Stop Losses

I was just reading a separate thread, and got to thinking...

I am a buyer and holder, and don't have stop losses on my ASX shares.
If I did have, I would have been sold out on August 15, and I'd be forced to pay CGT on the shares as well... then I would buy back in on the up-swing - or would I? would my confidence be shattered by sub-prime fears? And the swing was so violent, the intraday 'V' on Aug 15 would've stopped me out (assuming a guaranteed stop loss! were there any buyers?) - and any sort of individual trader could not have reacted to the V unless they were handling only one or two positions maximum. With a portfolio of 20 stocks, I would've been mince meat.

Even small caps can survive this type of correction, provided they have sound balance sheets, good growth prospects, and quality management. I could have bailed out of AGO at $1.00 in August, but I'm very pleased I didn't because they're back at $1.83 today.

Surely there is a compelling argument for not having stop losses.

 

"Surely there is a compelling argument for not having stop losses."

Are you sure ????????

Consider holders of: HIH, Bond, Quintex, Enron etc.. and all those who bought Telstra around $7- $8 - more than 6 years ago....

If you can not afford to pay tax - do not invest and do not work !!!!!!!

 

If you purchased on sound fundamental reasons, you would not have bought into these companies.

I prefer the buffet buy and hold forever...

 

I agree.

Though rather than selling at a loss you could buy put options, this will reduce your volatility, though cost money and reduce your profit at the end of the day.

Cheers,

Dan

 

Hi Rob and others

I am in the same position in that we hold about 20 shares in our SMSF.

If I was 'stop losing' then I guess I would have exited all my positions as they all went negative from the pre 15 Aug positions.

What deters me is all the paperwork that would have been generated (including the extra accounting costs re CGT) to then have to enter the positions again with the same hesitations that rob has alluded to.

I do have a alternate portfolio where we actively (as active as possible) trade to generate income but as far as the SMSF is concerned it is simply a buy and hold with div's being the main aim.

I really don't know why IAG (NRMA) has taken a tumble. This was the share which prompted the original comment. If I had known that they were going retrace as much s they did then I would have sold but I wasn't (and am still not) aware of any real reason for their loss in value. Mind you looking at their chart they were in a sideways/downward trend.

A question for Tropo. How do you manage your stop losses. I have not found an automated way of doing this and doing it manually is just not reality for me due to time constraints.

Cheers

 

Handy Andy,

You need to look at the reson why NRMA is dropping.. And then decide if that is a reason to sell. If the company has some serious problems which can't be fixed anytime soon, prehaps sell.. but if I recall, AMP and NAB had serious problems which made the stock fall, that was a good time to buy, as management addressed the problems and then the company came out well.

I prefer to see shares like a house, do you sell it each time someone in the street sells for a lower price? Or do you like the house, the area, street etc, hence your happy to keep it?

Tom

 

Andy,

All you need is say 5-10 min per day to check what your portfolio is doing...using daily/weekly chart.
You can program your stop loss with Internet broker or full service broker (cost extra $$), and if your level/price is hit you are out.

Sim,

As I said before...There is not much difference between trader and active investor (time frame may be different).
I guess - there is some misconception about traders and investors...There is nothing wrong to buy and hold as long as instrument/shares is moving in your direction.
Managed fund may be a bit different - but you still need some exit strategy (re-evaluate more often maybe a good idea - kind of stop loss etc.).
Also....do not think that trading as such is based on buying now and selling 5 min later (forget daytrading).
You can stay in the same trade even few years (adding up on the way up) if stock you hold is moving in the 'right' direction.
But again....no matter if you deal with funds or holding private portfolio you should always have an exit strategy.

 

Asx Broker,
Though rather than selling at a loss you could buy put options, this will reduce your volatility, though cost money and reduce your profit at the end of the day.

Do you sincerely believe that average Mom&Dad can play with options???

CRC,
If you purchased on sound fundamental reasons, you would not have bought into these companies.
I prefer the buffet buy and hold forever...


All blue chips I mentioned above sound good at this time as far as fundamentals are concerned!
What do mean by hold forever??
I think it was B. Graham who said: In the long run we are all dead

CRC,
You need to look at the reson why NRMA is dropping.. And then decide if that is a reason to sell. If the company has some serious problems which can't be fixed anytime soon, prehaps sell.....

Sounds good....but how are you going to find reason for drop?
Even if you find it, don't you think that it may be too late to do anything but wait and hope.

 

We are talking about trading strategies and talking about stop losses.

If mums and dad are using "stop losses" then "buying options" are just as easy for them.

If mum and dad aren't worrying about stop losses they won't be worrying about options...

Cheers,

Dan

 

Average mom and dad wont have stop loss either, they buy and 5 years later have a look and say "wow look at all this money"

isn't Warren almost dead now?

Usually it is, thats why stop losses are a waste of time in my opinion cause they usually get you out when you should be buying more.. If fundamentally the company is sound, then you need to wait till the market realizes the stocks value again..

Like now, Australian and global property is out of flavor... fundamentally there is nothing wrong with property, so why not buy more? Give it a few months, and it will be back in vogue again, but then its to late to get in.

Basically Narva does this... buys low (when stock out of vogue) and sells high (when everyone else is trying to grab it)

Most money is made in crashes... not buying in booms.. cause then the horse has bolted.

 

Well said, my point exactly.

