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'Investors' despise 'traders'. 'Traders' scorn 'investors' and return the insults by saying this. "An 'investor' is a 'treader' who doesn't know how to use a stop." For sure, the whole matter isn't worth arguing, because both are merely 'gamblers' trying to make a buck off their bets. But investors would be well-served by borrowing some of the risk-management techniques that good traders have to use.

In the 2008-2009 correction, a lot of investors got hurt really badly, like, losses over -40%, and at least half that loss didn't have to happen. Once it became obvious that things were getting really, really bad, they could have exited (or gone market-neutral by going short) --instead of sitting tight-- and preserved capital. And the loss of money is the least of their problems, because money can always be made back up. What took the hardest hit, and sustained the most damage, was their confidence. So they were reluctant to get back in when the market did turn around and lost that advantage. Now, belatedly, they are flooding in again just when profits should be taken and money parked on the sidelines.

Even something as simple, classic, and "traderly" as an exit when a 25-day moving average of prices dropped below the 100-day moving average would have preserved a lot of their capital. I'm not talking about trigger-quick entries and exits here, but the slow, leisurely, disciplined moves that Martin Pring writes books about and develops systems for. And this stuff isn't hard to put together. In a couple hours this morning, using nothing more sophisticated than a spreadsheet and free, end-of-data from Yahoo Finance, I built a system for getting into and out of BKLN (the ETF that focuses on bank loans). I want to double-check my numbers before I post it, as well as broaden it so it could be be applied to any bond fund. But the underlying principle is obvious: "Don't let any more grief come your way than can't really be avoided."

A good weekend to you, too.

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