JBL: Going Nuclear

Speaking of weaknesses, knowing when to sell a stock has been one of my biggest. I have become emotionally attached to too many stocks and lost money. However, the fear of every investor is that he will miss out on a huge part of a stock's run if he sells while the stock still has legs.

Not that I am just sucking up to TheStreet.com's co-founder and largest shareholder, but Jim Cramer's book Real Money: Sane Investing In An Insane World , has really helped crystallize my thinking about stocks. It's caused me to put a movable floor on stocks that I own.

For example, I thought Steel Dynamics (STLD) had gotten ahead of itself at $50. Today it is in the mid-$60s. I let it run because I continuously put a floor, also known as a stop-loss order, under the stock that I will execute if the share price hits it, no matter what.

I would have hated to sell this stock at $50, given the bull market in commodities has pushed it to a high of $69. So, I put a constant floor under it of around 12%. How I arrived at that number is just what I felt comfortable with. At $69, I could have taken profit. However, I looked at the stock and realized I had bought it at just under $23 in May of 2004, and I realized I would be happy selling it at $60. My floor is now $60. If it breaks out again, I will move my floor up to another price I know I will be happy with, and I will execute it no matter what.

We are in a terrific commodities bull market. If you think stocks you own are out of their historic range and overvalued, but you are scared to sell feeling that they may have legs left, I recommend you use a movable floor. This way you ensure yourself of keeping your profit and still allow the stock to run.

Remember, being poor is bad, staying that way is stupid.

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