The Alchemist: Never Lose Money

Posted in Money Matters on June 22, 2003

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, “Never Lose Money.”

The Alchemist: Never Lose Money

by Al Thomas


The stock market is on fire going higher and higher very week and almost every day. It looks like the bull is back for sure. 1999 all over again. Maybe.


Yes, I want the market to go up as that is how I make my income, but I also know it has a way of changing direction from up to either sideways or down. Then what? The true professional investor always knows when to sell as selling, not buying, is the key to investing success. Any fool can buy; it takes genius to sell. Well, maybe not genius.


It seems I am all-the-time negative about investing. No I am all-the-time trying to protect my money from loss, not only my principle, but also profits I have garnered when the market was rising. No one wants to give back profits.


Most people don’t know how easy it is to determine market direction so they hire a financial planner who also doesn’t know. It is unfortunate that about 99% (no exaggeration) of brokers and financial planners have no training in knowing whether the market is going up or down. I am not talking about short term direction, but I mean long term. Being in a long term up move that can last for years will make you a bunch of money. Conversely, being in a bear market and holding your securities will lose you most of your funds. Is there any way to know when to get out and go to cash or bonds? Yes there is.


Here is an open secret that your broker doesn’t know and will probably tell you doesn’t work. It does and will protect your 401K, IRA or any other stock or mutual fund portfolio you have. You will always know when to be a buyer and also when to have your funds in a money market account. You can easily check back by doing a little research on your own. I suggest going back about 5 years.


Using a computer (if you don’t have one go to the library) and on the Internet type in www.bigcharts.com Put in the symbol for the mutual fund you own such as JAVLX (Janus Twenty) and click on the red box to the right. When the chart comes up you will see a place for the time period on the left. Select 5 years and scroll down to Moving Averages and type in 200. Go back to the top and hit Enter.


As long as the price is above the Moving Average line you own it and continue to buy. When it drops below the line you sell and put extra cash into the money market until the next signal. Please note on this particular no-load mutual fund you would have been in cash during the terrible bear market that started in 2000 and now be a buyer at a much better price.


The hardest part about this simple method is staying in cash for long periods. Always check every no-load mutual fund like this before you commit your funds and you will never lose money in the stock market again.


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.