Stop Losses for Investments
Most investors buy a stock, fund, or other investment and never consider the risk they are taking. They assume that their stock will move up in value over time and all they need to do is wait.
Unfortunately, this puts many long-term investors at a very high risk of losing a substantial amount of their capital.
The Stock Market is the Business of Businesses. All stock transactions are related to the business cycle and the company cycle. All cycles for businesses contract and expand over and over again. Some have 2–6 year expansion-to-contraction cycles, while others have longer cycles. The cycles can cause huge losses of stock value that may not recover for a long time.
Therefore, the Stock Market has a cycle. Every public company has a cycle.
MSFT is a perfect example of a great company and wonderful stock that has underperformed for more than a decade.
If you bought MSFT in the mid- to late 1980s, then you enjoyed a long upward trend and extended cycle of expansion. If you understood cycles and sold MSFT in 2000, then you would have made a very good profit.
If, however, like most investors, you waited until MSFT became one of the S&P 500 stocks, then you bought at the extreme high of the peaking expansion and have been holding a stock losing value for more than a decade.
In 2000, when the first wave of selling started as the technology bubble burst, all of my long-term investing students started calling me frantically because their stop losses had been triggered. They wanted to know if this was just a “dip” and if they should get back into their stocks. I advised them that the stop losses were a signal that something serious was underway.
Since our students who had invested long-term had stop losses in place as the market collapsed in 2000, their retirement funds and long-term investment profits were saved and they didn’t lose any money. They kept most of their profits.
This is why all investors need to learn about long-term stop losses. The market cycles and stocks cycle. It is pointless to invest long-term if you are going to let your stock rise in value for many years only to watch it lose all that value and more, erasing your capital as well.
That is not investing.
Learn to use Long-Term Stop Losses.
It is simple and will save your long-term investments from catastrophic losses.