By Justin Spittler, editor, Casey Daily Dispatch
“Your Uber has arrived.”
I grabbed my suitcases and stepped on to the streets of Rio de Janeiro.
That’s when I made my first mistake.
I pulled out my iPhone and I looked down to get my Uber’s license plate number.
Two seconds later, my phone was gone.
A teenager, maybe 18 years old, snatched it out of my hand… and took off running.
Without thinking, I threw my backpack to the ground and started chasing him at a full sprint.
Fifty feet into the chase, I felt a pop in my right leg. I pulled my hamstring.
But adrenaline was coursing through my veins. So I kept running.
• I chased him for three blocks before he took a sharp left into an alley…
“He’s trapped now.” I thought.
But I was wrong. At the end of the alley was a tall flight of stairs that led up to the “favela.”
A “favela” is a slum in Brazil. It’s the last place you want to end up in as a tourist in Rio de Janeiro. But there I was.
And yet, I kept chasing the thief. I got within 20 feet of him before he made it to the stairwell. He rounded one flight of stairs before I lost him.
I gave up.
I turned around, walked down the stairs, and started limping away.
• Then, something incredible happened…
A shirtless man yelled from three stories up. He told me to “wait.”
I stood there at the base of the stairwell gasping for air and clutching my right leg.
I had no clue what would happen next.
Not long after, the man pointed at the ground next to the stairwell. I looked down, and there it was. My phone sitting in the dirt.
I’m still not sure how it got there. But I didn’t hesitate. I grabbed it and started walking back to the Airbnb.
My Uber was still waiting for me. I got in and headed to the airport.
• This was my experience in Rio recently…
It was surreal.
In fact, I still don’t know why the people gave me my phone back.
Maybe they didn’t want a “gringo” getting killed in their neighborhood. Or maybe they didn’t want me to call the cops. (After all, the Rio police and criminals of the favelas are already at war with each other.)
I guess I’ll never know. But I do know this.
I’m extremely lucky that I got my phone back. But I’m even luckier that I didn’t get hurt or killed.
That might sound like an exaggeration. But you’ve got to understand something. Rio’s favelas are no-go zones, especially for tourists like me.
But this isn’t just a story about how I tempted fate in Rio…
• There are valuable lessons to be gained from this experience – ones every investor can appreciate…
I’ll explain in a second. But first, let me tell you why I’m in Brazil in the first place…
As regular readers know, I’m always on the move. You can’t unearth the world’s biggest money-making opportunities if you’re sitting at a desk all day. Right now, I’m bullish on emerging markets… and my latest research took me to Brazil.
That being said, when I arrived, I knew it would be dangerous.
Brazil has long been the world leader in overall homicides, and its murder rate is also one of the highest.
So I was extremely careful the first six days I was there. I only carried around a small amount of cash. I didn’t bring my phone out at night. And I didn’t wear fancy clothing or a watch.
I thought taking these precautions would keep me out of trouble. And they did… until that incident.
All it took was one moment. A split second where I let my guard down.
I threw caution to the wind because I thought I was in the clear. Remember, my phone was stolen in what should have been my last 30 seconds on the streets of Rio.
Nonetheless, I was careless. And I paid for it.
• Unfortunately, many investors make the same kind of mistake…
They let their guard down when they think nothing can go wrong.
Maybe they gamble on risky stocks or unproven companies. Or maybe they forget about proper position sizing. In other words, they bet more money than they can afford to lose.
At Casey Research, we repeatedly encourage investors to not make these mistakes.
So let’s assume you take our advice. Let’s assume that you own a basket of high-quality stocks and your position sizes are appropriate.
You could still be at risk for heavy losses.
• I say this because investing is emotional…
And powerful emotions can overcome reason. It can lead to irrational decision-making. My experience in Rio is a perfect example of this.
You see, I made two critical mistakes.
First, I let my guard down by not checking my surroundings when I pulled out my phone. Then, I acted on emotion… and chased after the thief without considering the danger.
As investors, we can take emotion out of the equation.
• One of the simplest ways to do this is with stop losses or trailing stop losses…
A stop loss will automatically sell (or remind you to sell) a position when it falls below a certain level.
For example, let’s say you bought Apple at $175 per share, and you want to limit your downside at 20%. You could set a stop loss at $140. That would close your position if Apple’s stock fell 20% below the price you bought into the stock. (Note: We don’t recommend entering stop losses with your broker. It’s like playing poker with your hand showing. It’s better to keep your stop loss as a mental note. Watch the position on your own and if the stock hits its stop, exit the trade.)
You could also use a trailing stop loss that “moves up” as the stock price moves up. For example, if you bought Apple at $175 and it runs up to $200, your 20% trailing stop loss would change with the rising price… and close the trade if Apple dipped below $160.
Using stop losses or trailing stop losses takes the emotion out of investing. And they’ll help protect you should the unexpected happen.
March 7, 2019
P.S. To monitor trailing stop losses, many of us at Casey Research use a software called TradeStops. It’s the easiest way to implement and stick to your trailing stops – by far. This service will not only ensure that you can let your winners ride… it will also help you cut the weakest performers in your portfolio before they snowball into catastrophic losses. You can try out the TradeStops system here.
Have you mistakenly let your guard down when you thought you were in the clear? Did it affect your investing? Let us know at [email protected].
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