My strategy for investing in crazy, volatile stocks

Penny rolling on a stock chart.

The stock market is on a record-high run once again.

And here I am waiting for bad news to bring the ride to a screeching halt.

Every generation goes through financial crises, but it seems like we've had an awful lot of them lately.

That's why I'm programmed to think the worst is just around the bend.

And I'm not the only one.

The latest Financial Security Index found three out of four Americans are reluctant to invest in stocks.

While I believe stock investing remains one of the best long-term ways to generate wealth, I can understand the reluctance.

I'm just 36, but most of my adult life has been defined by crisis.

After I graduated in early 2000, the dotcom bubble burst.

The following year, on Sept. 11, we had the worst attack on our country since Pearl Harbor.

Then we had another massive stock downturn in 2002. Then years of rising oil prices. Then I lost my job in 2005 when Hurricane Katrina struck my hometown of New Orleans.

Then there was a bear market, the bursting of the housing bubble, the financial crisis, credit crunch, flash crash and European debt crisis.

And there's danger ahead with the U.S. government approaching its debt ceiling (again!) and the potential for massive inflation in coming years.

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Of course, there has been great opportunity in that turmoil.

I've learned to capitalize on bad things. I've bought some solid stocks at lows and have made some great gains.

That strategy goes hand-in-hand with traditional investing advice that says to buy for the long term and ride out the ups and downs.

But who's to say that what worked for the past 30 years is going to work for the next 30 years?

In May 2000, the S&P neared 1,500. Now, 13 years later, after two massive spikes and dips, it's finally back over 1,500.

Sure, investors have earned dividends and other perks during that time, but it makes you take a closer look.

I'd like to think that over the course of three decades, things are going to even out for me.

But what if they don't?

What if we're on the verge of a 20-year global economic slump?

I could hand my money over to a financial adviser, but they all have a thousand opinions and strategies, none of which are proven.

I don't know when the next market crisis and sell-off is coming. And neither do they.

So I'm experimenting with a combination of selective dollar cost averaging and stop-loss orders on the individual stocks I own.

Essentially, I buy stocks in set increments on the way down and sell them on the way up.

This isn't a new strategy, but it's more active than buy-and-hold.

I have had great success with this in recent months by setting stop-loss orders as a position reaches a new high.

In one example, I now have a stop-loss order riding on my Verizon stock at $52.50.

Should I wake up and the stock tanks tomorrow, I'll lock in a 21% gain. Sure, I might risk missing a rebound, but at least I'll limit my downside and will have time to re-evaluate.

I could then sit on the sidelines for a while or average back in as the stock falls.

I also made a similar good call on my Procter & Gamble holdings.

When the stock spiked to $82.50, I set a stop-loss at $81. Sure enough, the stock fell to near $77 the next day.

It's still a good company, and I'm averaging back in, but I have (at least temporarily) preserved my gains.

Most financial professionals would not recommend this strategy, partly with good reason.

I'm likely leaving gains on the table. I also risk missing the rebound or risk selling too quickly.

But it's something I'm willing to try for a bit.

We no longer live in our father's stock market. I think we're in a new world and need to play by new rules.

The idea that we can sit in solid stocks for decades and make a big gain might not work anymore.

The financial crises of the last decade have shown us that years of gains can be wiped out before you know it.

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