5-08 Resources
You’ve made your first purchases and now you have some idea what to do with them. While you’re not yet an expert, you should now have enough information to create a basic holding strategy and an exit plan. You understand that you should ride your winners and dump your losers. Having a sensible exit strategy helps you maximize your profits and minimize your investment losses. You’re ready to get into the game. Play well.
Glossary
Break Even – To have your profits and losses cancel out, a 0% return.
Catch A Falling Knife – To try to buy a stock as the price is falling, hoping that you are “near the bottom”.
Sector Diversification – To split your stock portfolio between different sectors and industries of the economy.
Stock Diversification – To split your stock portfolio between several individual stocks within the same sector or industry.
Over-Diversification – To hold so many stocks that the gains and losses from any holding do not significantly impact your portfolio, making it hard to “beat the market”.
Opportunity Cost – The opportunity you give up by making a choice. For example, spending $1 on an apple means you cannot spend that same $1 on an orange.
Market Tops – When a stock’s price is near its peak before stabilizing or starting to fall.
Market Sentiment – How other investors are feeling right now about a particular stock, or the markets as a whole.
Exit Plan – The conditions that you set ahead of time of when it is time to sell a specific stock. Exit plans usually have a target gain (or loss) and time horizon. Skilled investors stick to their exit plan.
Exercise
- Create target selling prices for each stock you hold in your virtual account. Use your order history to record your exit strategy and target price.
- Create Stop Loss orders for each stock you hold in your virtual account.