wearmanyhats

Earlier this year, I saw that Rio Tinto (RTP) was trading at a low $395.  The thought of spending that much on a stock rankled my tightwad inner self.  But the P/E was great, the sector was hot.  I plunged in with much more money than I usually invest just because the price of the stock was so high.

It took off and I watched with glee as it bounded toward $500. As it crossed that $500 mark, I nervously began to wonder if I should just take my profits and go home.  After all, greedy pigs get slaughtered.

Then, like a drunken giant, RTP began to bounce more in one day than I paid for smaller stocks.  I couldn’t take the heat in the kitchen any longer, and when the price shot up to over $530,  I placed a stop loss.

 I don’t use stop loss orders enough.  I fool myself into thinking that since the company is strong, any fluctuations will be temporary blips on the radar.  I am too trusting; I always trust that the auditors are telling the truth about the books.  And yet Lucent and MCI were on my books when they dropped like a rock at the turn of this decade. I lost 90% on them when I was too busy to watch them.  You’d think I’d learn.  Or maybe I did.

Perhaps it’s the laziness in our bones, or the eternal optimism.  Whatever the reason, RTP’s plunge shortly after I placed my stop loss order has shown me how lucky we are as investors to have the stop/loss order  in our arsenal of tools. Today it’s trading in the early $400, and I’m watching it again to see if we could dance together again.  Still, very few of my other investments have the stop loss sitting on them. 

Guess what I’m doing later on this afternoon.

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