Page 395 - How to Make Money in Stocks Trilogy

270 BE SMART FROM THE START

2. If you’re in a bear market, get off margin, raise more cash, and don’t buy
very many stocks. If you do buy, maybe you should take 15% profits and
cut all your losses at 3%.
3. In order to sell, big investors must have buyers to absorb their
stock. Therefore, consider selling if a stock runs up and then good news
or major publicity (a cover article in BusinessWeek, for example) is
released.
4. Sell when there’s a great deal of excitement about a stock and it’s obvious
to everyone that the stock is going higher. By then it’s too late. Jack Drey-
fus said, “Sell when there is an overabundance of optimism. When every-
one is bubbling over with optimism and running around trying to get
everyone else to buy, they are fully invested. At this point, all they can do
is talk. They can’t push the market up anymore. It takes buying power to
do that.” Buy when you’re scared to death and others are unsure. Wait
until you’re happy and tickled to death to sell.
5. In most cases, sell when the percentage increases in quarterly earnings
slow materially (or by two-thirds from the prior rate of increase) for two
consecutive quarters.
6. Be careful of selling on bad news or rumors; they may be of temporary
influence. Rumors are sometimes started to scare individual investors—
the little fish—out of their holdings.
7. Always learn from all your past selling mistakes. Do your own postanaly-
sis by plotting your past buy and sell points on charts. Study your mis-
takes carefully, and write down additional rules to avoid past mistakes
that caused excessive losses or big missed opportunities. That’s how you
become a savvy investor.

When to Be Patient and Hold a Stock
Closely related to the decision on when to sell is when to sit tight. Here are
some suggestions for doing just that.
Buy growth stocks where you can project a potential price target based on
earnings estimates for the next year or two and possible P/E expansion from
the stock’s original base breakout. Your objective is to buy the best stock
with the best earnings at exactly the right time and to have the patience to
hold it until you have been proven right or wrong.
In a few cases, you may have to allow 13 weeks after your first purchase
before you conclude that a stock that hasn’t moved is a dull, faulty selection.
This, of course, applies only if the stock did not reach your defensive, loss-
cutting sell price first. In a fast-paced market, like the one in 1999, tech
stocks that didn’t move after several weeks while the general market was ral-