Page 1159 - How to Make Money in Stocks Trilogy

144 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

Namtai Electronics – 2003 38% profit before drop Price 38
Weekly Chart 34
30
Backstory at Time of Purchase 28
- Had just released new Eye-Toy 26
motion-tracking accessory for 7% loss 24
Sony’s PS2 game console Ignored 2 sell signals: 22
- 99 Composite Rating - Fell 7% below my buy price
- 97 EPS Rating - Biggest drop on heaviest volume in 19
- 96 RS Rating months and close below 10-week line 17
15
Bought late at $30 on 14
13
bounce off 10-week line
12
Finally sold: 38% gain 11
now 21% loss
10
© 2013 Investor’s Business Daily, Inc.
Volume
5,000,000
3,000,000
1,800,000
Mar 03 Jun 03 Sep 03 Dec 03 Mar 04 Jun 04
I learned my lesson: Always sell if a stock drops 7%–8% below what you paid for it.

I made two mistakes:
1. I let a decent gain disappear and turn into a loss.
2. I let a small loss become a big one.

Here’s a very important point: I knew the rules but chose not to follow
them.
I think we all come face to face with that issue at some point, especially
when starting out. It’s one thing to have rules. It’s quite another to actually
stick to them in the heat of battle.
There can be a big difference between how you think you’ll behave and
what you actually do when you have money on the line. It’s like playing
poker for peanuts or potato chips: It’s just not the same unless you have skin
in the game.
I know the 7%–8% sell rule sounds obvious and sensible, so it’s easy to
just read this and move on. But it is absolutely essential that you take this
rule to heart. It will be an indispensable part of your success.
There’s a great scene in the movie Good Will Hunting where Robin
Williams, a psychiatrist, confronts Matt Damon, a troubled but brilliant stu-
dent who comes from a broken family. In an effort to get Damon to realize