Half of All U.S. Households Own Equities, But Investors Now Keeping One Eye on the Downside to Protect Nest Eggs - Investors Use Systematic Program to Take Emotion out of Stocks & Limit Losses
Dec. 1, 2005
Three years after the 2000-2002 bear market, individuals investors are less comfortable assuming risk and more ill-at-ease with today's volatile stock market. And though confidence is rising as the Dow Jones Index inches toward 11,000, investors remain cautious. Wary as they may be, individual investors continue to have a substantial portion of their assets in equities, with half of all households in the U.S. now owning equities, up from one-fifth two decades ago(1). With bullish sentiment mounting, GorillaTrades, www.GorillaTrades.com, the online newsletter that offers investors a dynamic, technically-driven means of buying and selling stocks to produce wealth, says that having an exit strategy in place will prove critical to protecting investor nest eggs as we look to new stock market thresholds. -- A systematic Stop-Loss program may be the answer. "Every time you make a trade, there should be an exit strategy in mind," says GorillaTrades. "People buy insurance for their homes, their lives and their cars, but then leave their financial assets unprotected. Investors need to always keep one eye on the downside, especially if we enter another extended bull market."
According to a study by the Investment Company Institute and the Securities Industry Association, http://www.sia.com/research, the growth in equity ownership in the last two decades has been fueled by retirement plans among individuals of all ages. The conventional wisdom, however, is that individuals should pare back on equities as they approach retirement and invest predominately in bonds, cash and other income-bearing, capital-preserving assets. But these investments often offer unappetizing, low yields and worries over inadequate pension savings have climbed. So, investors have been reluctant to cut back too much too soon on the only asset class that offers growth. A median 54% of the financial assets of individuals aged 50 to 64, for example, are invested in equities. "All the financial advisors in the world will tell you to be conservative and protect your assets," says Gary Barrett, a 63-year-old computer programmer from Cypress, TX, who grew up in inflationary times. "What does that mean? Buy a 2% CD? Buy a 4% bond? Is that protecting you assets? I need to protect and grow my assets."
Indeed, Barrett lost a quarter of his portfolio in the bear market. Now he's more judicious about protecting his downside when buying stocks, looking to a systematic approach of Stop-Losses to limit the downside on individual stocks to 10% or less -- Stop-Losses are pre-designated orders to sell stocks should they fall below a certain price. "Most of my losses in the past were because my emotions were involved in decision making," says Barrett. "Now I see the wisdom of mechanical stops. They take the emotion out of investing. Now it's too bad, so sad, move on."
Barrett is convinced that had he employed such downside protection before the dot.com bubble burst a few years back, he would have been cashed out before the crash, preserving critical retirement assets. He feels much better protected now should a huge decline occur. For the past three years, Barrett has been using a systematic Stop-Loss approach employed by GorillaTrades, which picks stocks according to 14 technical parameters and then sets out specific price points for buying and selling shares and for Stop-Losses. Barrett then "cross researches" the stocks with independent charts before deciding which stocks go into his portfolio. Once chosen, Barrett follows GorillaTrades' systematic Stop-Loss guidance, an integral part of the investment program, and doesn't worry about things further.
The GorillaTrades' approach has held losses on picks to less than 10%, while doubling the value of his portfolio since he started using the approach. "I have my exit strategy in place," he says. "When support breaks down, I make a decision based on numbers, not feeling."
To be sure, with losses suffered in the last bear market not likely to be forgotten, individual investors may now see greater wisdom in investing with one eye on the downside -- even in the strongest bull market. And, systematic Stop-Loss programs may be just the solution.
GorillaTrades, http://www.gorillatrades.com, a Jupiter, FL-based online investment newsletter, is subscribed to in 36 countries worldwide. The online research screens more than 6,000 stocks daily looking only for those which pass all of the 14 technical parameters found to be present in stocks poised to make explosive upward moves. The newsletter communicates GorillaPicks to subscribers nightly along with upside price targets, stop-loss levels, GorillaShorts and Special Situations Picks.
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