How do you avoid a permanent loss of capital? Simple. Have a pre-defined exit strategy before you ever enter a market. What is another way to answer that question? Motley Fool offers this:
1. Shareholders who didn’t anticipate the newspaper’s gradual obsolescence and bought shares of New York Times around $50 per share back in 2004 have probably suffered a permanent impairment of capital.
2. Understanding where a company is in the life cycle of its industry is crucial for an investor. Companies that lose competitiveness to new technologies might never recover, and that dissolution will result in a permanent loss for investors who arrive too late to the party.
3. Investors are sitting on some fairly large losses so far this year. True, many stocks are down because of overall market volatility, and prices will eventually reverse as our economy strengthens over time.
So let me see as long as you can: 1.) anticipate “gradual obsolescence”, 2.) understand “life cycles” and 3.) wait for the “eventual” rebound … you will be fine. No wonder people are going broke! Lunch is on me if anyone can explain exactly how I am supposed to execute the three points from the Motley Fool.
