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When You Must Sell and Cut Every Loss . . . without Exception 251

dresses that are in demand.” This is common sense in any retail business.
Do you do this with your investments? Why not?
Everyone makes buying errors. The buyers for department stores are
pros, but even they make mistakes. If you do slip up, recognize it, sell, and
go on to the next thing. You don’t have to be correct on all your investment
decisions to make a good net profit.
Now you know the real secret to reducing your risk and selecting the best
stocks: stop counting your turkeys and get rid of your yellow dresses!

Are You a Speculator or an Investor?
There are two often-misunderstood words that are used to describe the
kinds of people who participate in the stock market: speculator and investor.
When you think of the word speculator, you might think of someone who
takes big risks, gambling on the future success of a stock. Conversely, when
you think of the word investor, you might think of someone who approaches
the stock market in a sensible and rational manner. According to these con-
ventional definitions, you may think it’s smarter to be an investor.
Baruch, however, defined speculator as follows: “The word speculator
comes from the Latin ‘speculari,’ which means to spy and observe. A specu-
lator, therefore, is a person who observes and acts before [the future]
occurs.” This is precisely what you should be doing: watching the market
and individual stocks to determine what they’re doing now, and then acting
on that information.
Jesse Livermore, another stock market legend, defined investor this way:
“Investors are the big gamblers. They make a bet, stay with it, and if it goes
wrong, they lose it all.” After reading this far, you should already know this is
not the proper way to invest. There’s no such thing as a long-term investment
once a stock drops into the loss column and you’re down 8% below your cost.
These definitions are a bit different from those you’ll read in Webster’s
Dictionary, but they are far more accurate. Keep in mind that Baruch and
Livermore at many times made millions of dollars in the stock market. I’m
not sure about lexicographers.
One of my goals is to get you to question many of the faulty investment
ideas, beliefs, and methods that you’ve heard about or used in the past. One
of these is the very notion of what it means to invest. It’s unbelievable how
much erroneous information about the stock market, how it works, and how
to succeed at it is out there. Learn to objectively analyze all the relevant
facts about a stock and about how the market is behaving. Stop listening to
and being influenced by friends, associates, and the continuous array of
experts’ personal opinions on daily TV shows.