In my class, '7 Deadly Mistakes of Newbie Investors and How To Avoid Them', I ask my students what is the one of the worst mistakes that you made as an investor. If you have traded long enough, you have made mistakes. I know I have made a few myself. However, I believe some of the best lessons come from when you fail. We all mess up. The goal is to learn from the missteps and keep it moving.

Of all of the most common mistakes that I address in my class, the one I see most often is 'Deadly Mistake #5--No Exit Plan'. When people start investing, they are told what and when to buy but little is mentioned about when to sell.

When you invest, you must know how much you are willing to risk and how much you are willing to lose. Like a fire escape plan for your home, you should know what you will do when the stock price does not move as you expected.

Stick to the plan--do not let emotions --like greed--take over.

An Exit plan ensures two things:

1. That you do not lose too much with a bad stock or company (know how much you are willing to lose before abandoning a stock).

2. That you do not turn winners into losers. Remember until you sell, your profits aren't real.

I violated one of my rules a few years ago with Twitter (ticker: TWTR). I bought shares right before a big rise in stock price (see pic below for my entry price/level). The price went from 33.00 to 54.00 in 3 mos. Normally, with a big move in a short period of time, I take profits (i.e. sell). Instead, I let greed take over and to make a long story short, by the time I realized that the stock (and company) had significant issues and would not recover any time soon, I had forfeited all my profits and ended up with a small loss (23.00 per share).

Moral of this story:

KNOW WHEN TO SELL.

TAKE PROFITS ON LARGE GAINS.

DO NOT TURN WINNERS INTO LOSERS.

I NEVER abandoned my exit plan AGAIN!

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The Rise and Fall of Twitter

That's all I have for now. Happy Holidays! Happy Investing!

Cynthia Crafter

Personal Finance and Investing Blogger

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