If the Market Has You Worried, Read This

19 | By Michael A. Robinson

Hard-core sailors and veteran tech investors have one important quality in common.

They understand how to navigate choppy conditions.

That shared insight is something I know about firsthand. You see, I moved to the Bay Area nearly 30 years ago to be closer to the tech-stock mecca of Silicon Valley and to race sail boats.

In recent years, I even found a way to combine those two loves: Though I eventually traced the rigors of racing for the simple joys of cruising, I now manage to go sailing on a regular basis with a couple of tech-investing pros – including one who’s a daily denizen of “the Valley."

During one of our most recent outings – after we traded stories about battling whipping winds and four-foot-and-higher waves – I found that my sailing compatriots agreed with my belief that tech stocks are headed for some choppy seas this summer.

But that doesn’t mean you should stay tied up at the dock.

Over the past several months I’ve told you how to build wealth.

Today I’m going to show you how to keep it …

Five Moves That Will Calm Your Nerves

Look, I can understand why investors – and even consumers, for that matter – are feeling a bit rattled right now.

First, you have before you a 7.6% unemployment rate – which to most folks sees outlandishly high this late into an economic “recovery." Then you have the threat of an increase in interest rates – when we all know that cheap money and low rates have been two of the biggest catalysts behind this bull market.

Finally, you have the fact that the NASDAQ Composite Index reached an 11-year high of 3,502 on May 21, which likely has many investors worried that this tech-centric index was trading at stratospheric levels – meaning any bad news could cause it to teeter.

As if to confirm those worries, in the two weeks that followed, the NASDAQ had two down sessions for every up day it posted. It closed Thursday at 3,445.37 – down about 1.6% from its peak.

Investors who “drill down" and really study the markets were likely even more fearful. On Monday, the Standard & Poor’s 500 Index closed basically unchanged from the previous trading session. But the very next day, it was off roughly 1%, a somewhat docile number that masked the underlying turmoil. When the closing bell rang, only 18% of stocks showed gains – while a full 77% were losers.

But don’t worry, I approach tech investing the way I skipper a sailboat. For instance:

  • I plot my route (to my destination) before I start my journey.
  • I account for every hazard that I can – and have safety-focused contingencies.
  • And I don’t take unnecessary risks.

A lot of folks are going to ask: “If you know there are risks, why leave the dock at all?"

That’s a good question. And I had some very good answers.

For one thing, while you may suspect certain risks are present, and may even fear them, you never really know when they’ll show themselves.

Sometimes the things you most fear never happen. And when you let fear paralyze you, some pretty terrible things can result. In sailing, if you stay tied up at the dock, you never reach your destination.

The same is true with investing. Here at Strategic Tech Investor, our goal is to help you avoid the plight of so many Americans, who have zero net worth.

But if you stay out of the market, you can’t reach that destination, either.

In fact, if you sit on the dock and stare at your boat because you’re worried about the choppy seas, the damage your finances can suffer is irreversible.

If you invested $10,000 in stocks at the start of 1980, and stayed in the market, your “nest egg" would’ve grown to $332,500 at the end of last year. If you missed just the five best days of the market, that nest egg would’ve grown to only $215,000. Miss the best 30 days, and you’d have only $63,500. You get the idea.

Our message here is that you can earn returns that are well-above average by investing in tech stocks – the “right" tech stocks, to be sure. And we’re here to help you find those “right" tech stocks.

But the same “missing-the-best-days" precept holds true.

In the past I’ve told you about the rules in my five-part strategy for building wealth through tech stocks. Now I want to share five tips that can help you keep that wealth.

The goals here are to ride out the choppiness and not risk missing those “best days."

To manage your risk and achieve these additional goals, you should look to:

1. Make smaller entries: This is a powerful way to reduce risk from a correction but still catch a good part of any rally. Let’s say you have $100,000 in the market and in normal times limit any position to 5% of your capital. If your risk worries are rising, you might cut that “position-sizing" figure in half to 2.5%, or $2,500.

2. When in doubt, start with “test" shares: In the above example you might make an initial entry of, say, $500 – just to make sure you’ve timed your entry correctly, which is hard to do in volatile markets. You can then add to your position as the stock advances. (If you’ve ever read the investment classic “Reminiscences of a Stock Operator," which is a fictionalized account of real-life trader Jesse Livermore, you’ll find that was a tactic this big-time trader greatly favored.)

3. Use stop-losses: There are two ways to employ these essential portfolio tools. The first is a stop-loss that protects against losses getting too deep. I suggest a stop loss of no more than 20%. The second method is a “trailing stop" to protect gains. This is one that moves up as the price of the stock advances. Use the same 20% figure in this manner. Let’s say you bought a stock at $15 that’s gone up by two-thirds to $25. Put in a trailing stop of $20. That way you get out with profits of 33% no matter what happens.

4. Take “Free Trades:" This is a great way to take gains off the table and still go along for the ride. It works like this: When you are up 100% on a stock, sell half. That way you recoup your entire investment and are “playing on the house’s money," as we like to say. Then use a trailing stop to protect profits on the remaining half.

5. Stay in the market: If you want to reduce your exposure, that’s fine but don’t cash out altogether. I know a “very savvy trader" who got scared last November and sold all his stocks. Since then, the market has rallied some 21%. He left a lot of money on the table. Had he cut his holdings in half, he’d still be sitting on overall gains of 10%. You can always shift some of your capital into ETFs. On Tuesday, I showed you how the iShares NASDAQ Biotechnology Index (NASDAQ: IBB) can greatly reduce your risk – while still giving you the chance to double your money.

In the meantime, I actually do see a lot of positive signs for the overall market and for tech in particular.

After years of declines, new money is flowing back into the stock market. The research firm TribTabs says that, as of the end of April, investors have put roughly $60 billion in new cash into stocks so far this year.

