Even In Bull Market, Cut Your Losses Short.(A)(INVESTOR'S CORNER)

Byline: Monika Tjia

In a raging bear market, you need to put up your defenses or you might get blindsided. It's no different in a bull rally. Whatever the market environment,you always need to know when to run. If you don't, you could get run over.

The No. 1 rule in investing is to cut your losses. Sell if your stock falls 7% to 8% below your purchase price, no questions asked. Stick by this rule and you'll always land on your own two feet. Stray from it and you might have a difficult time getting back up.

We all make mistakes when it comes to investing. You could buy a stock with weak fundamentals, buy too high or buy when the market is correcting. The list is never-ending.

Sell rules steer you away from following your emotions. The goal is to avoida devastating loss. Don't fall into the trap of believing that your stock willeventually recover. Sure, some do. But what about the ones that don't?

If you buy a stock at, say, 60 a share, and it falls 8% to 55.2, you need togain 8.7% on your next buy to recoup your losses. The more your stock drops, the more you have to gain in the future.

If your stock falls 25%, you'll have to gain 33% on your next winner to break even. It only gets worse. Hold on to a stock that slides 50% and you'll have to notch a 100% gain next time. How often can you pick a stock that doubles?