The Simple Secret To Always Making Moneys

I know an investor who’s made millions in the markets...

He’s never had a real job. He made so much money speculating by the time he graduated from high school that he didn’t need one.

His investment career spans over 30 years, through both bull and bear markets. He recently sold his house next to the Kennedy Compound on the ocean in Palm Beach, Florida, just down the road from Donald Trump. Now he lives in Monaco.

About six years ago, I told him the simple secret that I’ll share with you today. You probably won’t believe me, but it’s about as valuable a piece of advice as anyone can give when it comes to making money.

When I told my friend from Palm Beach about it, he understood its importance immediately. “I don’t know why I haven’t been doing that all along,” he said.

He thought this was so important that - he actually went to door-to-door in Palm Beach, spreading this secret to his well-heeled neighbors. Later, my friend thanked me... after he used the secret to save a pile of money during the high-tech crash.

My subscribers also used this secret to make a fortune – in just one stock! In early 1999, my colleague Porter Stansberry recommended shares of JDS Uniphase 

JDS Uniphase soared 1,200% while we owned it. When it started to fall, we sold, at something like a 900% profit. Those who didn’t listen actually ended up losing money on this big winner.

Everyone talks about how to buy successfully. But nobody ever talks about the hard part: when to sell.

This was the epiphany for my friend... a reliable system that gets you out no matter what - yet still allows you to make JDSU-like returns.

I call this secret a trailing stop. It’s a pretty simple concept. Whenever the price of my stock declines by 25% from its recent high, I sell it.

For example: I buy a stock at $50, and it rises to $100. When do I sell it? If it closes below $75 – no matter what.

I have to admit, it took me three years to truly follow my own advice on this one. I would always come up with some excuse to keep holding a dud stock that had fallen more than 25% off its high. Nearly every time I did this, I would have been better off practicing what I preached.

What’s so magical about the 25% number? Nothing in particular – it's the discipline that matters. Many professional traders actually use much tighter stops – the Investor’s Business Daily newspaper for example, recommends an 8% stop.

I’ve always advocated a 25% trailing stop in my newsletters. When I started writing newsletters a decade ago, there was no easy way to track your stops. You had to do it yourself.

Nowadays, there are two fantastic services you can use to track your stops. They’re very different, but both very good.

The first is the “no-brainer” service... TradeStops. It was actually created by a True Wealth subscriber. He’s a computer wiz with a Ph.D. in math. The service is excellent – you can easily see your portfolios and all your stops on one page. It will also send you an email if your stop is hit, and only costs about six dollars a month. I use it myself.

The other service is for those who are a little more hands on... It’s a little program called XLQ that allows you to manipulate stock market data in an Excel spreadsheet. I contacted the designer of XLQ and asked him to put in trailing stop capability into XLQCompanion. You can download XLQ www.qmatix.com and see if you like it. (The free trial runs out in 45 days.) I use it myself also.

The main point is you never want to be in the position where a stock has fallen by 50% or more. This means that a stock has to rise by 100% or more just to get you back to where it was when you bought it. By using this Trailing Stop Strategy, chances are you'll never be in this position again.

This table shows how unlikely it is for a stock to climb back from a big loss:

Taking small losses is much better than taking big losses. And letting your profits run is much better than cutting them off prematurely.

So follow the lead of Mr. Palm Beach, and start using trailing stops. Soon you may not have to work anymore either.

Good investing,

Steve