The Alchemist: Cattle Ranching

Posted in Money Matters on September 2, 2002

The following is this week’s installment of The Alchemist, a column by Mensan Al Thomas, author of If It Doesn’t Go Up, Don’t Buy It. Click ‘Read More’ below for this week’s article, “Cattle Ranching.”

Cattle Ranching

by Al Thomas


If you owned a cattle ranch I think you would want to take care of all your animals from the head bull down to the smallest calf. They will need proper food, water and certain shots to prevent disease. You want them to grow so you will prosper.


If your cattle do well and your bull does his job you will grow your herd and your reputation among all the other cattle ranchers so people who are interested in buying stock will seek you out.


Here is something that is puzzling to me. When you have an account with a stock brokerage firm they don’t seem to be interested in helping you preserve your capital or to make it grow. Of course, that is not what they say, but it is what they do. Yes, they inundate you with beautiful green sheets, pink sheets and multicolor brochures, annual reports and prospectuses all of which are supposed to make you a knowledgeable investor. About 99% of that stuff is information that has no bearing on the bottom line. What is even worse is if you do buy something they do not help you make any provision for selling out if the stock starts going down.


This is like not feeding your heifers, not giving water to the calves and not giving the bull his extra vitamins. The herd no longer is producing the way it should. The calves aren’t growing and the bull is unable to perform. The farm is slowly going broke.


If the brokerage company took proper care of their customers they would have a happy group and their customers would bring new accounts to them. It is a shame that brokers are not taught the first rule of investing – to protect customers’ capital. One of the finest basic rules is not to ever lose more than 10% of capital in any one position. The simple way to do this is with a stop-loss order that is put in every day and called an OPEN stop. The stop should be raised every week as your stock goes up and if you have mutual funds you will have to watch these yourself as your broker does not have time because most of them have several hundred accounts. Never lower a stop.


You will find that if you are stopped out and you look at the price 6 months from then that the price of the stock will be lower about 80% of the time.


Of 44,000 brokerage company recommendations last year only about 400 were to sell. You cannot wait for the broker to tell you this. You must let the market tell you and it will do it with a stop-loss order.


A smart rancher takes care of his cattle. You must become the foreman on your own money ranch if you expect to see it grow. And for sure you don’t want the cattle to die off for lack of attention. That is up to you. Nobody else.


Copyright Albert W. Thomas. All rights reserved. Author of “If It Doesn’t Go Up, Don’t Buy It!” www.mutualfundmagic.com. Comments to al@mutualfundmagic.com.