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To STOP LOSS (or not)?

Discussion in 'Investing Strategies' started by Johny_come_lately, 23rd Jul, 2009.

  1. Johny_come_lately

    Johny_come_lately Well-Known Member

    1st Jul, 2009
    SE Queensland
    Stop lossing; is putting a threshold or barrier, which when reached, results in the selling down of assets.

    Traders' use stop losses to prevent shares from devalueing beyond a certain range.

    My questions are this: Should you create a stop loss strategy for managed funds? If so, how would the sell points be choosen?

    Thanks, Johny.
  2. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
  3. lorrimer

    lorrimer Well-Known Member

    4th Jun, 2006
    Brisbane, Queensland
    It's a good idea, but one that I think would be almost impossible to implement due to the 3/4 day delay in getting your instructions executed by the fund manager. In a market that's moving quickly, that could make a 5-10% difference in either direction. This is one of the reasons that I am now moving away from managed funds and into ETF's instead.
  4. Simon Hampel

    Simon Hampel Co-founder Staff Member

    9th Jun, 2005
    Sydney, Australia
    Actually, instructions given to your fund manager should be actioned the same day. Obviously if you send instructions my snail mail, it will take longer. If the fund manager does not offer an online interface, then fax is the best method.

    That being said, you don't typically find out the unit price of the fund until the following afternoon, by which time it may be too late to get instructions actioned that day - so in some circumstances your may be acting on information that is effectively 48 hours old. Of course, you should know what general direction the market is moving while you wait for the updated unit price - so it's not as if you are completely blind (unless the fund is a complex blended fund or something which is not easy to tell unit price moves from the market).

    Either way, a managed fund is a bit of a blunt instrument - you are never going to be able to micro-manage the entry and exit timing like you can with an exchange traded fund.