Randall, a retired businessman had never handled his own investments.
He was scared, but excited to take control of his retirement.
Like most of us, he had experienced drawdowns in his managed account, but just tossed the quarterly reports, assuming he was in good hands.
The experts were doing their best and 'buy and hold' would work out in the long term.
Or so he thought.
He took a check into an online broker, and filled out paperwork.
Two days later his account was ready to invest in any stock he wanted to buy.
Randall had visions of making big bucks, and showing everyone how good an investor he was.
He watched the TV business channels and investing shows.
He bought their recommendations.
Then September 2008 came, and the market slide over the next 60 days, Randall did not know what happened.
He followed the "experts" advice; he bought all of their recommendations.
His losses were significant.
What mistakes did Randall make? Hint: he owned 35 stocks, he did not use trailing stop losses, and he had uneven positions.
Randall bought all of his stocks beginning in August 2008.
He was almost fully invested by the end of September.
Money was burning a hole in his account; he felt pressure to get it invested.
He looked at every stock recommendation as an opportunity not to be missed, and bought blindly.
He was heavily invested in consumer and technology companies.
He had heard of these companies, and was comfortable investing in "something he knew.
" Thirty-five stocks are too many different companies to follow.
This can lead to staring at the screen, and seeing nothing.
Twenty stocks is a large enough portfolio, but small enough to keep track of each one.
If you find a company that you believe offers an exceptional opportunity, sell something you already have.
Replace the weak with the strong.
Uneven positions...
always have equal dollar distribution in your position sizing.
If fully invested means owning 20 stocks, each stock should be 5% of your total stock investment funds.
For example, if your stock account is $100,000 then each stock position should be as close to $5000 as possible.
It does not matter if the stock price is $5 or $100 per share; keep the total position close to 5% of your total stock account.
This way, a 10% gain in one stock is equal to a 10% loss in another.
We recommend always using a 20% trailing stop.
A trailing stop starts as 20% off the purchase price and adjusts up with the price of the stock.
Do not enter in your computer! Monitor closing prices, if you close below the trailing stop, sell the next day.
Your selection of companies to own should be in different sectors of the business world.
You do not want to be invested in companies that only operate in the corner mall, any more than you want to be all in for utilities or natural resources.
Try to cover a few different sectors; you never know which one will experience the next bull market.
Randall made a right move to set up his online account.
He can control his costs with low expenses.
Add diversity of assets, trailing stops, position sizing and he is ready to enjoy his retirement and watch his account grow.