By Joe Cardone
1. Don’t dump quality.
HISTORY suggests that in a market with plenty of movement, yet no real advancements, we are likely to rid portfolios of quality stocks. This suggests that at some point during the next several years (and not anytime soon) an opportunity to exit if necessary at a higher level than currently should emerge, if the stocks in a portfolio are at the quality end of the spectrum.

2. Averaging down.
THE cardinal rule of the trader is never average down, primarily because you could simply be throwing more good money after bad. However, this is not always valid if you are certain, and I mean certain, that once sentiment improves, the stock you are down on will be still around and potentially moving higher. Stocks that would meet this criteria given the current background would include those with limited debt, little need to raise capital, good management and/or very strong market positions.

3. Be comforted in knowing the number of times you are right is close to irrelevant.
RETURNS in the stockmarket are not necessarily based on maximising the number of times you are correct. More important is the maximisation of the extent of gains and minimisation of losses. A single successful stock can make up for a lot of poorer performers. So, while the portfolio’s current position may be disappointing, it is not necessarily a good indicator of future profitability.

4. Would you sell if you owned the whole company?
INVESTORS get caught up believing that a stock price is the real value of a business. Before selling a stock, determine if the market is accurately reflecting the true future value of a stock or has the market simply downgraded the stock due to short-term sentiment.

5. The “I don’t give a damn, I know what I’m doing approach”.
USUALLY suicide unless you really know what you are doing. One thing I have found having been investing for more than 20 years is the best opportunities are usually around when nobody else believes in them. In fact, this makes them the best opportunities. So it’s almost always lonely when buying into these types of investments.

6. Resist making 100 per cent decisions.
WHEN pressured, the mind tends to make true/false simple decisions. This is not necessarily the best approach to the stockmarket and taking a partial loss and holding the remainder of a position if the future is unclear on a stock can sometimes be a better decision.

7. You don’t have to make it back the same way you lost it – look for new opportunity.
IT is a characteristic of the stockmarket that it rarely repeats the same sector booms. For instance, if you are waiting for the next internet boom, don’t! 

8. You can’t win if you are not prepared to lose.
LOSING is an important part of stockmarket investing and nobody operates without making a loss on some positions. If the outlook for a position looks abysmal, you doubt management, or bought at the top of the bubble and feel a stock is unlikely to ever get back there, take it on the chin and sell out. Best to live to fight another day.

9. In need of cash? Consider selling the poorer outlook stock, not the best-performing stock.
IT is always tempting when you need to sell stocks to raise some cash to exit the better-performing stock and hold the stock you have a loss on. However, commonly the better-performing stock is outperforming because of its more positive outlook. These stocks can tend to keep outperforming when the recovery comes.

10. Keep things in perspective.
MOST people would not trade their eyes for a trillion dollars. If times are tough in the market, I like to remember that my net asset value is priceless, and adding or subtracting a few dollars to that either way does not make that much difference.

Stockbroker Joseph Cardone is an experienced adviser and the Canberra branch manager for Patersons, “The Australian Stockbroker”. Any advice provided in this article is general in nature and should not be solely relied upon when making any individual investment decision.