Page 383 - THE MARKET WHISPERER

THE MARKET WHISPERER 37 9

We have learned how to play
offence, now we will learn to

play defense.

Learning to Play Defense

Some months ago, an old friend called and recommended I buy a certain
stock which “without any doubt” should be shooting up fairly soon. As a
good friend, he tried to explain to me what a dreadful mistake I would be
making if I didn’t buy. Since such good ideas had already lost me no small
amounts of money in the past, I politely promised to consider buying the
stock, but of course I chose to forget the whole thing. Some days ago, I met

my good friend again, but he did not forget to ask if I bought the stock.

“Wow, I forgot…” I pretended, and asked if he had bought it. “What do you
think!” he answered, and asked with some amazement,

“Why didn’t you buy it? I’m telling you, you lost out on the deal of your
life!”

“So in the end what happened to that stock?” I asked.
“Well, so far it’s dropped about 20%,” he said, “but just wait and see
what’s about to happen soon!”

I truly admire my friend’s psychological stamina in holding a stock that
drops over several months and even years, in the hope that it will make a
comeback. I can’t do that. I’m a coward. I need to know in advance precisely
how much money I might lose in any transaction, not just in percentages,
but especially in dollars! I also want to know that I am able to limit my
losses to a predefined figure. Remember that in order to be successful in
most sports, we first need to learn how to play defense: as they say, defense
wins championships. If you know how to limit your losses, profits will be
made.