What's the number one rule in investing?

Let’s start with a little math.

You’ve invested 100 dollars in a stock. The price drops by 10%. You’re now at 90 dollars. To get back to the original price, you need an 11% increase. Let’s consider another situation, the price drop by 50%. The price of the stock is now 50 dollars, and now you need a 100% gain to get back to 100 dollars. Can you see where I’m heading too?

We, at MarketSmith India, believe that the most important rule is to Always Cut Your Losses Short.

Highly successful stock pickers go through training on how to cut their losses short. This means selling a stock when it is down 7% or 8% of your purchase price. It sounds simple, but many investors have learned the hard way how difficult it is to master the most important rule in investing.

No one wants to sell for a loss. It is an admission that you made a mistake. But if you can set your ego aside, you can take a small loss and still be fit enough, both financially and mentally, to invest the next day. Cutting losses quickly prevents you from suffering a devastating fall that’s too steep to recover from.

Successful investors calmly take a small loss and look for the next potential winner.

So, leave your emotions behind. Cutting losses with discipline will help keep your head clear when it’s time to return to the market.

To learn more about stock markets basics and how to invest in the stock market, visit www.marketsmithindia.com