Parachute Investing

Ever jumped out of an airplane? It's OK if you have on a parachute. Pretty dumb if you don't.

Every buy any stocks, mutual funds or Exchange Traded Funds? It's OK if you know how much you are willing to risk. Pretty dumb if you don't.

Parachute investing is buying an equity with a parachute so you won't risk all your money or, better yet, give back the profit you have made as the stock or fund went up and then goes down. If you bought that hummer at $12 per share and during the past couple of years seen it go up to $52 you don't want to give back that nice profit, do you? With a parachute you can save most of it. How?

When you invest in any stock of fund you must know how much you will risk before you buy it and how much of the profit you are willing to give back when it turns down. Take that beauty at $12. Instead of going up it went down. Are you willing to agonize as it drops to $5? If you had a parachute you would have jumped out of the plane before it crashed. If you had an exit strategy for your stock you would have sold it before you lost a big chunk of your cash.

The secret of a safe investment is an exit strategy. When you bought Mr. Twelve Dollars you shook hands and told him I'd like to be your friend, but if you change your name to Ten Dollars I am leaving. Maybe that that is not very nice, but nice doesn't cut it in the investment world.

Mr. Twelve Dollars said I am going up and I want you for my friend. Please follow me and if I falter you can leave and we will part friends. Now that makes sense. You trail along and after it goes to $52 it does falter. Do you know where you are going to leave or are you going to ride it go back down to $12? In other words do you have your parachute on?

That parachute is your continuing exit strategy that is in place every day. In the investment community it is called an open trailing stop loss order. Any broker can put this in place for you. You might be lucky enough to have a broker who knows where to place stops, but unfortunately there are not many of them.

The brokerage industry does not teach its employees (brokers) how to protect customers' money. If that is the case you might want to use the old standard 10% rule. Have the broker place an open stop every Friday at 10% of the closing price of that day as it closes higher. Never lower the stop loss. Brokers hate this as it makes them work, but that is what they are there for and that is how they earn their commissions.

With your parachute you can always protect your original cash purchase from a big loss and as your stock advances you can lock in profit as the stock advances.

Every investment should have a parachute.

Al Thomas' book, "If It Doesn't Go Up, Don't Buy It!" has helped thousands of people make money and keep their profits with his simple 2-step method. Read the first chapter at http://www.mutualfundmagic.com and discover why he's the man that Wall Street does not want you to know.

Copyright 2005

---

What Does it Take to be a Stock Trader?

It takes a total mental commitment to the task. It... Read More

Race Horses and Mutual Funds

For years investors have been taught to look into the... Read More

What Our Investment Advisor Wont Say Off The Bat

Most advisors will tell you they can beat the market.... Read More

Invest In The Stock Market For The RIGHT Reason, Using The RIGHT Choices

Invest in the stock market for the RIGHT reason, using... Read More

Its A Bull, Its A Bear, Its Suptertrader!

The higher the market goes the more confusing are the... Read More

Never Lose Money

Never lose money in the stock market again. Yeah, I... Read More

Stock Market Investing: Knowing When (and when not) to Sell

One of the greatest challenges of investing in stocks is... Read More

Eternal Sunshine

There is a current movie entitled "Eternal Sunshine of the... Read More

Trading Baskets II: The Crapolio, A Roll of the Dice in the Stock Market

In a previously written article, we expanded the use of... Read More

Municipal Bonds

Because there are so many stocks that are NOT paying... Read More

Stops Make Money

During the day I watch CNBC-TV, the stock market channel.... Read More

Mousetrap

The spring-loaded rat catcher is the ultimate low-tech device invented... Read More

Online Investing & Stock & Share Trading: 4 Reasons Why Most Online Investors & Traders Go Broke

Are you attracted to the idea of being in control... Read More

China Syndrome

There has been great condemnation recently because China has been... Read More

The Right Mutual Funds For Baby Boomers

If you are a baby boomer, time is not on... Read More

Inverted Interest Rates

Inverted interest rates? What's that? Who cares? Even if you... Read More

Stock Investment Advice

Stock investment advice is easy to find. Do you get... Read More

Stock Market Insanity

Let's first define insanity. It is doing the same thing... Read More

Basics of Stock Market

Financial markets provide their participants with the most favorable conditions... Read More

Why Change Funds?

On November 17 I bought 7 different mutual funds and... Read More

The 401(K): How The Insider Has Stolen Your Retirement!

Mutual funds were moderately successful in creating a presence in... Read More

Will the Stock Market be Lower in October?

The stock market often closes a week in the middle... Read More

Social Insecurity

Just about everything you have been told about Social Security... Read More

Stuff

I continually hear from economists, talking heads, other market letter... Read More

The Information Age

It is wonderful to be alive in the information age.... Read More

Stock Market Education; Day Trading for Beginnners; How to Pick Stocks

The trading method you employ to approach the stock market... Read More

Boiler Room 7/17/00

On Friday or Saturday evening my wife gets a movie... Read More

A Good Fund Manager

Every Wall Street analyst, financial planner and broker will tell... Read More

The Stock Market - How Just One Question Will Tell You All You Need To Know About Your Stock Broker

Last time we looked at the real performance of the... Read More

Trading Tips No 5: Stock Trading Curve Drawdown and Commitment

All stock trading and investing methods must deal with the... Read More

Selling Strategies - Setting a Stop Loss

Sometimes the best way of lowering exposure to risk is... Read More

Dont Ask Your Broker

Unfortunately, most of you who are reading my column are... Read More

The Club

Yesterday I received my monthly issue of MONEY magazine. This... Read More