10 Lessons Learned in the Selloff

If you are trying to catch a market reversal, you are trying to spot a single point in time. In this instance, you will be trading much smaller. These positions are 0.5% to 1%.

Combined with the stop losses, these two items can dramatically reduce your hurt when you are wrong. I got stopped out of nearly every trade I tried during this correction, and it's affected my year-to-date performance a few basis points. If you use 0.5% stops on 1% positions, you can't do too much damage.

9) When Your Timing Is Off, Step Away

As nos. 8 and 9 show, my feel was off during this downdraft. I was impatient to boot. There's no reason to keep trying when you're throwing hanging curve balls that they keep hitting into the bleachers. Call for the left-hander, and wait until you get your best stuff back.

10) Smart People Do Dumb Things

I read and heard a variety of actions taken by people who I admire, believe are brilliant, and would trust with my own capital. Quite a lot of them screwed the pooch.

Hey, it happens. No one is perfect; people make mistakes -- sometimes really dumb ones. I always try to learn from my own errors, which invariably come with a big fat tuition bill attached.

If I get to learn from someone else's screw-up, it is like free graduate school. Suck up what you can, and avoid repeating someone else's error.

But it's a lesson that bears repeating: You are ultimately responsible for your capital, and blindly following gurus can be dangerous.

P.S.: I am guilty of quite a few of these foibles. I'll bet many of you can check off even more. But just because May 2006 has been a painful month, that is no reason to avoid taking something positive out of it.

Investing survival is a long-term process, and if you can learn something from a 5% pullback, you will live to trade another day.