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Risking Your Capital

By John Dietz - Email Editor

Date: Feb 07, 2006

It seems to me that Asset Protection is the ability to avoid getting caught with your pants down. This is easier said than done in the creation of net worth. I speak with folks every day who believe that real estate is the answer to investing money; others who believe the answer is the stock market; and others who believe it is the simplicity of compound interest. Whatever your proclivity is doesn’t matter. What matters is limiting your downside risk.

As I mentioned in last week’s article, thinking globally is not the future; it’s the present. Being a global investor can be challenging. How can you get into a segment of the world economic boom without getting your head handed to you on a silver platter? As you know, there is a bull market in some investment class somewhere on the planet. So, how do you get the benefit of a hot market without the downside risk? Now we are back on the subject of cutting your losses and letting your winners run. Several weeks ago I wrote an article entitled “Stop Loss Strategies” on tactics that limit your downside risk in any one stock to one percent of your portfolio (Click here for details).

Since posting that article, I have received many e-mails and phone calls about how to follow the stop loss strategy without having to watch your computer screen all day. A brilliant mathematician's answer was combining technology and the Internet to come up with a simple yet effective web-based product to alert you of your trade stops.

Normally at Trustmakers we don’t spend time hocking people’s products, but every once in a while something comes along that is important. Our goal is to give you thoughtful and meaningful ideas about how to protect your assets. This one fits the bill. Using trailing stops to limit your downside risk in the markets is not a new idea, but finding a way to actively track and trade on these minute-by-minute details is.

The man who I am talking about is Richard M. Smith, Ph.D. in mathematics (Click here for a bio). He has put together several very successful web-based businesses designed around one idea: providing simple solutions to complex problems.

His firm, StrataDat, is a primary consultant to one of the biggest companies in the pharmaceutical industry. His firm’s job is to take enormous raw data sets on global pharmaceutical usage and produce user-friendly presentations—presentations that someone without an advanced degree in biochemistry can understand.

When the electric utilities in the state of New York were facing deregulation, his company helped stabilize and maintain profitability of one of the biggest firms in the region, increasing manpower by a factor of ten without hiring any additional men. Sounds to me like a true "throughput" professional.

Dr. Smith's thoughts combined his passion for this kind of problem solving with his hobby of creating investment websites. (Dr. Smith has developed two sites for both stock-traders and options-traders so far). He decided to make trailing stops work for the average investor. After two years of research, he came up with a web-based system called TradeStops.

Here’s how TradeStops works:
1. You go to the TradeStops website.
2. You enter the stocks you own, when you bought them, and how much you paid per share.
3. You decide what your trailing stop will be: 10 percent, 20 percent, 25 percent...it’s up to you.

That’s it. TradeStops does the rest. All you have to remember is the website and your password. Twenty-four hours a day, seven days a week, TradeStops monitors your portfolio and constantly recalculates your trailing stops based on each day’s closing prices.

If any one of your investments closes below your trailing stop, TradeStops will alert you via e-mail or send a text message to your cell phone or pager. You’ll know right away that it’s time to sell your position. Of course, if your stocks keep going up, TradeStops will move your trailing stop for you.

In short, TradeStops makes sure:
1. You never lose more on an investment than you’re willing to lose.
2. You never give back all the gains you’ve made simply because you weren’t checking your portfolio every day.

TradeStops will also keep track of stock splits and dividend payments automatically…and adjust your trailing stops accordingly (no other service I know of will do this for you). If you want to see how your investments are doing, you can check on them any time of day, from anywhere in the world. All you need is a computer with Internet access.

You don't even need a high-speed cable or DSL connection; a simple dial-up will do.

To access TradeStops, please click here.

Now if we could only have Dr. Smith write a program that would limit the downside risk of every other malady that comes along…

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