Think of the Tools as Insurance

Heath wrote in the other day, in response to my NTRI post:

I guess out of ignorance, I did not consider the volatility of the stock. I was concerned more about meaning, moat, big 5 numbers, debt and MOS. My next focus was an entry point into the stock. I waited for a strong move up according to the indicators. That’s when I bought in. I had been watching several stocks for a while and none of them had moved 12% in one day. It just caught me off guard. I have to work. I can’t watch my stocks every minute of the day. I’ll take your advice and use stop limits moving forward. I am a beginner investor in every sense of the word. I don’t know anything outside what I read in Phil’s book.

This quote is what I needed to hear:

“Another point to make here is that if you use technical tools like I do, you are going to have a lot of sideways trades and even a bunch of negative trades like this one.  It's part of the price of insurance that tech tools give us that we won't be stuck in a meltdown.”

This is telling me the technical indicators take precedence over rule #1. In other words, it’s okay to violate rule 1 if the indicators say to sell. This is a point I missed in the book. I was so concerned about rule 1 (not to lose money) that I felt trapped once the stock turned down so sudden. I lose money every time I pay my insurance on my truck but it is to protect against a possible greater loss and I’m okay with that. I should be willing to pay a little insurance from time to time when trading stock also. You’re exactly right. I did not think about it that way.

I still own NTRI. I would rather trade it. I would rather learn how to move in and out of the stock. The Atkins diet was a big deal in our part of the country for a while. Everyone was on it. Now, people rarely mention it. I worry that may happen with NTRI. As a beginner, maybe I need to look for a less volatile stock.

My wife nearly laughed me out of the room when she read “Now put a band-aid on the scratch and go play”. Now that was funny! Well, the scratch has just about healed. I guess I will get back in the game. Thanks for taking the time to help. I actually never expected a response.

Heath