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

---

Exchange Traded Funds Primer

Exchange Traded Funds (ETFs) are a group of passive index... Read More

Financial Crime

Congress recently passed another new law that is supposed to... Read More

Outsourcing

It's about time someone spoke the truth concerning outsourcing. The... Read More

Dont Lose All Your Money

That sounds like good advice doesn't it? Don't lose all... Read More

Advisory Service for You?

It depends on your level of understanding of the market... Read More

Successful Trading ? Establish Your Risk Level

Before you embark upon a journey of trading stocks or... Read More

So, What is This Stock Market Thing Anyway?

We've all heard of the stock market and probably have... Read More

Hot Stock Trader: How to Pick Momentum Stocks with Ease and Simplicity

Most stock traders know that momentum trading can be a... Read More

Economists #2

Economists know more about how the fragments of society work... Read More

Stock Trading - Daddy, Why Arent We Rich?

One Saturday morning, while he was sitting at his computer... Read More

How Eating Bitumen Made Me a Better Trader

Trading is a fascinating activity.There are so many layers to... Read More

The 1% Solution

You probably know the story of Sherlock Holmes and the... Read More

Online Investing & Online Stock & Share Trading: Difficulty in Taking Stop Losses in the Market

This is an extract of an article which was first... Read More

KISS Formula

There are formulas for just about everything, but it has... Read More

Understanding a Stocks PEG Ratio

A PEG ratio cannot be used alone but is a... Read More

Complacency

During the month of January the Dow Jones Industrial Average,... Read More

Low Expense Ratio

One of the big advertising kicks today from mutual funds... Read More

You Wont Like This

Why? Because I am going to shatter your conventional wisdom... Read More

How To Buy And Hold

One of the most believed bits of conventional wisdom from... Read More

Investing in the Stock Market

From the book 'The Stockopoly Plan' by the author Charles... Read More

Trapeze Artist - Swinging with the Stock Market

When we go to the circus we see a trapeze... Read More

Patterns

The Law of Chaos is the theory of random unpredictable... 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

Commoditizing the world

Let's discuss commodities; with the latest Enron situation, it is... Read More

The Three Little Pigs Went to the Stock Market

Three little pigs went to the market to stock up... Read More

The Secret Method to Selecting a Winning Trading System

Every successful trader has a winning system. There are of... Read More

The Importance of Using Stop Loss Orders When Spread Trading the Financial Markets

A Guide to Using Stop Loss Orders Stop losses are... Read More

Which Way The Market

I am hearing predictions by brokers, financial planners, talk show... Read More

Tips to Finding Other People?s Simple Trading Plans

Did you know you can make money (and a lot... Read More

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

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

Never Fall In Love!

Recently I watched my favorite football team lose a vital... Read More

Oil Stocks As A Long Term Investment

The demand for world oil is increasing while world reserves... Read More

Investment Attorneys and Garbage Stocks

How is it possible that trash Companies are posting less... Read More