The “Sail-Boat” Trading Strategy

There are two traps that I have fallen into in the past and refuse to do it again.   The first is becoming seduced by a statement such as the following: if you had invested $10,000 in XYZ Company X years ago it would be worth $500,000 today.  The second is XYZ Company dominates its industry.  There is no reason why it will not continue to dominate, so I am going to buy it and hold it for the long run.  Then in X years I can sell it and live happily ever after.  I call these traps, because they entice one to adopt a buy and hold or sail boat (if it hits I will be able to sail off into the sunset) mentality.  This mentality has cost me more money than I care to admit.

Both scenarios seem logical, but logic and Wall Street don’t always go hand in hand.  In the late 90s I had stocks that increased 10, 15, and as much as 20 times.  Go back and look at a chart of CMGI (I started purchasing it in 1998).    In 2000, I was hoping for a 20% return on my account – this should have been a piece of cake based on the previous couple of years.  The plan was to then sell in January 2001.  That way I wouldn’t have to worry about taxes until 2002.  Well, this wacked-out strategy forced me to work harder on my 9 to 5 as the market imploded in 2000.

The bottom line is that market could care less about my sail-boat strategy.  It is going to do what it is going to do and we must react.  Whenever, I enter a trade now I have a price in mind where if it is breached I will close the trade.  No more of this pie-in-the-sky stuff for me. 

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