Posted on July 24, 2008 - by andrew

You are in Control of Your Portfolio

If you’ve ever suffered a losing streak when buying stocks, you may have felt like stocks were just out of your control. After all, it’s not your fault that oil is going through the roof and the mortgage mess is spreading like wildfire. Often times the market is out of your control. However, you are in complete control of your portfolio, and many of the risks associated with investing in stocks can be eliminated.

How’s this possible? If you follow a sound trading strategy like CAN SLIM, you can eliminate a lot of avoidable risks. Certain things may be out of your control in the stock market, but by eliminating as much of the avoidable risks as possible, you increase your chances of success.

If you want to be successful at investing in stocks, you must be accountable for your mistakes. You can’t blame the stock market for everything. If you did, you would never take the initiative to review your mistakes because you would never think that those mistakes were actually your fault. If you never review your mistakes, you will never learn from them and improve as an investor.

A recent example from my personal experiences was buying Continental Resources (CLR) . I bought CLR in early July when oil was heading to the mid $140 range. The market was still in a correction and it was no time to be buying stocks. I ignored this CAN SLIM rule and bought a large position in Continental Resources. I felt that this was a great time to buy CLR because of the huge gains it was making on huge volume and the previous run-up it had.

Buying CLR eventually costed me -7% loss. This added to my string of losses since March 2008. It would be easy for me to just blame the loss on Continental Resources to bad luck. But you have to take an honest look at your trade to find out what exactly went wrong. I broke a cardinal rule of CAN SLIM investing and bought a stock during a market correction. The odds were stacked against me and I shouldn’t have bought the stock no matter how strong the buying or how big the previous run-up.

I realized that I was on a losing streak since March because I was taking too many avoidable risks that eventually cost me. Imagine a football coach going for it on fourth down every time. It’s just not worth the risk if you can make up for it later in the game. I knew at that point that I was in complete control of the success or failure of my portfolio.

When investing in stocks, you have to eliminate as many avoidable risks as possible. Use the rules of the trading strategy you’re following and screen out all of the bad, risky stocks. Then take the remaining stocks and use your best judgment on which ones to buy. This way, you eliminate as many risks as possible and you gain considerably more control of your portfolio.

If you are interested in learning more about CAN SLIM, visit the Learning Center on Investors Business Daily.