Page 1163 - How to Make Money in Stocks Trilogy

148 HOW TO MAKE MONEY IN STOCKS—GETTING STARTED

That’s an opportunity cost none of us can afford to pay.
Consider the case of DryShips we saw earlier: From November 2006
to November 2007, the stock soared from around $14 to $131—an 835%
gain in just one year. Even if you only got a small piece of that move, it
could still mean a big profit.
But if you kept holding that stock as the financial crisis pushed the
market into a sharp downtrend, you would have seen DryShips drop from
$131 to under $2 over the next 5 years.
That loss is painful enough, but it gets worse. Investors who sat there
holding DryShips would have missed all the new big winners that
emerged in the 2009 bull—stocks that surged 100%, 200% or much
more: Chipotle Mexican Grill, Apple, Ulta Beauty, Lululemon Athletica,
Watson Pharmaceuticals, Tractor Supply, Ross Stores, Dollar General,
Panera Bread, Intuitive Surgical, SolarWinds, Rackspace Hosting,
Priceline.com, TDG, Mellanox Technologies, Michael Kors, 3D Systems
and dozens more.
All of this just brings us back to that one simple concept: Make money in
an uptrend by following the Buying Checklist. Then lock in those profits—
and cut short any losses—when the market weakens by using the Selling
Checklist.
That’s how you make money in stocks.

How to Properly Apply the 7%–8% Sell Rule
Note that this rule is only triggered when a stock drops 7%–8% below your
purchase price. For example, if you buy a stock at $100 a share and it drops
to $92, sell.
But let’s say you buy a stock at $100, and it goes up to $150. If it then
drops 8% from there to $138, that does not trigger this sell rule.

Start Out Right: Stick to the Plan
As I said at the very beginning of this book: Keep it simple. Don’t overcom-
plicate what you need to do.
If you regularly check current market conditions and follow both the
offensive and defensive sell rules in the checklist, you’ll be in good shape to
make good money.