Thursday, February 10, 2005

Risk Management

So I'm still hanging on to my 100 shares of Las Vegas Sands (LVS) from the IPO. I usually don't play the IPO's, but this one was too tempting. The stock definitely had a nice correction and looks like it wants to break out. If I had more cash on hand, I would add to this position.

I'm building up my cash position for a potential real estate purchase. It's tempting to use the cash for some stock purchases, but risk control and discipline is a big part of investing. Let's take look at risk control... My number one rule is to never average down. I've only averaged down on extremely rare cases. These were instances in which I really researched the facts and had a strong conviction for the stock to go back up. In the majority of the cases, if you make a purchase and the stock starts to go south, consider cutting your losses. Don't average down unless you are absolutely sure of the down side risk. Example: Look at the chart of Krispy Kreme, just a straight down trend. Anyone trying to average down Krispy Kreme would have been wiped out. The hardest part of investing is to learn to cut one's losses. I still find it hard to do at times.

Looks like there's more upside to this market. A lot of my individual holdings corrected back to their 50 day moving average. I'm looking for a nice bounce. We'll see...


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