forget all those pretty research reports your
broker sent you. Burn them. Now you must not care
anything about that company. What you care about
now is your money. As long as the stock price is
advancing you may continue your love affair, but
when it starts down it is time for a divorce. Time
to leave before the damage gets worse.
     This is where emotion becomes expensive. If
you just bought it your ties are strong and you know
if you sell you will have a loss. Never fall for
that old broker’s adage that you don’t have a loss
until you sell. Anyone who believes that will be
eating cat food at retirement.
     When you bought that new car you knew as soon
as you drove it off the lot it would be worth 20%
less than you paid for it. Twenty percent is a lot
and more than most folks should be willing to risk
when investing. Forget “the long haul” as you
don’t want to take the 40% losses that many
investors did in 2000.
     Usually a good rule of thumb is 10%. When you
drive that stock off the exchange floor your risk
should be limited. You decide how much you are
willing to lose if it goes down instead of up and
as it goes up carry that risk percentage along to
lock in your profit.
     If you do sell never look back. Fagedaboudit!
In 80% of those sales when you do look back six
months later you will see you are way ahead in

the money game.
     Do not allow an emotional attachment to keep
you in any stock or fund. It will drain you both
mentally and financially.

 

  F*R*E*E investment letter www.mutualfundmagic.com
Author of best seller "IF IT DOESN'T GO UP,
DON'T BUY IT!" Never lose money in the market.
Copyright 2004 Albert W. Thomas All rights
reserved.  Former 17-year exchange member, floor

trader and brokerage company owner.