The Greatest Investment Lesson You'll Ever Learn

Today's guest post was submitted by Dr. Steve Sjuggeurd, founding editor of Daily Wealth. Dr. Sjuggeurd shares two tips he feels will help you wrestle the markets and come out on top. Feel free to share, comment and enjoy.

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My friend Elwood is as smart as anyone, anywhere.

I met Elwood when I moved to the Northeast Florida coast a decade ago. Elwood broke the hillbilly stereotype. I learned a Southern accent doesn't mean you're uneducated (just like a New York accent doesn't necessarily mean you're pushy and abrasive).

When Elwood talks, I listen. Elwood stopped by my office the other day. It turns out, he just had his first "ten-bagger"... a stock he owned that went up tenfold. I asked him to tell me the story.

Steve, I'd been readin' your stuff. And I wanted to buy some silver to add to my gold. This was about two years ago. I decided on Silver Wheaton. I bought at $3.40 a share.

I did like you say to do... Once I was up by 100% on Silver Wheaton, I sold half. That way, I was playin' with the house's money. From there I let it ride, like you say.

Well, I've been ridin' it. And it's now up to $34 a share. I'm up tenfold. And based on your most recent write-up of Silver Wheaton, I'll keep ridin' it.

Elwood did it exactly right...

Look, the simple fact is, you'll never have a tenfold winner if you sell early. You have to let your winners ride.

The flip side is true as well... Never let a small loss turn into a big one.

This table tells the story. Let's say your investment loses 10% or 20%... or even 90% (in the left column). In the right column is how much your investment has to rise to get back to where it started...

If a stock is down 10%, it only has to recover 11% to get back to where it started. But if it's fallen 50%, it has to recover by 100% just to break even. Chances are downright terrible that will happen.

If you simply follow these two rules – let your winners ride and never let a small loss turn into a big one – you should make a fortune in your investments.

The trouble is, most people can't follow these rules. As soon as they see a little profit, they sell. But when they're in the red, they "hold and hope." That's doing exactly the opposite of these two rules.

You never want to put yourself in the position of having to hope a big loser doubles just to break even. You want to be like Elwood... cutting losers and riding winning positions as long as you can. That's how you make tenfold gains.

Good investing,

Steve

P.S. You can't know in advance when a stock will soar by 200% or drop 50%. You can't know when speculative frenzies will kick in or when stocks will crash. But if we position ourselves so we can participate in the frenzies, and avoid the meltdowns completely, we're doing the right thing.

To learn more about how to protect and grow your money with more of True Wealth's investing secrets, click here.

14 thoughts on “The Greatest Investment Lesson You'll Ever Learn

  1. Folks mention high trading fees. I was using TD Waterhouse until recently. $10 to $20 per trade... Now I use Interactive Brokers and often see $1 trade fees.

  2. rsvp: billy. please tell me you're serios about the
    'what should i do with .79 worth of stock" puulleasse give us a brteak. if you're messing with with shares that go for that kind of money,(.oooo752 cents) please do yourself a favor and don't tell ever

  3. A few month ago, I made some money on a new Jr. Miner called SILA. I got in at .73 sold some at $1 and bought some low and sold high a couple of times and made several hundred. Last month the bottom started falling out of it. I have about 79 cents in 10500 shares. It is around 40 cents now a days.
    Should I wait and hope for a rebound? They claim they have good gold claims, but no gold and silver mining going on yet. Take my lumps or wait?

  4. Doug, depends on how you want to view a "ten bagger". The half of the shares he held onto are now worth 10x what he bought them for........tenfold increase, so still makes him a ten bagger.

    Profit (if sold at $34 and not taking costs into account) of 550%.........nice!

  5. Adam,

    I like MarketClub, are the "Associates" or other investment advisors etc.. qualified in anyway prior to being allowed to be linked or associated with MarketClub?

    1. Eric,

      As with any investment care must be taken. While we think highly of everyone we do not endorse any other program except MarketClub.

      Thank you for your feedback and every success in 2011.

      Adam

  6. I essentially did the same thing with First Majestic Silver. I bought it in 04 @ $1.60, so it is not quite a 10 bagger yet, but it is in the same sector and I am confident it will get there. The philosophy however is well expressed. The problem with juniors is that they can be rather volatile so tight stop losses will shake you out of some good stocks limiting your upside and increasing your trading costs. My rule of thumb with junior mining stocks is to sell 25% on a 50% rise and another 25% on a DOUBLE and let the rest ride as long as the company is moving forward.

    There is however a very distinct development cycle for juniors that at times makes it prudent to sell out and wait for the next major catalyst that could move the stock. It might be a feasibility study, an expanded N1-43-101 release, acquisitions or acreage expansion, mine construction announcement, major financing, many different events unique to each stock. Some may be dead money for a long time when there is no market moving news so it is essential to monitor your portfolio regularly rather than operating on a "buy and Hold" premise that was the norm years ago for many investors.

  7. I've been trading for several decades, and have been very successful. I use a very productive trading software for the Mac called Hotline. What is really unusual, is the fact we have TRI-STAR TOPS in several of the averages right now, including the S&P. I am on top of the markets several times a day. I honestly do not believe I have seen a TRI-STAR TOP in at least 20 years!!! --It is said to be very important-- as marking a top. What is your take on this Adam? Thank you.

    1. Steven,

      Thanks for your feedback.

      You are correct a TRI-STAR TOP is a rare occurrence. I am not seeing what you are seeing however. I am looking more at some possible major divergences.

      2011 should be a very interesting year on all counts for traders

      All the best,
      Adam

  8. Actually, he's "only" up 5-fold if he sold half early on. Only the remaining half went to 10x. Small quibble, and I understand the psychology of "playing with house money" as it keeps you from selling on the slightest dip...

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