Think Score Gains. Not Stop Losses. By Natalie Pace.

Megan Rapinoe in May 2019. The US Women's National Team were the repeat champs of the Women's World Cup. Megan was a captain, the winner of the Golden Boot and the Golden Ball, and was named Best Player of the Finals Match. Photo by Jamie Smed. Wiki Commons. Used with permission.

One of the most common questions I get asked by investors is, "Should I set stop losses to limit my losses?"

My answer? " Why not set capture gains to score wins instead?"

In your nest egg, if you’re properly diversified, protected and capturing gains through your annual rebalancing, then you might even earn gains in a downturn (as Nilo Bolden did). That is going to be harder to do in the next pullback because bonds are vulnerable. So, you have to know what’s safe in a world where both stocks and bonds lost money last year. If you have a stop loss strategy that first locks in your losses and then automatically transfers your equities to fixed income or a money market fund, you could lose there as well. With the amount of risky leverage going on, you really have to know what you own. 

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Low interest rates create bubbles. The problem is that this time interest rates are still low at the top, so there's no room to cut.

In your individual trading, if you’ve done your research upfront and have made an investment that you are confident was purchased at a bargain, then if the price drops, the right answer is to buy more lower. This takes wisdom and training. If you rely on what you feel like doing when a price goes down, then you’ll be simply selling low.  

A Capture Gains Strategy for Your Nest Egg
A time-proven nest egg strategy requires annual rebalancing to be successful. In your nest egg, you should rebalance once a year. (Click to learn more in my Rebalancing Blog.) This is a Buy Low, Sell High system on auto-pilot. When the price goes down, you buy more lower. When gains are piling up, it’s time to trim the fat slice back to where it should be, i.e. selling high. Keeping enough safe, and knowing what’s safe in a world where stocks and bonds are in a bubble, is a better strategy than selling low.   

In your trading, you always need an exit strategy, but that exit strategy shouldn’t be based on locking in losses. You should be confident that there is a window of opportunity for you to earn gains before clicking the Buy button. The Stock Report Card and 4 Questions for picking a leader can help you to make better choices in your trading portfolio. (I teach these strategies on Day 2 of my Investor Educational Retreats.) If you are just going on a hot tip or an article that’s like trying to guess what a 100-piece puzzle is while turning over only one tile.

When you have a Capture Gains mindset, volatility means that you might be able to trade around the core – buying low and selling high again and again and again. The Wall Street rollercoaster becomes your joy ride.

Performance of the S&P500
July 2017-July, 2019

Source: Morningstar.com. Used with permission.

When volatility is the name of the game (like it is in today's market), it is very important to use winning tools, strategies and mindsets. Stop losses is a sabotage mindset that will have you losing over and over again in today’s world where market and company volatility are commonplace. (Meanwhile, the brokerage earns gains on the trading fees.)

So, think like a "winner" instead of a stop loser. No one likes to think of themselves as a loser, but if you are worried about losses instead of committed to capturing gains, then you have a losing mindset, even if you don't admit it. The first thing most of us need to change to be more successful in investing is our mindset. Of course, you need a skill set and a tool kit to match that.

So, how do you activate Score Gains Thinking?
Below are six tips that start you on the path.
(You still need to learn the pie charts, annual rebalancing and smart strategies for successful trading. Call 310-430-2397 or email info @ NataliePace.com for additional resources.)

1. Pick a Winning Team
2. Employ a Winning Game Plan
3. Be a Patient Buyer
4. Capture Your Gains Early and Often
5. Limit Orders: The Key to Profitability in Volatile Markets.
6. Use Special Teams Strategically

And here are the details...

1. Pick a Winning Team.
A big component of a winning team is making sure that you have the right athletes on the field. You don't want your kicker playing linebacker, or your quarterback on defense. Go to your accountant for tax tips (not investment tips). Most brokers are salesmen, so you must be the boss of your money, rather than letting someone else make all of your decisions. Never invest based solely upon an article you read, without doing full and complete analysis. Grade your guru with a results test before taking any investment advice from her.
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2. Employ a Winning Game Plan
A great nest egg strategy includes the following: 1. Keeping a percentage equal to your age safe. 2. Overweighting safe in volatile times. 3. Knowing what is safe. 4. Diversifying your "at risk" assets by size and style. 5. Adding in hot industries. 6. Avoiding the bailouts. 7. Rebalancing at least once a year -- preferably using limit orders. To learn more about this formula, read The ABCs of Money.

3. Be a Patient Buyer
Never buy high in the 11th year of the bull market.

4. Capture Your Gains Early and Often
Adopt a strategy of taking your profits early and often in your Stocks on Steroids trading portfolio, as we are in the late stage of the business cycle. Rebalance your nest egg at least once a year.

5. Limit Orders: The Key to Profitability in Volatile Markets.
One of the best ways to ensure that you are buying low and selling high is to employ limit orders. Once you own something, determine your exit strategy and let the limit order do the work for you. This is more reliable than keeping your ear to the ground.
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6. Use Special Teams Strategically.
Just as older football players are more prone to injury, New Chips are Safer than Blue Chips. Small caps tend to move more quickly than large caps. Understanding the difference can improve your investing results tremendously. If this terminology is confusing, then that’s a clue that it’s time to invest in learning.
 
Now is the time to fix the roof while the sun is shining (while the markets are at an all-time high). 

If you'd like to learn time-proven strategies that earned gains in the last two recessions and have outperformed the bull markets in between, join me at my Wild West Investor Educational Retreat this Oct. 19-21, 2019. Click on the flyer link below for additional information, including the 15+ things you'll learn and VIP testimonials. Call 310-430-2397 to learn more. Register by July 31, 2019 to receive the best price. 

I'm also offering an unbiased 2nd opinion on your current retirement plan. Call 310.430.2397 or email [email protected] for pricing and information. ​​​​​
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable however NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.