Before you buy a stock, consider your sell point

— -- One definition of madness is doing the same thing over and over, and expecting different results. If you have tried to snatch up a cheap stock in the past six months or so, you're probably questioning your sanity. Cheap stocks just keep getting cheaper.

For people who like bargains, stocks remain tempting. Many stocks are lower now than they were a decade ago. Before you decide to dive in again, however, make sure you have an exit strategy. You'll save yourself some money and, sooner or later, you might lose that twitch.

For many years, selling a stock was considered something that was Not Done, like bringing a clown to a funeral. After all, stocks always went up. Patience was the only answer to a stock tumble.

These days, however, those who hesitate are often lost. Say you bought 100 shares of Bank of America on Dec. 31 at $14.08. Price: $1,408.

You could have argued that Bank of America, the nation's third-largest bank holding company, was a cheap stock. It had already fallen 63% since Oct. 1. And it sold for 2.3 times its estimated 2010 earnings. (The price-earnings ratio, or P-E, measures how cheap a company's stock is relative to its earnings. The higher the P-E, the pricier the stock. Bank stocks typically sell for lower P-Es than most other stocks, but 2.3 is still inexpensive.)

Ideally, you'd like to sell before taking such a huge loss. But how do you decide when to sell a stock?

Dan Chung, chief investment officer for the Alger funds, has a few general rules about selling. If the company produces a startling earnings disappointment, for example, you should consider selling, he says. You might also consider selling if you think another stock has better potential.

But you should also set a limit on how much you are prepared to lose the moment you buy a stock. One way to make sure you stick to that limit is to use a stop-loss order, which tells your broker to ditch the stock if it falls to a specific price.