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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.