In this week’s episode of his hit YouTube series State of the Market, Chief Income Strategist Marc Lichtenfeld takes on a difficult topic…
Buying stocks is easy. Positive research findings can lead to feelings of optimism, and thinking about potential gains can inspire confidence.
But when a beloved stock dips lower, the decision-making process can get clouded. And as Neil Sedaka sang in 1960, “Breakin’ up is hard to do.”
Investors justify to themselves that the stock is bound for a recovery… and often ride it all the way down to the bottom.
This kind of emotional attachment to a stock’s positive first impression is known as “anchoring bias,” and it can affect even the most seasoned investors.
It’s the same kind of bias that could lead you to see a $14 stock as “cheap” compared with a $17 one without considering important valuation metrics like price-to-earnings ratios or price-to-book values…
And the same kind of bias that you could feel when falling in love with a stock’s story and ignoring its weak fundamentals or volatility.
But love for your favorite stocks doesn’t have to be a losing game…
In this week’s episode, Marc pulls back the curtain on one simple technique investors can use to protect their profits and minimize losses when a near and dear holding begins to slip in value.
Multiple studies have proven its success against self-sabotaging emotions, and Marc even uses it in some cases for readers of his income-focused newsletter, The Oxford Income Letter.
The technique is setting a trailing stop. This is a predetermined value at which you’ll sell a stock if it drops. That value increases along with the stock’s price, keeping your earnings safe.
The Oxford Club recommends setting trailing stops at 25%.
Take the worry and uncertainty out of your decisions to sell. Watch this week’s video and learn how to make a trailing stop work for you.