When it comes to investing in stocks, bonds and exchange traded funds (ETFs), we’ve all made wrong decisions. But good news – there are ways to right these wrongs.
Doug Kass of The Street.com suggests the following ways to avoid large losses when a tactical view is wrong. We also threw in a few of our own:
- Always stay on top of fundamentals and stay on top of industry specialists. Why is your position doing well, and will it continue to do well?
- Use out of the money puts/calls as protection if you feel that it’s necessary. This isn’t for everyone, though.
- Don’t press losing positions – employ your exit strategy and find another spot that’s trending up instead.
- Accelerate every portfolio holding by rechecking the fundamentals at a 5% to 7% loss and have a reasonable stop loss; a stop loss that’s too high could leave you suffering large losses, while one that’s too small could have you buying and selling more frequently. Our stop loss is 8%.
- Maintain a diversified portfolio – doing this with ETFs is easy.
- Watch the trend lines – use them as your guide as to when to get in and when to get out.
- Do your homework and know what is under the hood of the ETFs in which you’re investing. Don’t simply rely on the names of funds or other assumptions – do your due diligence.
- Use limit orders instead of market orders. Here’s why.
- Be open to new opportunities – trends are always shifting and with all the different asset classes that are now available (global regions, commodities, currencies), new trends are always developing.
- Have forgiveness – you’re only human. But with practice, you can become a pro at sticking to your strategy and making it work for you.
For more stories on trend following, visit our trend following category.
Kevin Grewal contributed to this article.