When you invest focus on these three rules and you will never go wrong. They are – never lose your capital, how far to let your winners ride before you book profits and how to cut your loss short. Needless to mention, all the three rules are correlated. All the three rules need to be followed in their totality. You may not pick a winner each time you select a stock. The number of winners that you pick should be more than the losers that you pick. This will get you gains over the long haul. What you have to watch for are the losers. They will eat away your capital. So at the first sign of trouble, cut your losers short. You have to do this ruthlessly. Do not fall in love with a stock. Normally what happens is this – I call it the triumph of hope over experience. We hold hares in an ESOP – employee share ownership plan. The price reduces a little. We are not worried. It reduces even more. We tell ourselves that it is a blip and will rebound back. All of s sudden it loses quite a bit of value. That is when we sit up, take notice and try and sell. When we buy is when we should set up a limit as to when we would sell it if the price falls. We make an investment, everything is rosy, and the stock price goes up. We hold on to it. It rises even more. Still we hold on thinking that it will still go up. All of a sudden the values go down, and you have lost a golden opportunity to sell and make a profit. Bottom-line is this. Plan when you would sell a stock, when you buy it. It could be when it loses 5%, 15%, or 25% of its value. When the stock moves by that target, sell it. No ifs or buts. What this will do for your portfolio is great. You have to let your winners run and keep moving this target. It is called a trailing stop. Say you buy a stock for $100. You have a 10% cut off. That means you will sell if the price falls below $90.Next week, you find that the price has moved to $150. Your trailing stop now is $135. This means that if the price falls to $135, you will sell it. This strategy will help in all the three golden rules. You lose lee money on falling stocks, you are letting your winners run and you will end up not losing money.