If in marble game your portfolio had grown from starting $100,000 to $200,000, and you want to stick with your 5% rule, then instead of investing $5,000 on your next investment, you'd go with $10,000. Your risk stays same (a $10,000 investment in a $200,000 portfolio is same as a $5,000 investment in a $100,000 portfolio), but your potential for profit escalates because you have more money in play. Similarly, if you happen to start out with some losses, you only risk 5% of what remains in your portfolio.

For your initial investment and for all subsequent investments, you should never take on a bigger risk than you're comfortable with. And you should have a systematic way of investing that ensures that no matter how size of your portfolio changes, you'll continue to maintain that same risk level.

We advise never to have more than 2% of their capital at risk in any one position. But remember, that doesn't mean that you can only invest 2% in any one position–it means you shouldn't have more than 2% at risk.

To illustrate this 2% rule, let's look at a $100,000 portfolio. If you follow The Oxford Club's rules for 25% trailing stops and 2% risk, maximum you can invest in any one stock at any one time is $8,000. Here's formula for figuring that out... [(.02 x 100,000)/.25]. Now here it is "spelled out": .02 times 100,000 = 2,000, divided by .25 = 8,000.

If you decided you wanted to put less at risk–1% of your capital–our formula would be [(.01 x 100,000/.25] and your limit would be $4,000 in any one stock.

The central message here is consistency: Decide on how much you want to risk... and then stick with that number no matter what. Stay with low-risk ideas... have a consistent exit strategy for stock market... and you'll begin to make money just like world's greatest investors.

Let Your Winners Run–"Scale" Your Way to Ultra-High Profits

The basic reasoning behind scaling technique is that once you've found a winner, you absolutely don't want to sell it. Instead, you want to put more money into it...

So far we've seen exactly how your portfolio will benefit from strictly following The Oxford Club's 25% Trailing Stop Strategy. And you've seen how following position-sizing opportunities keeps your capital safe while letting you rake in maximum amount of profits available. That's a perfect combination.

In scaling in, you'll be using a similar rule to what you learned in our look at trailing stops. Only this time, instead of selling when your stock falls 25%, you'll be adding to your investment when–and every time–it rises 33%.

At about this time, average investors will begin to worry. That's because to them idea of adding money to a stock that's rising is every bit as frightening as selling a stock that's falling. Once again, emotion has come into play, and it threatens to get in way of your profits.

But by this time, you should be beyond that. You've seen how being afraid to sell a falling stock can hurt you, so you understand negative role emotion can play in investing. What's more, you should be able to appreciate how investing more money into a rising stock can help you...

One of best examples that we can use to illustrate power of scaling in involves French telecommunications giant, Alcatel. When we first recommended this company to members it traded at a price of $22. We rode stock all way up to a 108% gain before selling it on way down when we ultimately pocketed 78%.

The fact that we gave back 25% off stock's top didn't bother us a bit. After all, every $10,000 our members invested in Alacatel had blossomed to $17,000–and this money was safe from any further erosion in stock's price. But here's how you could have done much, much better with Alcatel.

Rather than just sitting back and watching their winning positions climb, world's best investors will "feed" their successes more money–so that there's more capital on table to take advantage of high profit that will be thrown off by these winning rides. And, of course, they always know how much additional capital to add because they're using position sizing technique.

As you've seen, our advice is to not put more than 1% or 2% into any one stock market investment or 1% in subsequent scale-ins of that investment. In other words, you put 2% in to start investment, and then if it climbs 33% for you, you add another 1%... another 33%–another 1% goes in, and so on. I'll illustrate this principle using a very simplified scenario, but I will use a 2% scale-in to emphasize effective use of scaling in...

Let's suppose that after your initial investment in Alcatel–and for subsequent 14 months–the size of your portfolio was such that 2% equaled $4,000. That would mean that if Alcatel had gone up 33%, you'd be in a position to feed this investment with another $4,000.

As we saw, Alcatel in fact rose 108% after The Oxford Club recommended it. Which means that you would have had opportunities to do three "scale-ins" of $4,000 each. This scenario is played out in chart above.

By adding $4,000 each time this stock went up 33%, you would have maximized your profit from it during 14 months The Oxford Club recommended it. So instead of a $10,000 investment growing to a very respectable $17,000, your total stake in Alcatel would have skyrocketed to $43,514.95!

The reason we recommend you wait to do initial scale-in until your investment has risen a full 33% is that by that point you're guaranteed never to lose any money on stock as long as you get out at trailing stop. Because you'll be using a 25% trailing stop, very worst that could happen to you at this point would be for stock to return back to point at which you bought it–a wash, in other words.

An Ideal Profit and Safety Scenario Unfolds...

These secrets are used by 99% of world's most successful investors, and are now yours to apply to your own investments.

At end of day, these secrets–limiting your losses and maximizing your profits–seem to spring from just plain common sense. The problem, of course, is that common sense is an extremely rare commodity in world of investing. Many investment advisors, newsletters, mainstream media financial TV shows, and Internet "gurus" make a living out of complicating process with their own forms of investment advice, rather than simplifying it.

