by Louis Basenese, Small Cap and Special Situations Expert
Thursday, October 8, 2009: Issue #1111

I confess… I got it wrong with gold.

Unlike some stockpickers and newsletter analysts, who proudly trumpet all their winners, while shuffling the losers under the rug, I have no problem admitting when my calls go against me.

And to the delight of all the naysayers, this happened just a couple of days ago when gold prices shot to a record high. That triggered my sell-stop and, rather than let my pride come before a fall and hang on, it's time to move on.

Don't get me wrong, though… I'm still convinced that the yellow metal could suffer a correction for three main reasons…

• So far, inflation hasn't reared its ugly head. If it stays in hiding much longer, disillusioned investors will probably head for the exits.
• If the U.S. economy recovers quicker than expected, investors will be inclined to abandon the safe haven of gold and reinvest in equities.
• The technicals point to a drop. The last four times gold spiked near or above $1,000 per ounce, it quickly (and sometimes precipitously) corrected.

However, giving into these convictions – and doubling down on gold – would mean abandoning two core investing disciplines that I swear by – position sizing and trailing-stops…

Have You Considered Using Trailing Stops & Position Sizing?

I know… you've heard about them countless times before. But indulge me for a moment, as I explain an aspect of both trailing stops and position sizing that you've probably never considered…

• When I speak at investment conferences, I always like to ask people to share their biggest loser. Heads go down and nary a hand rises.
• Conversly, when I ask them to share their biggest winner, it's like I just offered free candy to an auditorium full of kindergarteners. Everyone's hand shoots up and there's a chorus of anxious, "Oohs!"

Nobody likes to talk about losing investments. Instead, we want to thump our chest over the latest 1,000% gainer. The reason for that is obvious, so let's focus on the fear about talking about our losers.

Many investors turn their biggest loser into a total loss. Instead of employing a trailing-stop and exiting a trade as the price tumbles, they make it a long-term investment to save face. Or worse, they invest more at lower prices.