People are always asking me when should I sell my stock or mutual funds?

There are some relatively easy answers to this. In fact, so simple that you won't believe them, but they are things I have learned over the past 30 years as a professional trader on the floor of the commodity exchange in Chicago. These ideas apply equally well to stocks and mutual funds and to just about any kind of investment.

First let's examine what the Wall Street mavens tell you about mutual funds. Ever heard this one? Buy a good fund and stick with it even when it is going down. WRONG! Go with a good fund manager and follow him from fund to fund. WRONG! Don't buy the current "hot" fund, as it will go down when this fad is over and you will lose your money. WRONG!

Let's look at the one basic reason all these ideas are promoted. The mutual fund industry which is the biggest owner of individual stocks in the world doesn't want you to take your money out of their particular fund so they all band together to promote the above ideas even when you are losing money. Fund managers are not paid for performance. They are paid by the amount of your money the fund keeps.

Do you want to stick with anything that is going down in value week after week? The great cry of stockbrokers is, "The market always comes back". But when? In your lifetime?

I don't know of any individual fund manager that has made money for the investors every single year. They all run hot and cold, even the best of them. You can put the best jockey on a slow horse and he is not going to win the race.

The Wall Street gurus talk about "hot money" flowing from one fund to another and want you to feel guilty just because you want to make more profit. Hey, what is your money in there for - cold pizza?

There is one basic rule that will keep you outperforming the pack. If your mutual fund is not currently (meaning in the past 12 months) outperforming the S&P500 Index you should sell it immediately and buy a different no-load fund. Don't buy any fund that charges commission. You can buy directly from the fund itself (phone numbers listed in IBD very day) or through a discount broker such as Waterhouse, Datek, E-Trade and many others. The maximum commission charge should not be more than $25 no matter the size of the buy or sell with no restrictions on how long you must hold it.

Where do you find the best performing funds? Each day Investor's Business Daily publishes a list of these funds. Look for the day they publish the top performers for the past 12 months.

Don't pay any attention to the longer-term statistics. Each week you should look to see if your fund is still listed in the top 25. If it isn't, sell it and buy the one at the top. Simple. Forget the 3-year, 5-year and 10-year records. My philosophy is 'What have you done for me lately?'.

As far as selling stock this is what I do. I keep at 10% trailing stop which I change every Monday morning with my discount broker. The open stop is 10% of the previous Friday's close. This may or may not be the top of the move but I don't care. I'm either stopped out with a small loss or a profit, but my money is always protected. When I have doubled my money I will sell half my position and let the rest ride with the following stop. Protection of your capital is the most important thing you can do.

Al Thomas

Albert W. Thomas has spent most of his life in the field of finance. In 1965 he founded an insurance holding company, Security Dynamics Investment Corporation, after having been an agent and General Agent for several life insurance companies. In 1970 he became cofounder and president of Real Life Estate, Inc., that marketed a unique real estate and life insurance package.

After he became interested in commodities he bought a seat for his personal trading on the Chicago Open Board of Trade, which is now known as the MidAmerica Commodity Exchange. Later he became a full time trader and also acted as a commodity broker for a few select clients. By fellow floor traders Al is considered to be an excellent technical analyst much of which is outlined in his book IF IT DOESN'T GO UP, DON'T BUY IT! It became a best seller on Amazon.

In 1981 he sold his membership on the Exchange and with his wife, Carolyn, lived full time aboard their 41' ketch, the Aumakua (which means guardian angel in Hawaiian). They sailed in Florida and the Bahamas for two years.

He founded World Trading Group in 1984 that grew to the seventh largest introducing commodity brokerage firm in the U.S. with 35 offices from coast to coast, Alaska and Canada. It was sold in 1992.

Al is a graduate of Northwestern University with a B.S. degree in Commerce and is a member of MENSA. He is now president of Williamsburg Investment Company that syndicates his weekly financial column since 1999 to more than 300 newspapers and writes a financial market letter called Over My Shoulder that is quoted in Barron?s and many other publications. A 3-month trial subscription is available on his web site. He is a regular guest on several financial radio talk shows.

His favorite pastime is fishing.

Mr. Thomas is available for speaking engagements. Please call 321-453-5300 for more information.