After all, more complicated they make it, more mysterious it seems. And more mysterious it seems, more it can play on emotions of investors. And more emotional investors get, more they'll turn to these very same self-proclaimed experts for "investment advice." It's a vicious circle.

Good investing,

Dr. Steve Sjuggerud

(See Parts 1 and 2 of this white paper by searching this web site by Author's Name for ‘Steve Sjuggerud.’)

With no trailing stop strategy, there was no guarantee that we would stop losing money on this investment if stock continued to slide. We might have lost 60%, 70% or even more. Fortuanately, fund behaved like Alex thought it would. The price per share quickly rebounded to over $6 in just a few days. So we need to carefully consider value trades in light of trailing stop.

JDS Uniphase: A Perfect Run-Up in Stock Market

And now we've come to our quintessential example of power of trailing stop: JDS Uniphase. Even though story is almost five years old, it defines profit-making power of trailing stops like no other. In March of 1999 we heartily recommended JDS Uniphase. We said then that "it would be company that would create next great fortune," and it "is one stock investment that you don't want to miss."

We placed normal 25% trailing stop on it.

It turns out this was sage advice, as stock had a perfect, even breathtaking, run-up. It rose from our recommended price of $10.95 (split adjusted) to $110.12–a whopping 905.66% in 14 months. But amazingly, during that entire stretch, stock never had a real pullback in market. Without 25% trailing stop strategy, it would have been tempting to sell some or all of it at 100% or 200%. Had we done that, we would have missed out.

When stock reached $150 we were still in it, and subtracting 25%, lowest price we would sell this stock would be $112.50. As it turned out too, $150 was high point for stock. Of course we didn't know this at time, nor did anyone else. But that's great thing about trailing stop system–it takes "guesswork" out of trying to determine a stock's value. We let market tell us when run is over.

The trailing stop system always keeps us from losing our shirt and always locks in our profits when a stock has had a significant gain. How many times have you heard of investors saying they made 100%, 200% or more–only to give it all back when stock corrected? That's not happening with our system–sure, we may give back a little, but we're always locking in profits on our winners.

If JDS Uniphase had continued to rise above $150, we would have been along for ride. But in this case, $150 was top, and it gives one a great feeling knowing that even if worst were to happen–a stock collapse–we would have a huge 905%+ profit. That's beauty of 25% trailing stop strategy.

The Rest of Story–Don't Buy and Hold

JDS Uniphase also provides a dramatic example of benefits of our system versus perils of holding and hoping. As we said above, we took more than 906% profits from this investment. JDS was a grand slam for us.

Unfortunately, for investors who don't use a trailing stop strategy, JDS is also perfect example of "big fish that got away." From its high of more than $150 per share, stock has plummeted. As of July 2004, JDS was trading at a little over $3.28 per share–that's about a 97% drop from high. That's power of a trailing stop strategy–it can mean difference between taking more than 900% profits and losing 97% of your investment's value.

Use Daily Prices in Your Stock Market Investment Strategy

We use end-of-day prices for all our calculations, not inter-day prices. You should too. This makes things easier. If a stock has gone to $100, put a mental stop at $75. If, subsequently, stock closes at or below that $75 level, sell your shares next day.

The Oxford Club's web site features daily updates and posts on our recommendations. The instant one of our stocks triggers our trailing stop, we immediately post notification on web, so that you can take immediate action. This means that you don't have to follow stock yourself or worry about when you should sell.

Remember, key is discipline. This is a good technique. Stick to it. Choose a broker who understands trailing stops and will do work for you.

Stock Market Investment Advice You Can't Afford to Miss Out On

If you use a discount broker or trade on Internet, there may be times when you are moving your stop up each day–even when you are on vacation (that's a great problem–it means you're making money). We know that most people need time away from stock market to recharge their batteries. Each person has to decide whether it pays to go with a full-service stock broker who can run their investments for them. To help with this decision, we initiated our Oxford Club Safety Switch e-mail service. Now, any time one of our recommendations hits our trailing stop, we immediately alert our members via e-mail.

One thing about life is certain: You are never going to know future. Nobody–even most astute analyst or investment advisor–can know enough about a particular company, industry or nuances of stock market to anticipate with 100% certainty future price of a stock.

But common sense dictates two investment fundamentals:

1) Taking small losses is much better than taking big losses. 2) Letting your profits run is much better than cutting them off prematurely.

Using trailing stops is best first step you can take to greatly improve your portfolio's return. Follow this time-tested technique of world's greatest investors and your investments will outperform those of your friends, neighbors and even your fund managers.

This is first step to having a coherent, reliable system that will let you sleep at night and give you satisfaction of knowing you're maximizing your profits.

Once you apply trailing stops, you'll be that much further ahead of ordinary investor.

Now, you're ready to go to next level in our 'Stock Market Investment Advice' White Paper–and learn next secret of world's greatest investors...

Secret #2: Go With "Low Risk"–And Then Let Your Winners Run

(See Part 3 of this white paper by searching this web site by Author's Name for ‘Steve Sjuggerud.’)