Page 383 - How to Make Money in Stocks Trilogy

258 BE SMART FROM THE START

For example, the way I handled Certain-teed, a building materials com-
pany that made shell homes, was especially poor. I bought the stock in the
low $20s, but during a weak moment in the market, I got scared and sold it
for only a two- or three-point gain. Certain-teed went on to triple in price. I
was in at the right time, but I didn’t recognize what I had and failed to cap-
italize on a phenomenal opportunity.
My analysis of Certain-teed and other such personal failures proved to be
the critical key to my seeing what I had been doing wrong that I had to cor-
rect if I was to get on the right track to future success. Have you ever ana-
lyzed every one of your failures so you can learn from them? Few people do.
What a tragic mistake you’ll make if you don’t look carefully at yourself and
the decisions you’ve made in the stock market that did not work. You get
better only when you learn what you’ve done wrong.
This is the difference between winners and losers, whether in the market
or in life. If you got hurt in the 2000 or 2008 bear market, don’t get discour-
aged and quit. Plot out your mistakes on charts, study them, and write some
additional new rules that, if you follow them, will correct your mistakes and
let you avoid the actions that cost you a lot of time and money. You’ll be that
much closer to fully capitalizing on the next bull market. And in America,
there will be many future bull markets. You’re never a loser until you quit
and give up or start blaming other people, like most politicians do. If you do
what I’ve suggested here, it could just change your whole life.
“There are no secrets to success,” said General Colin Powell, for-
mer secretary of state. “It is the result of preparation, hard work,
and learning from failure.”

My Revised Profit-and-Loss Plan

As a result of my analysis, I discovered that successful stocks, after breaking
out of a proper base, tend to move up 20% to 25%. Then they usually
decline, build new bases, and in some cases resume their advances. With
this new knowledge in mind, I made a rule that I’d buy each stock exactly at
the pivot buy point and have the discipline not to pyramid or add to my posi-
tion at more than 5% past that point. Then I’d sell each stock when it was up
20%, while it was still advancing.
In the case of Certain-teed, however, the stock ran up 20% in just two
weeks. This was the type of super winner I was hoping to find and capital-
ize on the next time around. So, I made an absolutely important exception
to the “sell at +20% rule”: if the stock was so powerful that it vaulted 20%
in only one, two, or three weeks, it must be held for at least eight weeks
from its buy point. Then it would be analyzed to see if it should be held for