When the music stops, leave the dance floor

March 27, 2010

When the music stops, leave the dance floor
Even the Best Investors Make This Huge Mistake… Make Sure You Don’t!
By Dr. Steve Sjuggerud
Personally, I have just one rule: Avoid big mistakes.
If I do that, I know I’ll be fine. I know I won’t “blow myself up” in my investments. Knowing that gives me peace.
I can’t believe how many brilliant, successful people fail to do this one simple thing… and lose what they have… or even lose everything.
Look, if you do nothing else, remember this: Avoid big mistakes. And the biggest of the big mistakes is STILL DANCING when the music stops.
Get the heck out of there, my friend! If you’re a little late to realize it, then STILL get out. Better late than never. Let me show you what I mean…
Chuck Prince, the former CEO of Citigroup, is a perfect example of a guy who kept on dancing…
In the summer of 2007, just as the banking crisis was getting underway, Chuck actually told the Financial Times he was “still dancing.”
About the banking business, Chuck said, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”
But the music had already stopped when he was speaking. Shares of Citigroup are down 93% since he said that… just a year and a half ago. And Chuck lost his job less than four months later.
I’ve also seen it close to home…
Most of the wealthy investors where I live made their fortunes in local real estate – that’s Florida real estate.
The music stopped in Florida real estate a few years ago… But even today, they’re STILL dancing. If they had acknowledged the music stopped early, they might have been able to keep much of their wealth.
I could go on, with examples throughout history… from Sir Isaac Newton in the 18th century South Sea Bubble to George Soros in the 2000 tech bubble.
The message today is incredibly simple…
When the music stops, STOP DANCING.
Get off that dance floor… and do it fast. Do NOT allow small mistakes to become big ones.
It sounds simple. But as I briefly showed, even the smartest people succumb to it.
We are all vulnerable to the risk. So you must make a conscious choice here… you must tell yourself you will never let a small loss become a big one.
You can use whatever “system” works for you to reinforce this idea: stop losses, trailing stops, NOT averaging down a losing position, NOT taking too big a position in anything.
I actually use all of the above.
Whatever works for you, do it. The important thing is, do NOT let a small loss become a big one.
Want to be just fine, forever, in your investments? Then don’t forget my one rule… Avoid big mistakes!
Good investing,
Steve