Better Investing: Three Small Changes to Make Now

By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
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We all strive for better investing. But rather than give the same old big advice (buy quality stocks on reasonable pullbacks, let your winners run, cut your losers short, and don't try to go against the trend of the market), I'm going to recommend three small changes that you can implement right now that will lead to better investing. And a successful small change is much better for you (both financially and emotionally) than a big change that you can't make happen.

So here are three small changes that will lead to better investing:

First, resolve to set your loss limit as soon as you buy a stock. This means, for instance, that if you buy a stock at 30, you will make a note that says: "Sell the stock if it closes below 24."  Make a note of it and keep it where you will see it often.  If you prefer a 15% loss limit, write down "Sell at 25.5."  Making the note makes it official; it says, "I will not absorb any more big losses this year." But your resolution is just to make the note and keep it where you can see it.

Second, you could resolve to read one investment book this year. You don't have to try to turn yourself into Warren Buffett (on the value side), Peter Lynch (on the growth side), or Gordon Gekko (on the wild side). Just pick one book and get through it. (Carlton Lutts, the founder of Cabot Heritage, says that all he needs from a book is one good idea.) You might consider Invest Like a Shark by James DePorre or Inside the Investor's Brain by Richard L. Peterson or even Jim Cramer's Stay Mad for Life by guess who.

And third, resolve to look at your resolutions at the end of every quarter to see how you're doing. This used to be easy when we all used wall calendars. These days you may have to put it on a PostIt note or key it into your iPhone. But try to make sure that you jog your memory a few times a year to keep yourself focused on the good idea you had in January.

Learn more about Cabot China & Emerging Markets Report.


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