To be responsible and reasonable it is very important that rules exist to govern how and why you perform certain actions. If you don\’t have rules when you are investing and trading in the stock market, then you are relying on luck absolutely – and even gamblers like to do more than that.
I like the scenes in the transporter movies where Frank makes it clear that he lives his life based on rules. He does break his own rules a couple of times though, but I\’m going to start with the quotes that I can relate to our topic first.
Frank: Rule #1. Never change the deal.
When you make a trade, you need to know what you are getting into and what you hope to get out. Just like a business plan, have an exit strategy. What % loss, % gain will mean that you will exit the position.
If you are trading or investing in anything it is important that you do some homework. Mutual funds can be a little lax here. Don\’t think that it is worth your money to keep track of the financial news? Newsflash, it is, that\’s why you are INVESTING because you think that it is worth your time and money.
I used to have an actual stock broker though, and that can be legitimate, but there is the huge possibility that your representative is not really doing an adequate job of keeping track of your portfolio. In fact, I would suggest that you ask your representative what he and his other accounts are like and follow an asset allocation similar to that, at least then your account is more likely to be watched.
Frank Martin: You know my fourth rule? Never make a promise you can\’t keep.
I\’ve made the mistake of breaking rules and I\’ve gotten burned. If you are blinded by emotion you need to reconsider an investment. Like that REIT dividend payment, seriously consider the news on profits and bad news that happens. Pick some stocks that you are excited about. Under allocate to anything that you wouldn\’t sell.
I lost 75% of my value in $NFI – but I had been buying in as the price decreased with warning articles written by CBS Money. The funny part is that I had had stop orders that I purposely canceled because I was overly optimistic about receiving 9%+ every quarter.