William O'Neil's Investment Parable

Good monday morning partner and fellow P6 Pacers,

here is a story from the legendary trader William O' Neil

"The Red Dress Story

Investing in the stock market is really no different from running your own business. Investing is a business and should be operated as such. Assume that you own a small store selling women's clothing. You've bought and stocked womens' dresses in three colours: yellow, green and red. The red dresses go quickly , half the green ones sell and the yellow don't sell at all.

What do you do about it? Do you go to our buyer and say, "The red dresses are all sold out. The yellow ones don't seem to have any demand, but I still think they're good. Besides, yellow is my favorite color, so let's buy some more of them anyway ?

The clever merchandiser who survives in the retail business looks at the predicament objectively and says, " We sure made s mistake . We'd better get rid of the yellow dresses. Let's have a sale. Mark them down 10%. If they don't sell at that price, mark them down 20%. Let's get our money out of those " old dogs" no one wants, and put it into more of the hot-moving red dresses that are in demand ". This is common sense in any retail business. Do you do this with your investments ? Why not ?

Everyone makes buying errors. The buyers for department stores are pros, but even they make mistakes. If you do slip up, recognise it, sell, and go on to the next thing. You don't have to be correct on all your investment decisions to make a good net profit.

Now you know the real secret to reducing your risk and selecting the best stocks: stop counting your turkeys and get rid of your yellow dresses ! "

Translation: Sell your losing stocks at the maximum 8% cut loss point. then go on to look for those winners which you can hold as long as you can until the up trend breaks.

Always remember POF COLA. Prolong Our Fropits , Cut Our Losses Agressively