Caution. Caution. Caution. This idea looks simple and eminently doable. However, think about it for a moment. Psychologically, all is not as it first appears. Why, you ask?

A common condition affects almost all new stock market investors. This condition is best shown by example:

Assume you buy stocks in two companies as your first trades. You invest $250 in each company’s stock. After two weeks, one stock’s market price has increased to $285, while the other’s market value has decreased to $220. Don’t panic. However, what is your first reaction?

Is your first thought to sell your winner, take your profit, and wait until your loser regains value? This is the LOSER’S mentality! Yet, this game plan is usually the first one followed by newer investors. At first glance, it may appear to make sense. If you sell your winner, you can take some profit. Holding your loser and waiting for a big comeback appears to be smart.

However, experienced investors would disagree with your plan – strongly disagree. Hang with your winner and rid yourself of your loser. This cuts your losses (and you will have some losses as everyone does). If your winner is “hot,” it’s likely that its market value will increase further.

Conversely, if your “problem child” is having market value issues, the value declines will probably continue, causing you to suffer further losses.