I'm glad this prompted debate. I guess I'm a 'mum and dad' investor, except that I do re-evaluate my portfolio every day. But I don't sell every day, in fact in the last year I have sold: Rinker (easy money), Suncorp (I wanted to reduce my insurance / bank exposure - I hold QBE and IAG / CBA, ANZ, NAB), and Sigma (tax-loss sale at $2.30 or so). That is, I sold 3 stocks, but I bought four more.

I am very prepared to use put options over the ASX200, but I intend to ride the ASX200 north a bit further, then 'put' early next year. I see 7000 coming...

 

Agreed. I do have an exit strategy:
- Live off the dividends, and maybe sell down some of the holding in retirement, aged 50.
- Get out of any stock that has a bad management culture, eg the stinky management buyout at Alinta (sorry, I left that off my 'sold last 12 months list' - can't believe that was this year!!).

Alternative Exit Strategy:
- Sell the day before the next big crash

 

Average mom and dad wont have stop loss either, they buy and 5 years later have a look and say "wow look at all this money"

I heard quite opposite stories such as: "wow look at all this money" is in the drain...

isn't Warren almost dead now?

Who knows. Ask him.

Usually it is, thats why stop losses are a waste of time in my opinion cause they usually get you out when you should be buying more.. If fundamentally the company is sound, then you need to wait till the market realizes the stocks value again..

Company's I am talking about does not exist anymore (except Telstra) - that is why stop loss is vital to survive in the market even if you are passive investor !

Basically Narva does this... buys low (when stock out of vogue) and sells high (when everyone else is trying to grab it)

I do not think you understand what Navra is doing but if you want to play that way you need a system.

Most money is made in crashes... not buying in booms.. cause then the horse has bolted.

You must be kidding yourself ...

 

Tropo, how many companies have been wiped from our market? I hardly think its such a big problem here in australia.. on the other hand if you research the company properly before you invest, then you would know if the company is sound or about to go bust.. if your not prepared to do this, then use a managed fund..

but thinking that some automatic mechnical stop loss will save your skin, then your mistaken.

You really think now is a great time to be buying? Right at the peak of the market? Or do you think it would have been better to buy quality companies at the bottom, or on the way down, in the recent correction?

Have a look at the S11 crash, who do you think is a winner today if they bought on the way down, or at the bottom of that correction? According to you, you would have been stopped out at a time when you should have been buying bargins. Not waiting for the market to 'boom' before you decide to get back in.

How is a investor going to say 'money down the drain' if they buy quality ozzie blue-chips at discount? 5 years later?

 

I would say that quite few companies have gone with the wind in the past.
If you think that you do have crystal ball telling you which company will survive next XX years - think again.
Blue chip company such as HIH is a good example.
It seems, you are trying to tell me that you are able to research company better than all those 'pro' who recommended to buy HIH on the heavy slide down. HIH is a history today like many others.
If you think that stop loss is not going to save you, it means that you never used it.
Maybe this is a reason why you have been unsuccessful in trading/investing (hands on).

Always is a good time to buy if market resumes trending up. Nobody is able to say where peak or bottom is.
If market is 'cheap' at say 500 points it may well be even cheaper at 300p and may stay around this level for a long time.
Trying to get bottom or top is a risky business.
Some people are trying to do just that. It looks to me that you are one of them.
Correctly placed stop can take you out in the early stage of a pull back/correction, so you can leave not much on the table. But you must know where to put stop loss, and must be disciplined enough to hit the exit button.

If you still believe that all today's blue chips survive next 10-20 years - fine with me.
We'll talk in 10-20 years from now if you survive that long in the market.

 

You just made very weird assumption such as "If mums and dad are using "stop losses" then "buying options" are just as easy for them."

If one can accurately analyse the direction of the shares or index there is an option strategy one can use to make a profit.
Do you think that all or most of mums&dads are able to analyse market direction and use options as a hedge??
I wonder where did you get this idea from?


"If mum and dad aren't worrying about stop losses they won't be worrying about options..."

Strangely enough you are correct, because most of mums/dads never heard about stop losses or options.

 

I was lucky enough to sell out of Sons Of Gwalia and made a profit prior to thier nosedive (used the funds in property) and heard of others who held until the deathknell

With Chemeq the trigger was fired and I watched it continue to dive and die an agonising death, thinking i was glad i got out

Deciding on an Exit I've come to believe, has been as important a decision as deciding on an Entry point, i try and stay with the basics though, as anything too complex is beyond me..

Think of the Stop as a Red Stop Light....will you stop at the warning light or run through the light hoping not to get hit or even wiped out and make it safe to the other side?

You could go with a Basic strategy such as 10 Stocks with a 10% stop as that way you are only risking 1% of your capital

Just reading above regarding Options, I'd thought that not many stocks were optionable (is that a word) and even then, its only the larger stocks that can be regularly traded

Keen to read others thoughts as its still all new to me

 

"Just reading above regarding Options, I'd thought that not many stocks were optionable (is that a word) and even then, its only the larger stocks that can be regularly traded"

http://www.asx.com.au/markets/pdf/UnderstandingOptions.pdf

 

Hi Guys,
I see the pros and cons in both methods, if you go for buy and hold your original selection of the sticks should have some resonable stability.( but not nessesary bluechipsI agree) generally with a longer term view. you shouldnt have any fears and need to use stop losses. but I do agree with having them on some stocks for sure, but these sticks would not be in my buy and hold portfolio. I use a -6-8% trigger.

My plan is buy and hold. with a long term view, sounds exciting all the stop losses but doesnt work for me.

good luck.
Jase