Life is a Hard Teacher: Failing to Have an Exit Strategy
I can tell you a specific thing I learned early on when I started buying stocks. I had $550 in my account… not much I know… so I bought 1 stock, 100 shares at $1.90 a share. Just 3 hours later it dipped to $1.80 a share… so I bought another 100 shares. The next day I bought another company at $2.15 a share, 50 shares. Later that day I bought a OTC stock for .04 a share/100 shares.
By the time I did these few transactions I had 400 shares of stock, but guess what? I had $5.76 in trading cash left. So what happened was my first stock tanked down to $1.60 a share and I couldn’t get out because I didn’t have enough cash to put a stop limit on it nor outright sell at a small loss. My second stock went up to $2.75 a share and I couldn’t sell for a profit because I couldn’t afford the trading commission.
Moral of the story as specifically related to the stock market:
1) Don’t buy more of a stock going down… you’re throwing money into what is likely a sinking ship.
2) Never buy so much stock that you can’t afford trade commisssions.
I took that knowledge and became a slightly better stock trader with it.
Moral of the story as an overall lesson about financial planning:
1) Always know what your costs are going to be.
2) Always leave the exit available, open and know when you want to get out.
3) Follow your strategy!
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