On the path of life there will be some rain and therefore puddles. Most are shallow and we easily splash through them and occasionally there might be a very deep one. Learning to navigate them will make the journey more pleasant.

Your investment journey to the pot of gold at the end of the rainbow will require your not stepping into those deep holes. It is almost impossible to know the depth of any pothole so an investor must have a strategy for the unexpected and it must be in place before the foot sinks out of sight.

Every professional trader (and you are a trader whether you believe it or not) has an exit strategy for his portfolio. Those who do not are doomed to sink out of sight in a very deep and muddy pool. When any stock, mutual fund or ETF is purchased it must be determined prior to purchase how much the investor (trader) is willing to lose or how take profit.

It is pretty stupid to sit and watch an Enron, Delta or AT&T take all or most of the money. No one wants to see hard earned dollars evaporate. There isnt even a cloud of smoke to go with it; it just disappears. In 2000 to 2003 we saw the NASDAQ lose 78% of its value and the DOW go down 40%. Dont let this happen to you; it can occur again. You must set your investment exit strategy now.

The first thing any successful investor does is determine how much he is willing to lose. Is that shocking? When people buy a stock they immediate think about how much they are going to make, not lose. Knowledgeable traders think about their losses first and profits second. Losses must be dealt with today. Profits will take care of themselves.

This means you must have a selling guideline. Most brokers will not help with this as they are not taught to protect customers money. The simplest method is the stop loss order. Say you paid $40 per share for a potential pot of gold. How much are you willing to risk? One hundred shares cost $4,000 plus commission. Are you willing to see it drop to $3,000 before you sell or is that too much? Twenty-five percent is pretty steep and many traders will not risk more than 10%. Whatever amount you decide upon should be set with your broker as a permanent stop loss order. Dont let him tell you he will watch your account because he wont.

As your stock moves up the stop order should be moved up to protect your profit. This is known as a trailing stop and most brokerage firm offer it. Every path has puddles. Dont step into one that is over your head.

Al Thomas

Albert W. Thomas has spent most of his life in the field of finance. In 1965 he founded an insurance holding company, Security Dynamics Investment Corporation, after having been an agent and General Agent for several life insurance companies. In 1970 he became cofounder and president of Real Life Estate, Inc., that marketed a unique real estate and life insurance package.

After he became interested in commodities he bought a seat for his personal trading on the Chicago Open Board of Trade, which is now known as the MidAmerica Commodity Exchange. Later he became a full time trader and also acted as a commodity broker for a few select clients. By fellow floor traders Al is considered to be an excellent technical analyst much of which is outlined in his book IF IT DOESN'T GO UP, DON'T BUY IT! It became a best seller on Amazon.

In 1981 he sold his membership on the Exchange and with his wife, Carolyn, lived full time aboard their 41' ketch, the Aumakua (which means guardian angel in Hawaiian). They sailed in Florida and the Bahamas for two years.

He founded World Trading Group in 1984 that grew to the seventh largest introducing commodity brokerage firm in the U.S. with 35 offices from coast to coast, Alaska and Canada. It was sold in 1992.

Al is a graduate of Northwestern University with a B.S. degree in Commerce and is a member of MENSA. He is now president of Williamsburg Investment Company that syndicates his weekly financial column since 1999 to more than 300 newspapers and writes a financial market letter called Over My Shoulder that is quoted in Barron?s and many other publications. A 3-month trial subscription is available on his web site. He is a regular guest on several financial radio talk shows.

His favorite pastime is fishing.

Mr. Thomas is available for speaking engagements. Please call 321-453-5300 for more information.