Low-Risk investment strategy ?

aliciathyme

Hi J,

As you say, ENRC and EVRAZ both sold at 40% stoploss.

The stoploss sales are part of the strategy of course as they put cash back for new buys.

Hargreaves Lansdown are currently 966p (bought 845p on 18 Feb) and you should have collected their dividend of 6.3pps. on 11 April.

Incidentally, I am looking into refining the StopLoss policy:

A) ways to avoid short-term losses without impacting longer term gains of other holdings,
how to capitalise on decent profits before they disappear (ie Take Profit) - although I have not found this beneficial in the past, linking to (A) may prove helpful.

The current scheme using a 40% Stop-Loss policy is intended to be applied throughout the lifetime of each holding. While this worked well in the long-term (ie 5 years) it frequently meant we were left holding losing holdings for extended periods. These long-term losing holdings had mixed blessings - on the positive side they allowed the bonus of receiving dividends, - on the negative side they tied up cash which prevented us buying new recommendations.

I will post conclusions when I complete the modelling in the next few days.

We also have a couple of changes to the FTSE 100 listing as of 6th March: EasyJet and LSE were added, Intu and Kaz were deleted.

Alicia

Jegersmart

Hi

Stoplosses are notoriously tricky to decide on, the way that I have always set them are at price levels particular to the stock in question, for example where price has been tested before or at a level the price action would denote a *change in trend* - perhaps that a lower low has been set which may infer that further price drops are possible. Of course, this results in stop losses being at many different % of the buy price depending on the instrument in question.

In this case, it is rather unfortunate (so far) that both these stocks dropped slightly over 40% and bounced from there. We will see obviously if any buying opportunities present themselves at 50% or not if seen at all.

My main problem with this technique is that I am not able to run a manual filtering process every single day to spot any new buying opportunities due to other commitments, and this means that I am unlikely to benefit from such a system like this in the same way you have because there are days when I am not able to update. Not only would this result in missed opportunities to buy, but also to sell.

I think there are some elements here that I would consider incorporating partly in my wider trading activities but as a "system" I think this is not the one for me. In percentage terms (not outright amounts of course) these are the worst losses I have experienced in 8 years, and whilst I fully accept that a short period of time such as this does not prove or disprove anything at all it is hard to overcome the bad start somehow.

The main reason as I already stated is that I cannot manually filter the stocks on a daily basis without fail and if a system cannot: a) be followed religiously, and b) the system is not totally clear then it probably is not really a system at all. It is for you, and there is no reason for you not to follow it because you *can*....if you see what I mean?

J

aliciathyme

Hi J,

While I agree it could be advantageous to identify a different stoploss % for each holding, any decision would require constant reassessment, and as you imply, one cannot be constantly on the ball.

Originally I tried to make all the decisions simple ones so that all that was necessary was to set up a stoploss level with the broker at 3-monthly intervals to keep the stoploss decision live. And leave it for the broker to take action automatically.

I guess for me it is not difficult to be more complex because I can code my software to send me an instant text message advising whatever I need it to - so my current ideas, while trying to retain as much simplicity as possible, may end up needing more interaction. We will have to wait and see what the model turns up.

Alicia

clairbear_3

my my 40% losers in such a short time jegersmart so much for ''low risk strategy''!!! like I said did well in rising market but you will be bankrupted come any market correction

gadgetmind

Jegersmart wrote: »

Stoplosses are notoriously tricky to decide on

Not for me. I decided to never use them and have never had cause to regret this.

Would you buy a house and then instruct the agent to put it straight back on the market and accept the first offer that's 40% less than you'd paid?

I've had shares lose 75% of their face value, but as I'd done my research, I knew that I was right and the market was wrong. Time proved me right and they went on to be ten and even twenty baggers.

Jegersmart

clairbear wrote: »

my my 40% losers in such a short time jegersmart so much for ''low risk strategy''!!! like I said did well in rising market but you will be bankrupted come any market correction

It is still a "rising market", these 2 companies were hit by some very specific problems and to a large degree a sector problem.

As I said, such a short spell doesn't prove or disprove anything - how could it?

I guess it is always easier to say "I told you so" - no matter what the market is doing?

J

grey_gym_sock

when you buy based on fundamental analysis, i agree there's no sense in stop losses. alicia's system is based on technical analysis, and i think any TA system does need stop losses. (not that i know anything about TA - i'm just watching this 1 from the sidelines.)

Jegersmart

gadgetmind wrote: »

Not for me. I decided to never use them and have never had cause to regret this.

Would you buy a house and then instruct the agent to put it straight back on the market and accept the first offer that's 40% less than you'd paid?

I've had shares lose 75% of their face value, but as I'd done my research, I knew that I was right and the market was wrong. Time proved me right and they went on to be ten and even twenty baggers.

Well, it is one way to look at it. Another would be to see that you were wrong for a very long time until you became right:) I understand that some people invest without stoplosses, I guess it takes another decision out of the process?:D

J

gadgetmind

Jegersmart wrote: »

Another would be to see that you were wrong for a very long time until you became right:)

I'm happy to be proven right in the end. What happens along the way is just one of those things. If people think I'm wrong, and say I'm wrong, then so be it. What matters is how much I've made when I finally press the sell button.

I guess it takes another decision out of the process?:D

It forces you to do your research up front rather than just relying on a stop loss to preserve some of your wealth. However, I do recognise there are different investment styles and some may require a lot more reacting to the views of others than mine does.

clairbear_3

The sector has been in decline for couple years added to the FTSE been in decline since mid March either way cant be called ''low risk''???