You got to know when to hold ‘em, know when to fold ‘em,
Know when to walk away, and know when to run.
You never count your money when you’re sittin’ at the table.
There’ll be time enough for countin’ when the dealins’s done
Let’s just say it: Investing is a gamble. Or you can sing it if you prefer. Either way Kenny Rogers’ The Gambler serves as the quintessential cautionary tale about investing.
Anytime you take a risk, you are gambling. When you choose a company to invest in, you are gambling that it will succeed – that the company will make smart decisions, and prosper. It is not a blind gamble, like a slot machine, but rather a calculated, educated gamble like “Pocket Aces” in a game of poker.
Let the following list help you decide when to hold ‘em and when to fold ‘em:
When to Hold ‘em
Is a specific industry exploding right now? Make sure you’re there too! Following industry booms is a strategic, clever way to profit. Case in point: the Entertainment industry. As populations grow and more and more people seek an escape from their hectic lives, the entertainment industry grows and companies such as Disney (DIS) will flourish. Hmmm…may want to check out popcorn giant Orville Redenbacher (Parent company (CAG) while you’re at it.
Trend is your friend
Look around. See any trends that show no sign of letting up? If you do, it may be worth a closer look. A great example of this is Apple Inc (AAPL). Next time you’re in a mall, library (heck, even a museum) take a look around. I guarantee you’ll find more than a few iPods, iPhones, iPads and Macbooks!
The Heart Wants…
Investing in companies that make products that you use every day is a very smart way to invest. Human habit is a hard thing to break and we are a very brand-loyal people. If you brush your teeth with Colgate, chances are you will stick with Colgate, and you will buy Colgate again as soon as the tube is finished. Products that people use every day are very valuable to investors, because it ensures stability over time. Warren Buffet knows this, and it’s a big part of his investment strategy.
Precious materials like gold and oil will always perform well under normal circumstances. You could choose to buy companies that are involved in the processing of these materials, or you could buy the actual precious materials with the help of ETFs such as GLD for gold or OIL for Oil.
When to Fold ‘Em
Get Out of Here!
Simply put: Sell when the amount you sought has been reached. Lets say you wanted to make 15% on a stock. Once the stock prices reaches that level, don’t be greedy. Get out. All your research and assumptions paid off. Bravo. Now wrap it up. (Learn more about setting goals)
Make sure you set targets. Head over to my trades and use the notes to jot down all your target prices
Cut Your Losses
Decide in advance how much money you are willing to lose and stick to it. This is called a stop-loss, (not to worry – we’ll let you practice it on Wall Street Survivor). For example, let’s say you bought NetFlix (NFLX) for $109 a share. You believe the shares will go up because of their awesome new service offerings. But just in case the price starts tanking, you want to get out. You are willing to see it go down to $100 but not a penny more. You would put a stop-sell order at that price. Using this feature prevents you from regretting any unexpected potential losses.
Check out your portfolio and adjust to cut your losses
Remember, the only gamble worth taking is a calculated one. At the end of the day, the cards are only as good as the player, the trades are only as good as the trader. You have to establish your own research, tolerance for losses, and figure out, over time, what works for you. As Kenny Rogers would say:
Now ev’ry gambler knows, that the secret to survivin’
Is knowin’ when to throw away, and knowin’ when to keep.
‘Cause ev’ry hand’s a winner, and ev’ry hand’s a loser.
And the best that you can hope for, is to die in your sleep