The Alchemist: I’m In Love – Again!

Posted in Money Matters on September 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, “I’m In Love – Again!”

The Alchemist: I’m In Love – Again!

by Al Thomas


It’s 1999 and my stock is going up like there is no
tomorrow. I can see NASDAQ 5000 not too far ahead and DOW 12,000. I’m in
love with all those stocks that became losers because they are coming
back. Well, some of them are.


Never mind the fundamentals of the economy – monstrous
debt, a weak dollar, record highs in personal bankruptcy, billions of
dollars in war debt each month with no end in sight, etc, etc. My stocks
are coming back and I’ll be able to retire pretty soon and live like a king.


People become so emotionally euphoric about their good
fortune that they forget what happened in 2000. The NASDAQ broke down
80% and the S&P about 40%. Can it happen again? You bet it can so you
better start now to do something about it. But what? The last time the
markets started down you sat there with your finger up your nose and saw
your big fortune become a small fortune or no fortune at all. You got
more fortune in your cookie at the Chinese restaurant. If the market
starts down are you going to watch that happen again? I hope not.


Too many folks become emotionally attached to the stocks
and mutual funds in their account. They fall in love with their
positions. It was love at first sight in 1999, but the love cooled as
the market sank. Now as the market warms up you are warming up as those
old flames are being rekindled, but can you trust those old love
affairs? What if they leave again?


No one knows what the stock market will do tomorrow, next
week or next year so you must not allow it to rule your life or steal
your money. You must protect your wallet by putting a chain on it. That
chain is a loss limit order. Your broker knows it as a stop-loss order
for stocks. You can’t put one in for mutual fund so you will have to
watch those prices yourself. The broker isn’t going to call you. It is
your money and no one has a greater interest in it than you.


This is not a three-part love affair – you, your money and
your broker. It is just you and your money and any broker will only make
it a love triangle that won’t work.


A trailing 10% stop-loss order will save you huge amounts of money and
the nice thing about a stop-loss once you have entered it you don’t
have to think about it any more. The market will tell you when to get out.


The basic problem with owning stocks and mutual funds is
that you do fall in love with them. After all you liked them well enough
to buy. This is like a love/hate relationship as there is more than
money involved. You have to admit you were wrong. That’s the kicker,
but like a bad marriage it should be terminated sooner than later. It is
a lot less costly.


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.