It’s easy. The best investment is the one whose profits you keep. If your profits vanish because you –
Hold until your profit turns into a loss.
Hold until a small loss turns into a big loss, and then a huge loss.
Hold so long your annual return turns small even when you do profit.
Then you’re not making the best investment. So what can you do? You need to know about Exit Strategy and Position Sizing.
Never make an investment without knowing when and how you’ll get out. That’s called an Exit Strategy.
You should have an Exit Strategy before you invest in anything.
You should be able to write it down. Nothing fuzzy allowed.
Know what will trigger your sell order.
Good Exit Strategies let you keep your profits and cut your losses. That’s your best investment.
Wall Street Wisdom – “Cut your losses, but let your winners ride.”
A few big wins and many small losses can equal a win overall.
Never risk more than 3% of your portfolio in any one position. And that’s on the high side.