Always Cut Your Losses Short!
If you limit losses on initial purchases to 7% or 8%, you can stay out of trouble, even if only 1 out of 4 buys delivers a modest profit of 25% or 30%. You can be wrong 3 out of every 4 times and still live to invest another day.
A great paradox of investing is that the ripest buying opportunities occur just after bear markets — when the major stock averages have declined 20% or more. That’s exactly when most investors who haven’t cut their losses are reeling and don’t want to be hit again.