The Alchemist: Nest Eggs and Omelets

Posted in Money Matters on December 17, 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, “Nest Eggs and Ometlets.”

The Alchemist: Nest Eggs and Omelets

by Al Thomas

Do you have a nest egg? You know, a place you are stashing
away money for the future - retirement, down payment on a house, the
kids’ education. That kind of thing. How’re you doing?

If you have been putting it in the stock market you have
been watching it get smaller instead of bigger. Your nest egg is
becoming an omelet instead of hatching into a wonderful creature. There
are places for your money, but for the next few years you will be better
off in a simple savings account or money market fund.

Stay away from the big name mutual funds. If you don’t believe me have
a look at what they have done with your money for the past 3 years. Most
have lost about 50%, some 60% and more. Their story now is they are
“cheap” and a great buy; they can’t go any lower - but they probably
will. Mutual funds only work in a bull market and the bull was chased
back to the barn in 2000. The bear is now out of his cage and has the
run of the premises.

When the stock market bubble (let’s call it an egg) broke 3 years ago
your broker, financial planner, banker had no plan to protect your
capital. None of them had ever seen a bear market and none were trained
to protect customers’ money. Brokers are salesmen and are not there to
help you make money even though they think they are. Their employer not
once has ever told them the great secret of the market. That secret -
SELLING.

Having been a member of the exchange and a floor trader for many years
I learned how and when to sell. If you didn’t you would not last very
long . You would be broke.

There is a way to keep your egg from becoming fried, poached or
scrambled, but your broker will not tell you. Most of them don’t know
and their companies don’t want you to find out. Selling and putting your
cash in a money market account does not make them any money.

There is a thing called a stop loss order for stocks. The simplest one
is for 10%, but you can make it any amount you wish - 5%, 15%, whatever.
The best time to calculate your stop is Friday or Saturday. If your
stock is $40 you figure 10% or $4.00 and you call your broker on Monday
morning and tell him to place a Good ‘Til Cancelled Sell order at $36.
As your stock advances move the stop-price up, NEVER down. This allows
the market to tell you when it turns weak rather than you trying to
guess when to sell. Your stock might go to $100 before you are stopped
out at $90.

Now is the time to protect all your eggs with a big soft stop-loss
cushion.

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.