The simple reminder worth thousands

There’s so much change in the financial world that it may at times seem difficult to keep even the most basic aspects of it straight.

That’s why I find it vital to consistently refresh myself in order to make sure that we’re not making mistakes or missing opportunities worth thousands or tens of thousands of dollars.

Here’s a simple reminder that could end up saving or making you a huge pile of cash…

As you know from the these columns as well as the news, the economic crisis in Greece and the uncertainty about the Chinese stock market have both placed a burden on our own stock market.

We experienced just how strong an impact a tiny European economy can have on the sentiment of investors. Fear played a big part in the actions of the market last week, and that fear was the result of something that will likely be a tiny blimp in the history of the European economy.

But that taught us a lesson we already know, and once again reminded us of a very important truth: the stock market is a very sensitive thing.

Whether it’s Greece right now, Ukraine a few months ago, or the Middle East before that, we know that it doesn’t take much to grab the attention of those investing in our stock market.

So an important question to ask yourself in the face of crisis is…Is this a BIG crisis or a little one?

Now, in the moment every “crisis” seems like a big one. That’s why not everyone can see the opportunity behind them.

If it is a big one, you can protect yourself from losing big money by utilizing a couple of common sense “tools”…

1. Only use roughly 10% of your capital on any one position at a time.
2. Have strict stop losses and stick to them.

But protection isn’t the only thing you should seek in times of crisis. You should also be prepared to make money on it…

In order to do so, make sure to remember these two fundamentals of investing as well:

1. Buy when everyone is selling, and sell when everyone is buying.
2. Don’t be afraid to short sell.

Bull markets are often said to be built on a wall of worry, meaning that the stock market keeps climbing as people become more fearful. And when everyone is screaming that this is the best time to buy everything, run for your life. Heck, you can even short sell and make the easiest money of your life.

Remember that the stock market is sensitive and how to protect yourself and even profit when it displays that sensitivity.