Stop Loss

gadgetmind

gkerr4 wrote: »

sorry - but this is just typical of this forum - "investors" always claim that anything other than buy and hold is "gambling".

It's not just this forum. You'll find this view is very widespread amongst experienced investors who've been around the block a few times.

I do dabble in tech shares and AIM stocks, and have come out on top in a big way, but this is due to some very specialist knowledge, and a *huge* amount of luck. If I'd use stop losses, I'd have (perhaps) avoided some of the complete losses, but I'd also have missed out on my few big winners.

gkerr4

Linton wrote: »

BT didnt crash in isolation. In those days BT, and the whole of communications, was seen as high growth tech rather than little more than a utility. And of course high growth tech had an enormous bubble.

If you were investing sensibly and rebalancing say annually you would have allocated a fixed % to tech (perhaps no more than 10%, 20% if you were bullish) well before the bubble, steadily took profits as the sector prices rose reinvesting elsewhere and then reinvested into tech as the sector collapsed. So you would be holding a large number of BT shares when the price reached 78p and benefitted from the 5-fold increase since.

What would a stop-loss believer have done? Sold at say £10 in 2001 and invested in what? Perhaps in a guaranteed tech tips share that went bust a year later.

Sure, if you base your investing on one-off "red hot" share buys looking for maximum short term growth you probably need a stop loss. You certainly need something to slow down your almost inevitable long term losses.

i disagree - and this is an example of my point.

granted 2000 was a tech stock peculiarity (i refuse to use the term 'bubble')

but BT slid from grace because the company failed to adapt to changes in communication technology. They are doing better now as they have cut costs and re-ficssed on content over delivery - the rise of BT sport as a TV challenger for example.

but this totally illustrates my point - look at historically how companies have had to adapt or fail - if you don't see them adapting, they are failing.

gkerr4

gadgetmind wrote: »

It's not just this forum. You'll find this view is very widespread amongst experienced investors who've been around the block a few times.

I do dabble in tech shares and AIM stocks, and have come out on top in a big way, but this is due to some very specialist knowledge, and a *huge* amount of luck. If I'd use stop losses, I'd have (perhaps) avoided some of the complete losses, but I'd also have missed out on my few big winners.

i'm not sure how to take this as it implies that i "haven't" been around the block.

fwiw I've been investing and trading since about 1998 - i was 25 then. Ive learned some things - read a lot - adapted my style to suit what i know and understand. I've had some bad years of course, but i don't think i've had a losing year since 2006 - even through the difficulties of 07/08/09 i managed to come out on top, even if only slightly. I guess i measure my success annually and some others might not. But i enjoy it and it pays for toys like motorbikes and nice cars which i enjoy even more.

IronWolf

fezziwig wrote: »

Thanks for the feedback folks.






Well here's one example, BT.


When the FTSE 100 peaked at near 7000 in Jan 2000, BT peaked at 1500p. A blue chip share that certainly didn't look a "risky gamble" back in those days. It's subsequent market slide made Tesco's recent problems seem like a splash in the pan. Dipped to a miserable 78p in Jan 2009. Even after it's recent better days it's only managing 410p.


You also say .... "I and most long term investors, as opposed to traders, dont use stop loss."

But fine words butter no parsnips as the saying goes. Even a half decent stop-loss strategy would have saved the poor old BT investor a bundle if they'd bought shares anywhere near the peak.




and you go on to say..... "If you are investing sensibly rather than punting on risky gambles why would you want to sell when the price has dropped?"
To save yourself from even heavier losses if the price continues to fall.


If you're only tracking major indexes then of course the risk is massively less over the long term but for anyone investing long term in so called blue chip shares, I'm not convinced that stop-loss isn't worth bothering with.

You don't need a stop loss though to sell out of BT.

If the price drops 10% you can set an alert, you then read the news and find out why its dropped so far. If something fundamental has affected the business and you don't like the investment anymore, you sell. If nothing has really changed you can just hold onto it.

middlepuss

Selling when the market or a share has dropped by a certain amount and the news looks bad isn't too difficult. The tricky bit can be knowing when to buy back in. It requires knowledge, skill and sometimes bravery to buy back in when things look bleak.

Fine for people who are good at it. But for the average investor selling after a fall can be followed by buying back in when all looks rosy again - i.e. near the top. Sell low, buy high.

That's why the advice for non-expert investors is usually buy and hold.