Rules

Sometimes, investing, no matter how much research you do comes down to just luck. Sometimes good luck, sometimes not so good.

Last week I wrote about how an investment watch stock of mine (CLDA) experienced a trend called a short squeeze. I ended up doing quite well with an overall 17.5% return for one weeks trading.

Because this type of trend can happen very quickly and I am not a day trader, I set certain rules like how much I am willing to lose and how much I am willing to make before, hopefully, getting out in time.

Last week, those rules worked well and my educated guesses worked out pretty well too and I was able to show some profit before the stock went back down.

This week I took that the same approach, though not with a short squeeze, with KV Pharmaceutical Co. (KV-B). Earlier this month, one of their products, Makena, was granted FDA approval. This drug is an injection which reduces the risk of preterm delivery before 37 weeks of pregnancy, in pregnant women with a history of at least one spontaneous preterm birth.

For the medical field, this company, it’s stock and pregnant women at risk, this is a huge event.

So armed with the same rules, I decided to take the plunge. This time, I set the rules a bit more aggressively thinking that the potential upside was a bit greater. So instead of a partial sell at 10% and 20%, I set one limit at 25%. Oh and I always like to keep a stop loss at or about 10% or so. Just in case I am wrong.

Well, imagine my surprise when I got home Monday and saw that it had skyrocketed 45%!

Holy Crap!

Why the $#@! Did I set my limit at only 25%. Well because I have rules.

Imagine if these gains had been losses! My 10% stop loss each week for a combined loss of 20%, though painful, would have been much better than almost 60%.

You see, when it comes to investing, keeping some rules in place helps even out the bumps in the road.
Both the big bumps up and the big dips down.

I can’t complain. After all, who wouldn’t want to earn 20% a week on their investments?

But 45%! Wow!