Frog In The Pot

You remember the story about the frog that was put into a pot of cold water on the stove. Hewas not concerned. Someone lit the burner andthe water began getting warm, the frog was verycomfortable and as the water became warmer hewas so relaxed and complacent that he fellasleep ? never to awaken.

Mr. Frog reminds me of today's stock marketinvestors and that includes all folks with IRAs,401Ks and the like. Stocks have been slowlyrising for the past year and a half (the wateris becoming warmer and warmer) and no one ispaying any attention to his investmentpositions. The market is becoming overheated andmany investors are about to become boiled. Toomany are swimming fat and happy in theincreasing warmth with no thought of exit.

Currently the long term market trend is up so complacency reigns supreme. It is doing exactlythe same as in 2000. When 2002 ended we had asurplus of boiled frogs. A smart frog will notbe lulled to sleep and will have a plan to jumpout of the pot. A frog without a plan plans tobe frog soup.

There are many ways for the frog to escape and there are many ways for investors to retaintheir profits or at least not lose their moneythe next time the market heads down. It will ifpast performance is any guide to futuresresults. Any plan to jump out is better than noplan at all.

Whether you own stocks, mutual funds or ETFs (Exchange Traded Funds) you can set a limit asto how much you are willing to lose from thispoint (that's now, today). Any fool (frog) canbuy, but it is the wise man (frog) who knows howto sell (escape the pot).

If you want to have money for retirement youmust protect your capital from loss with a riskmanagement strategy. First protect yourprinciple and then protect the profits you havemade on the recent stock market advance. It isnot difficult to do.

With stocks and ETFs you can place an Open Stop Loss Order with your broker or financialplanner. He won't like this, but it is yourmoney not his. Don't let him talk you out of it.For regular mutual funds you must have a mentalstop and when that price is hit you call yourbroker (he won't call you) or the fund directlyto tell them to transfer your funds to a MoneyMarket account. Cash is a position.

If you are not familiar with stop loss ordersyou can find books in your library and there arehundreds of articles on the Internet. See someof my previous articles on my web site.

The water is heating up. Don't fall asleep and become a poor frog.

Al Thomas' best selling book, "If It Doesn't GoUp, Don't Buy It!" has helped thousands ofpeople make money and keep their profits withhis simple 2-step method. Read the first chapterand receive his market letter athttp://www.mutualfundmagic.com and discover why he'sthe man that Wall Street does not want you toknow. Copyright 2005