If you’ve seen me on television or attended one of my investing presentations, you’ve probably seen me get a little animated at times. I can’t help it when the discussion involves something I’m passionate about, and investing is obviously one of those subjects. As much as I absolutely love digging for and finding NexGen stocks, I may be even more passionate about helping investors avoid the mistakes I see them making.
I get so riled up because these missteps are completely preventable. I also get angry because a lot of it is not the individual investors’ fault but all of the wrong information they’re getting.
I don’t want you to be hurt by these mistakes, so this week I am sharing the two that I consider the biggest and most harmful. They also happen to be the ones I see most often. They’re even somewhat related, like two sides of the same coin.
Critical Mistake #1: Watching Others Make All the Money
If you’re a member of my NexGen services or looking for good investing information, I’m hoping this one doesn’t apply to you. Or if it does, maybe just a little bit. By far, the biggest mistake I see is not participating in this bull market that goes back eight years to early 2009. I have heard countless stories to this effect for way too long, and I know there are still some holdouts who believe it is too late to buy today. My head starts to explode when I think about how much more money could have been made.
I’m not mad at the investors. I just feel bad that that they have missed out on so much, and I blame the financial media – the noise, as you may have seen me refer to it. As I get on my soapbox, now is a good time to point out that I use the term financial media very loosely. Most of the talking heads on the business networks have little knowledge of the stock market, and viewers should not be heeding their advice.
I saw firsthand yet another great example of this just yesterday in my office. During lunch, the father of one of my employees called him and asked if he was watching the news. My coworker said that he wasn’t and wondered what was going on. His father replied, “Fox News just said the stock market is crashing!”
In case you’ve forgotten what happened yesterday, the S&P 500 fell by a whopping 0.25% and the Dow closed lower by 0.15% – after 10 straight up days no less – and both indices closed a few ticks from all-time highs! Now, my employee’s father is a very intelligent man, so if he was fooled by the headline-grabbing media, I know he wasn’t the only one. Sure, stocks turned lower after President Trump commented on North Korea, but the breathless, kneejerk commentary in the financial media continues to astound me and hurt so many investors.
I completely get that buying into the stock market today is not as easy as it was in early 2009. That’s okay. It does not mean you sit on your hands because there are no opportunities anywhere. You just have to know how to spot them, and that’s where our NexGen system that incorporates fundamentals, technicals and intangibles gives us an edge. Since early May when we started both the longer-term and trading services, we’re eight for eight in closed positions. Of our open positions, two out of three are positive, and our biggest winners (three stocks that are up more than 23%) far outweigh our down stocks (one stock is down more than 6% while the others are 3% or less). Click here to learn more.
If I could shout it from the rooftops everywhere I go, I would: There is money to be made in this market! Don’t let the media or fear deprive you of the opportunities.
Critical Mistake #2: Turning Losers into Really Big Losers
The second mistake is the opposite of the first mistake: holding on to losing stocks that become really big losers. Every investor will have losses. They’re inevitable. You just want to keep them rare (I aim to be right 80% of the time) and smaller than you’re winners, as we just talked about. Holding and believing that a stock that is down has to turn higher at some point can absolutely crush any profits you may be making elsewhere. And I’ve seen first-hand that not all stocks make a comeback.
Every time that I am with a group of individual investors, I ask them how their portfolios are doing. And every time there is at least one comment – and usually more – about that one stock that killed their performance. “If it weren’t for the 85% drop in Valeant Pharmaceuticals (VRX) in 2016,” someone once told me, “I would have had a good year.”
Believe me, that investor is not alone. We’ve all taken our hits. When it comes to investing, we have to chalk it up to the price of education that the school of hard knocks charges us. But the key is that we have to learn from it. There are too many people who continue to make the same mistake, holding on to losers that keep taking huge bites of their portfolios.
I’ve learned from my losses in the past, and that’s why I place such importance on managing risk and staying disciplined. My job is to do more than recommend great stocks. It’s also to keep losses in check so they have an acceptable level of impact on your overall portfolio.
We always have risk management strategies in place for every stock that is ever added to our NexGen Buy Lists. We also have a profit management system that allows us to ride winners as they continue higher while protecting ourselves against sharp downside movements that can take those profits away. Losing what once was a big winner hurts as much as a big loser.
So if you have money in the market right now, give yourself a high five for being in the game when so many others aren’t. If you don’t, my message to you is that it’s not too late. There are a lot more profits to be made in this market both now and especially in the coming years as more innovations and trends take hold. And even if the market were to hit a bumpy stretch, you’ll be fine if you have strategies to manage your downside risk. You can have it both ways.