That’s already more than any full year since 2004. In fact, the TribTabs stats show a net outflow of $178 billion for the previous two years combined.

So, the new cash is welcome news. After all, bull markets need fresh cash to keep moving up. For the long term, this is an excellent trend.

Key sections of tech continue to do very well. Mobile devices are flying off the shelves and firms involved in Big Data and the Cloud are raking in the cash.

On the strength of those trends, semiconductors stocks have staged a solid rally this year. The Market Vectors Semiconductor ETF (NYSE: SMH), a good proxy for the sector, is up nearly 18% since January.

The biotech sector continues to show strength. For instance, IBB, the biotech ETF I mentioned earlier, is up 26.5% year to date, double the market’s nearly 13% return.

And remember, one of our my main missions here at Strategic Tech Investor is to help you employ investing rules and tools needed to both make money and protect your portfolio.

I’m confident that if you employ the tips I’ve shared with you today, you’ll get through any challenging markets with profits intact.

Editor’s Note: As my “Tech Stock Treasure Map" column from last week underscores, I welcome your comments, questions and suggestions. Post a comment below … I look forward to hearing from you.

19 Responses to If the Market Has You Worried, Read This

    • Michael Robinson says:

      Hi R,

      Thanks for reaching out to me. I hold physical silver in case of emergencies, crashes, etc but I will say that I’m not bullish on metals stocks at this time. If that changes, I will let Strategic Tech Investors know because some of these metals are integral for a high-tech economy.



  1. Bob says:

    While I am trying to buy for “the long term”, I am interested more in Trailing Stops. It seems a prudent thing to do.

    My problem is, I don’t know EXACTLY how to set it. Is there any reading you
    can suggest?


    • Michael Robinson says:

      Hi Bob,

      There are dozens of good basic investing books that would serve as a good primer on this topic.

      You’ll also find lots of articles posted online. Basically, you have to decide if you are going to do this mechanically, meaning a set percentage from the current price, or if you are going to use charts to make that decision.

      For most investors, I recommend using a set percentage. Say 20% from the recent high. To do that, you would go to your online broker or place a call and say you want to put in a stop on say XYZ at a predetermined price that locks in your gains.

      As an example, let’s say you bought XYZ at $50 and it now trades at $90. 20% of 90 is 18. So, you would subtract $18 from the current price and put that number in as your trailing stop. You also can call your broker for instructions. Some online firms actually let you put in a percentage trailing stop.

      Finally, a third approach is to add a percentage over your entry and just say when you get that amount, you’re good to go. Say you are happy with 50% gains, especially if it was a fast run up. Then you’d take your price of $50, add 50% to that and set that as your stop price.

      Hope that helps. Thanks for the question,


  2. mahendi moti says:

    this is a good method to make money. Disipline.
    I still do not understand. Please explain using this method.
    Invest $100.00 Put stop loss at $92.50. Ifit goes up to 120.00 then sell $60.00 and put in bank.
    Please by showing figures going up and down , like method 1, then method 2, then 3,4,5,.so one can get a clear picture what happens to dollar amount applying different method. Thanks

    • Michael Robinson says:

      Hi Mahendi,

      The math works like this:
      100-20%=$80 stop loss on the initial entry.
      100+100%=$200, sell half at this point for a “free trade”
      200-20%=$160 stop loss on the remaining half.

      Hope that helps,


  3. Bill Grant says:

    I like the idea of investing in the biomedical field and like your suggestion about IBB biotech. index. I find with much difficulty trying to obtain information from the FDA about third stage approvals. Thank you for the suggestion.

    All the best,
    Bill G.

  4. Ed says:

    Hi, What about VIX for panic, now 20, 2009> 400. If you put trailing to start 5% above the current stabile level, and are ready to stop position with stop loss. Anyway, the way up might be steeper than the way down. I think this or similar kind of tool is needed to secure all your investments, enabling a new start after.

    • Michael Robinson says:

      Hi Ed,

      Your comment shows that you are a very savvy investor. However, that play on the VIX is not something I really would consider for Strategic Tech Investor at this point. As I see it, that’s more of a move for an aggressive trading service like my own Radical Tech Profits. I must say, however, that I really like your forward thinking process, planning head for the downside and then the recovery. Staying a couple of steps ahead of the market is a great idea.



  5. Richard Waldren says:

    As always Michael, thank you for this article and words of wisdom. I treasure them all. May the Lord let us all maKE A FORTUNE THIS YEAR.

  6. doug Williams says:

    Can you recommend which Australian shares or stocks will benefit from the cloud and data storage industries on the asx thanks
    Already own iinet, tpg, telstra, mynetphone, crown casino and tattslotto , flexirent and invocare.

    Cheers Doug in Melbourne Australia

    • Michael Robinson says:

      Hi Doug,

      Thanks for posting a comment. I wish I could be more help but I don’t typically follow foreign exchanges. It’s often difficult to set stops on those stocks, and some brokers charge a premium for offshore stocks that I’m simply not willing to pay. Having said that, I will definitely take a look at the stocks you mentioned and see if any are co-listed in the U.S.



  7. Pete Hart says:

    Thanks, great advice for a relative neophyte. Can you talk about your asset allocation ideas at some point? And can I access your thinking through podcasts?

    Pete Hart

    • Michael Robinson says:

      Hi Pete,

      Asset allocation is always a good topic and I will keep that in mind for a future column. My recent column on the biotech ETF basically addressed a small part of asset allocation within stocks. When you buy longer-term, stable positions like that it allows you to be more aggressive when the right small caps come along. Good luck on your investing.



  8. Jim schroeter says:

    Thank you for taking the time to respond
    To these questions. Your extra support
    is admirable.

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