To The Moon

In the topsy-turvy world of investing, where fortunes rise and fall faster than a soufflé in a wind tunnel, there exists a steadfast rule that refuses to go quietly: the 7% rule. Over the years, I’ve seen this rule save portfolios from disaster and, ironically, cost investors some of their greatest gains. So, should you swear by it or bend the rules? Let’s dissect this simple yet controversial strategy that can define your success in the stock market.

Walking the Tightrope: Risk, Reward, and the 7% Safety Net

The Safety Net or the Straitjacket?

The 7% rule dictates that if a stock falls 7% below your purchase price, you should sell without hesitation. It’s a principle rooted in William O'Neil's CAN SLIM strategy, designed to prevent emotional investing and safeguard capital.

And yet, I’ve watched investors treat declining stocks like old love letters — clinging to them in the hope they’ll regain their former glory. Meanwhile, their wealth vanishes like biscuits at a tea party. The 7% rule enforces discipline, cutting losses early and preserving capital for better opportunities.

But (and it's a big but), not every dip spells disaster. Some of my most successful investments flirted with the 7% drop before skyrocketing. Had I obeyed the rule blindly, I’d have missed out on some spectacular gains.

Reading the Market Tea Leaves

Like an umbrella in Britain, the effectiveness of the 7% rule depends on the forecast. In stable markets, a 7% stop-loss can feel overly cautious. But when interest rates soar and geopolitical tensions bubble, volatility becomes an unavoidable companion.

In choppy waters, I find the rule invaluable, serving as a built-in stabiliser for my portfolio. But for long-term investors, momentary 7% dips may be no more than inconvenient speed bumps on the road to wealth.

One Rule, Many Exceptions

If there’s one thing I’ve learned, it’s that the 7% rule isn’t one-size-fits-all. It’s more like a budget airline seat — workable, but rarely comfortable.

Blue-chip stocks with fortress-like earnings barely ever trigger a 7% drop, whereas volatile tech startups could hit that threshold before you’ve finished your morning coffee. Instead of applying the rule universally, I tailor my stop-losses based on a stock’s nature and the broader market environment.

The Overlooked Tweaks That Could Save Your Portfolio

Most investors don’t realise that the 7% rule can (and should) be adjusted. In bullish markets, stretching it to 8-10% allows for natural fluctuations without prematurely cutting winners. In bearish times, tightening it to 5-6% can be a crucial capital-preserving move.

Another lesser-known trick? Applying the rule to position sizing rather than exit points. If you’re uncertain about a stock, limit your exposure so that a 7% decline doesn’t dent your overall portfolio.

Bending the Rules: Mastering the Art of Smart Investing

In a world increasingly driven by algorithms and high-frequency trading, the 7% rule feels almost charmingly old-school — like bringing a pocket watch to a digital age. Yet, for all its simplicity, it remains a valuable tool when used wisely. The real skill lies not in following it blindly but in knowing when to bend it.

Because in investing, as in life, the best rules aren’t the ones we obey without question — they’re the ones we understand well enough to occasionally break.

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