Painful! There is no other way to describe the bloodletting that has taken place in the market the last week.
has lost nearly 600 points since last Wednesday's close. The
has shed nearly 150 points since that time, while the
has fallen more than 60 points.
Investors looking for something to cheer about are better off trekking out to the ballpark, sitting in the bleachers and rooting for their favorite team rather than watching their 401(k)s give back past gains.
That said, those looking to play it smart should pay attention now, it will pay off later. When investors get spooked or can't handle the heat, they make mistakes. The pressure gets to them.
That's especially true when the herd mentality kicks in. Investors they sell with their heart and not their head. They sell too early, leaving money on the table.
If you do your homework and capitalize on the mistakes of others, you can put yourself in position for a nice payday. This is where people really make money.
I am often asked about "stop-losses." Readers want to know why I don't employ them. That question is particularly relevant in light of the week we've had.
The main reason: I monitor the market every day, and actively evaluate every position every day. If it ever comes time to bail on a position, I will let you know. On the upside, I put in an automatic sell -- a good-till-canceled sell order $1 above my average entry price on all my picks to capture a win when it comes. On the downside, I do not like to have trades automatically executed. It can lead to selling too early and realizing losses when a win is still very possible.
Readers that have read my columns for some time are no doubt familiar with the concept of averaging down. I try and find a bottom with the stocks I pick. Sometimes we miss it by a bit and the price continues to go down. Basically, averaging down is a way to protect against this. It involves buying additional options contracts to lower the average entry price of your position.
You ride with the position downward and then capture a win on the bounce. Because my positions generally go out four to seven months, we allow ourselves plenty of time for this to happen.
Take a look at the pick I made for
on April 23. I went with
. I went all the way out to January with this pick, allowing for a ton of time for this stock to turn in my favor if necessary.
Shares continued their downward move after the pick, and we averaged down several times before realizing a $4,800 win. The majority of my wins are for $1,000, so this one was practically five times that amount.
As I've said, my strategy is a stock-replacement strategy, not a buy-and-hold approach, and is therefore short term in nature. However, many of my picks still have six months or more left before they expire, so there is plenty of time for things to turn our way.
Remember, it's a long season. There are a lot of ups and downs before it comes down to crunch time. So, hang in there, keep your eye on the ball, and stay strong.
Always remember: Life is a journey, enjoy the ride!
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At the time of publication, Dykstra had no positions in stocks mentioned.
Nicknamed 'Nails' for his tough style of play, Lenny is a former Major League Baseball player for the 1986 World Champions, New York Mets and the 1993 National League Champions, Philadelphia Phillies. A three time All-Star as a ballplayer, Lenny now serves as president for several privately held businesses in Southern California. He is the founder of The Players Club; it has been his desire to give back to the sport that gave him early successes in life by teaching athletes how to invest and protect their incomes. He currently manages his own portfolio and writes an investment strategy column for TheStreet.com, and is featured regularly on CNBC and other cable news shows. Lenny was selected as OverTime Magazine's 2006-2007 "Entrepreneur of the Year."