3 Lessons From the Research In Motion Massacre

Just when you thought the sinking Research In Motion (NASDAQ: RIMM) ship couldn�t go lower, it takes a dive. Shares of the blackberry maker experienced a harrowing 14% drop following a disappointing earnings announcement in after hours trading yesterday. Given the 50% haircut the stock has received over the past three months one would have thought the bad news was already priced into the stock. Well, apparently not.

While the seemingly endless slide continues now maybe a good time to take a step back from the bloodbath and touch on three key lessons illustrated by the RIMM debacle.

1) The only true support level is zero.

RIMM has broken below so many support levels in recent memory it�s tough to keep count. And with yesterday�s gap down it�s now breached the infamous bear market lows from early 2009. The unfortunate reality is that stocks can and sometimes do decline to zero. Unless you can afford to lose the entirety of your capital invested, you must have some type of plan to exit when stocks move awry. No one knows if RIMM could actually drop to zero but it will inflict significant damage to any unlucky shareholders who bought at $70 or $50 or $40.

2) Hope is not an investing strategy.

Perhaps we�re stating the obvious here, but you�d be surprised how many misguided participants turn to this insidious emotion in times of trouble. A phrase like �oh, it will come back� may be comforting in the moment, but it will eventually come back to haunt you. While it�s true that most stocks do eventually rise from lowly levels, all it takes is one stock not coming back to destroy your trading performance for months and maybe years to come. That is not a good margin for error.

3) You can always get back in.

Traders reticent to part ways with their beloved stock should remember that they can always get back in. The fear that a stock may rise without you after you�ve liquidated your position can be overwhelming, but don�t let it paralyze you. If a stock is in a continuous death spiral then why not close your position and look to re-enter when or if it returns into an uptrend?

Source: MachTrader

At the time of this writing Tyler Craig had no positions in RIMM.

Follow Tyler Craig on Twitter@TylersTrading.