The Crock of @#$% Report v.027

August 25, 2015
USA Today: Ask Matt: Why the 10% rule is important

The rule is very simple. If you own an individual stock that falls 10% or more from what you paid, you sell. Period. You don't rationalize the loss and wait for the "good stock" to "come back."

Oh, man. Don't you see what this means? We have just found a get rich quick scheme that is bound to work!

All we have to do is find a stock that is down 10% from a recent high, assume someone else bought it at that price (a very reasonable assumption), and then short the hell out of it! The rule says they should sell so that means we can safely sell too! Just think of the money we'll make!

And what better time to do this than yesterday afternoon! The entire market was down 10% from its recent high! Opportunities like that sure don't come around very often! Sell it all! Short the entire market! Borrow against the house if need be! What a great plan!!

Hold on. Why are the Dow futures currently showing a 500+ point spike to the upside? How are we going to make easy money shorting the entire market using the 10% rule as our guide? WTF!

We may need to rethink the strategy. It's possible that we shouldn't believe everything we read. It's also possible the 10% simple rule is a bit too simple-minded to go head to head with the advanced trading algorithms of professional traders.

You know what? The more I think about it, the more the 10% rule is sounding like a preachy crock of @#$%. Perhaps someone should ask Warren Buffett how many times he has used it.

In all seriousness, I have used the 10% rule in the past. It was enormously frustrating. I bought a new car, drove it off the lot, and bam! I was forced to sell it. Period. I therefore drove right back onto the lot and bought a different new car. I used the previous one as the trade in. This continued a few more times. I'd be on that lot today if I hadn't run out if money. Oops. I said I was going to be serious. Good luck on that theory! Hahaha! :)