- How to Play Defense in a Tough Market.
- It’s important to learn how to limit your losses.
- Rules to help investors play the markets defensively and avoid big losses.
- Stay Diversified. Diversification is the only free lunch in investing.
- Do not have more than 20% of your portfolio in any sector.
- Avoid having “two-of-a-kind” at all costs.
- Investors lost fortunes in the past when they sank all their money in hot stocks of the day like dot.coms, telcos and energy merchandisers (Remember Enron).
- Buy and sell slowly.
- Never buy or sell a position all at once.
- Instead, buy into a position slowly,
- Take advantage of weakness, and take profits on the way up.
- Your first loss is your best loss. “If your thesis on a stock changes, take the loss and sell,”
- Don’t let a trade turn into an investment by being afraid to sell.
- If the reason you bought a stock is no longer valid, you have to sell it.
- Dividends limit losses. Look for stocks that consistently grow their dividends year after year.
- As a stock’s yield increases, it attracts new investors and helps limit the downside risk.
- You need only ask yourself, “Is the dividend safe?”
- It’s always good to have some cash. Professional investors always have cash on hand.
- Cash is a tool that should be used to buy quality companies after big market sell-offs.
- Don’t own too many volatile stocks.
- More than one volatile stock in a portfolio is not being diversified.
- Be honest and ask yourself if you can handle the wild price swings before investing in a volatile stock.
Here’s the list of stocks from Cramer’s Mad Money Show for Wednesday, November 26, 2008.
Note: Dow stocks mentioned tonight: Thumbs up for HPQ!
Thumbs up for these stocks………….
BGC – General Cable $14.91 (up 27.44% today)
HON – Honeywell International $27.07
HPQ* – Hewlett Packard $35.21
NUE – Nucor $34.90
RPM – RPM International $12.26
X – United States Steel $29.90
*A CHARITABLE TRUST STOCK.