Financial Asset Management

Mark Minervini Financial Asset Management: Cutting Losses to Preserve Capital

Have you ever bought a stock just knowing it was going to be a winner, only to watch it take a nosedive right after you bought it? 

You held on, feeling secure with your financial asset management strategy. As the downward spiral continued, you remained convinced things would shift back up in due time. The stock was a winner; it simply needed some time to catch up.

The trajectory never wavered as the stock continued to plunge. At the end of the day, you had lost your investment.

"Expose your portfolio to the best stocks the market has to offer, and cut your losses very quickly when you’re wrong."
– Mark Minervini

Hanging on to a losing stock is one of the greatest detriments to any investor’s portfolio.

Mark Minervini, one of America’s top stock traders, exposes the dangers of this damaging financial asset management mistake:

"People spend too much time trying to discover great entry strategies and not enough time on money management. Containing your losses is 90 percent of the battle, regardless of the strategy."

To achieve sound financial asset management, Mark Minervini stresses the importance of preserving your capital and cutting your losses as soon as they exhibit a downward trend.

Financial Asset Management Memo: Hidden dangers in holding on

There are two major problems with holding onto a stock that is dropping.

First, your poorly invested money could be reinvested into another stock, set to soar instead of crash.

Second, there may be unseen reasons as to why the stock is on the decline. Hidden issues can crash even the most meticulous financial asset management plans.

Understanding the underlying problems of poor performing stocks helped Mark Minervini navigate towards successful financial asset management after his initial wipeout.

"My most important discovery was that I was holding onto my losing positions too long," he said.

After seeing the preliminary results, he checked what would have happened if he had capped all his losses at 10 percent.

The results shocked even Mark Minervini. That simple rule would have increased his profits by 70 percent!

Financial Asset Management Memo: Don't take it personally

Many investors find it difficult to cut their losses. Many become emotionally involved in their financial asset management, refusing to believe they picked the wrong stocks.

Some investors view dropping a bad stock as an admission of defeat or failure. Nothing could be further from the truth.

One poor stock choice does not equate to a personal reflection of your worth, or even your capabilities as an investor. Holding onto that stock does reflect a poor financial asset management mindset.

"Being wrong is acceptable, but staying wrong is totally unacceptable."
- Mark Minervini

With a stock nosedive, your window of opportunity to recover shrinks quickly as you continue to hold onto a bad stock.

Financial Asset Mangement Memo: Don't try to fly through the storm.
Mark Minervini recommends selling a stock when it develops a 7 percent to 10 percent loss. By capping your losses quickly, you can avoid the significant damage a losing stock can inflict on your portfolio.

Of course, the downside of dropping a stock is that it may turn around and start to go up. However by cutting your losses, you minimize your risk, which is a strong financial asset management position.

Furthermore, you can always buy back into the stock once it begins to recover, sometimes at an even lower cost.

"You can’t get beat if you have a great defense."

– Mark Minervini