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Can you prevent losses when the stock market is dropping?

Updated: Nov 18, 2022

I’ve been getting a lot of requests for answering some emails and I just figured I’d put it out, because I’m getting a lot of the same questions. And I figured I’d just go ahead and answer them right here. Make a video and see what we see where we go. I guess we’ll call it a first email that I got is from Katherine G. I’ve been investing for the last several years, and I’ve made good money in the stock market about 15% a year. But this year, my account is down over 60%. And I just sold everything. So, I need a new I need a new system. Does yours prevent losses? Katherine, welcome to the world of investing. It’s not always as easy as it seems like last few years, things just cranked up. And, you know, that’s because the Fed was printing all this money. I don’t know how deep you want to get me to go on this answer. But you know, it drove the markets up, like, just tons more money sloshing around and everything went up. And then when things started to change, and they started to change back in November, when the Fed said, they were going to start raising rates, everybody started to freak out. And so, you’re not alone, a lot of people have lost a lot of money, because what happened was the fed kicked off a bear market. So, they said, “We’re going to raise rates, that’s going to slow down the economy, that’s going to cause a recession, that’s going to cause an inflation problem. So, they’re going to try to reverse that, but they were going to reverse it by kind of slowing down the economy. So, you just have to know that fluctuations are part of the game, you haven’t really had to sit through those, but they’re a part of the game. Now you have to have a strategy for that. That’s really the key, you have to have a strategy. And a lot of people, they read this stuff, or they hear Cramer or they, read fortune, and they hear this thing about diversification. And I can tell you, diversification does work. It just doesn’t work within asset classes. So, if you buy the S&P 500, which is the 500 biggest stocks, you know, the ones you know about Microsoft, and Google and Apple, and Exxon and IBM.. I can go on for 500 stocks, Coca Cola, etc. If you do those 500 stocks, you’re diversified among all the stocks, the problem is, when everybody is selling everything, that diversification doesn’t really help you. So in a bad market, like we just had the last seven or eight months, everything got sold up. So what good was diversification, I mean, the only thing that really didn’t get sold off that much was real estate, and gold, right? Every other asset class that I can think of including the safest money out there, bonds for example, got sold off. So if you’re going to be an asset, you might as well be in assets that are paying you and that have a little bit of a component of risk, because if you’re going to be going down anyway, you might as well be able to make money when they’re going back up. So that’s, that’s that part of it. Look, I have to be honest, I lost money in the first half of the year, too, right? You’re not alone, I just didn’t lose as much as most people, because I was in a stock that went down 50%. And I was only down half of that for just a little while. And now we’ve made almost all of it back. And it’s only been, you know been a few months. So, we’re talking about the first six months of the year. And now by August, we’ve made all that up because we have a strategy. Our strategy is called the cash flow machine. And we make safe, reliable income. We take a stock, and we sell options against it, we have a whole bunch of strategies, rules and things like that, around it to limit emotions. But then you know, that’s the engine that allows us to kind of stay in the market. When everybody sells it like you did, I know you sell it, because you’re just like, you didn’t want to lose more than that. And I get it. The problem is, you make an emotional decision you sell out at the bottom, and then you’re not there for the recovery. And not necessarily that every stock is going to recover. There are some stocks that are down 85- 90% that are never going to come back. So, you have to kind of know which ones there are. But even in those stocks, if you do the cash flow machine strategy, and you get that reliable income every month or every week, or however often you want to do in the system, you get to kind of make up for the lost time. And then on the way back, you’re way ahead of the game because you haven’t lost as much and now, you’re bouncing back because you’re still in it. The main thing is to use a proven strategy, to stick with the strategy and don’t quit. So don’t do a buy and hold because that’s a horrible strategy. “I’m just going to buy and hold it until whatever and it always be worth something later.” It’s not always worth something later. It’s might be worth nothing later, but it’s not always, so no guarantees in any in any investing. But yeah, if you have a proven strategy, you could look back, and you can prove it with back tests and years and years of research and things like that. It doesn’t always work. But the probabilities are your favorite friend in this market, you want the probabilities to be in your favor? That’s just the way this game is played. It’s like, how much risk you have to take for how much reward you get. It’s called asymmetric risk, if you’re only going to make this much reward, but you’re taking this much risk, you’re really got it backwards, you’ve got to be at the spot where you’re taking a little bit of risk, but you’re going to make a lot of reward. So that’s an important thing. The other part of it is to have an income as part of your component. I close on this because I think I’ve gone on long enough with this little question, Katherine, but maybe, maybe this is helpful. That is, let’s say you own a house, and it’s a house that you rent out. Okay, so you have some tenants in there. You’re not looking at the value of the house on Zillow every day, are you? You’re just collecting your rent every month? Well, that’s what we do we collect the rent no matter what, as long as the tenants there, we’re going to get that monthly rental, no matter what house could go up 100,000, it could go down 100,000. But at the end of the day, we care about that income component, that income component keeps us in that investment. And that investment continues to cashflow until the market could come around and come back. Because there’s always some utility in that house. Now, I’m not saying there’s always utility in every stock. But if you’re in a good stock, then you’re way ahead of the game. So, we have four cornerstones in our cash flow machine. We start with the right stock. That’s a really critical thing. Everyone’s like, what stock should I buy? It’s more than that. But we start with that the right stock in the right market. So, when the markets just tanking going down like it’s done for the last eight months, it’s not the right market. So, it’s tough, it’s tough to swim upstream. We got the right stock, the right market at the right spot on the chart, not every spot on the chart that you want to be in a stock, right, sometimes you’re going down, and they’re breaking down. You don’t want to be in those stocks, if you can help it or you want to have some strategy that’s going to help you on the downside, protect your downside. And then what we do is we collect the rent for stocks, we squeeze the juice because we collect that rent from that stock as safe, reliable income. I’m sorry, you lost money. And we do have a strategy for you. If you want to reach out, we’ll have conversation with you. But the bottom line is that to have a proven strategy, stick with it, don’t quit. And at the other end of it, if you had a good strategy, you will come out on top.

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