What would you do?

brasso

paramaniac1 wrote: »

Fundamentals make a stock rise in the long term. Sentiment and emotion cause the stock to fluctuate in the short term. There is not a company out there that makes a consistent profit and the share price falls continuously. If you sell on short-term fluctuations you will lose eventually. If it's a good company with solid fundamentals, stay with it and see the drops as opportunities to buy more, not to sell. That’s what Warren Buffett does.

So now you've miraculously morphed into a long-term-buy-and-hold Warren Buffett advocate, basing investment decisions on long term fundamentals..... when shortly before this you were talking up stop-losses and announcing the success of your technical trading system, the result of 3 years of research, that had uncovered the previously concealed 'real reasons' that stock prices fluctuate?

I'm outta here before I go nuts.

TakeCareOfThePennies_2

paramaniac1 wrote: »

Fundamentals make a stock rise in the long term. Sentiment and emotion cause the stock to fluctuate in the short term.

The sort of nonsense spouted by the eternal optimist investor, ever seeking ways to convince themselves that they should run losses forever in the hope that it will recover !

I've got a track record behind what I'm saying being correct. And I'm sure you'll find Mr Buffet also knows when to cut his losses too !

KGriff

paramaniac1 wrote: »

A stop loss order is just an instruction to exit a position when the price reaches a certain point. If i were to buy 1 share of a company for £10 I would have risked £10 (it may go down to 0 and i have lost my £10) If i put a stop loss at the £9 position, and the share started to go down i would automatically sell at £9 losing £1. In this way my risk only becomes £1 and not £10 (which it was without the stop loss). If the share rises the stop loss moves up automatically ( share rises to £11 stop loss rises to £10, share rises to £12 stop loss rises to £11 and so on) This is known as a trailing stop loss. If the share rises to £20 and then plummets it will trigger the stop loss (which is now at £19) and i will exit the trade at £19 having made a £9 gain. In this way I would know that my risk on the trade was only ever £1 at any time whatever happens to the direction of the trade.

Yes, now that's practically how I use a stop loss, it trails behind my share price, but I often don't stick them on in the first instance, because 'spikes' in a share price can cause a sale at a loss when there is every chance additional research or a review (like the sort undertaken by TakeCareOfThePennies) would reveal a likely return to profit. If it was not likely to return then 'yes' sell it as quickly as possible manually.

So you see my stop loss is only used when the stock has reached profit, but that's just my personal choice.

For example, right now, I have some stop loss orders on shares that are in profit (the stop loss order is until 11 May - the Monday after the general election). If the markets take a tumble my shares will sell still at a profit... And if the market continues to fall I will buy them back in anticipation of a later return to profit.

The shares I don't have a profit on however, (but have done research and a review on already) will not have a stop-loss order and will be allowed to fall, at which point I personally will be buying more shares in those companies at the lower price... If they return to their pre-election price they should be in profit and then in will go my stop-loss orders to protect the gains.

So in principle I agree with some things said but like I say I prefer to use the stop-loss order when shares are in profit.

My example above though is where the general election result has an initial negative effect on the markets, but it serves to demonstrate my principle on how I see best use of stop-loss orders.

KGriff

brasso wrote: »

Have you used stop-losses much? You've described the theory but in practice there are plenty of drawbacks. If the share is volatile you can easily sell in error at a low point, missing out on later gains. Unintended sales happen a lot when trading opens and you get sudden rapid adjustments and readjustments. To counter this you may have to nominate a stop-loss lower than you'd like. Also, remember that every sale needs a buyer. If a share starts to slide it is likely to dip well past your nominated sell point before it goes. When I dabbled in stop-losses I found that a couple of times I'd sold right at the very lowest point in a dip, just before the bounce that would have saved me.

These were expensive but useful lessons in my brief trading phase. Using automated triggers sound great but can work against your best interests.

Yes, good advice Brasso. I completely agree.

KGriff

brasso wrote: »

As with your revolutionary discovery about how to beat the US stock market, I'm extremely sceptical about this. It's something I can imagine sounding convincing to a naive audience at one of those 'seminars' that tell you how you can get reliable above-average returns simply by applying a system based on logic.

Trouble is, the markets don't operate solely on logic and technical indicators. Things happen outside the trading floor like the war in Ukraine, like a suicidal pilot crashing a plane, like the BP disaster in the Gulf of Mexico, like the ASOS fire, like the Tesco accounting scandal, like Lehman Bros popping like a bubble, and so on.

Regarding your horse race analogy, others here may have more time to rip this idea apart but let me just mention a couple of obvious problems.

Firstly, the parallel is wholly unrealistic because the stock market can't be thought of as groups of stocks in a zero-sum game in which there is one winner and (say) 9 losers. All may win over a period; all may lose over that period. Regarding automated selling, as I said earlier, in order to avoid hair-trigger sell-offs you have to opt for a sell price that is quite a bit lower than you might be comfortable with (and even then you probably won't get that price, especially if there is a big sell-off -- your tiny stake is irrelevant compared with the muscle power of the big sellers). So even using your model, you may end up with a bunch of failing stocks that have cost you a lot, which leaves the winner(s) having to be superstars to compensate.

Going back to the horse race I have to pull you up on this:



Lethal cod-science. "Might be bigger than the 9 losers combined" -- yes, and it might not be. You would need a steady run of high-priced winners to compensate for all the wasted bets. May I ask a simple question: if this is how horse races worked, do you not think there would be hundreds of millions of people doing it?

Coming back to reality, and the markets, what about trading costs? In your model, you are not just buying and selling 10 items but you are paying 20 lots of trading fees which is a massive hit when margins are fine. Again, think how well your winners have to perform to compensate for all those losses and all those fees. And when do you cash in? If your 'winning stock' has put on such a surge as to pay for your day's trading, presumably because of an upturn in business or sudden optimism in its future, do you really want to sell it now? And equally, if a stock is dragged down by a temporary state of affairs that will pass, do you really want the stop-loss to kick in thus cementing in the losses and missing the bounce?



Profound. Here's another golden tip to add to your stash: Winning a fortune on the lottery is easy. All you have to do is buy a winning ticket.

You hold my viewpoint brasso... I fully agree with the comments you make here too.

KGriff

I guess the easiest thing to say here is that I always use my stop-loss orders to simply protect my gains/profits in a stock. When I say 'profit' I take into account all the fees and cgt.

My research is always on-going (even in the good times) and if I sell a share at hopefully a minimum loss, its usually a last resort because something has dramatically changed from my research position.

Otherwise if my research shows a 'strong-positive' and my stock is perhaps new and not yet in profit (that includes taking into account fees etc.) I won't use the stop-loss order instead I let the company fall and hold my nerve and trust my research and I may buy more when the share-price is low.... I will always buy more if the research remains positive and I view the fall as a 'blip'.

A falling stock for me, at this time, however gets the full focus of my research and attention and is effectively monitored till it returns to profit and when in reaches a sufficient level of profit in goes the stop-loss, order to protect the gains.

The position of the stop-loss is key too... You want the shares to sell and give you a profit, but you will also want this 'safety net' to be at a sufficient level below the 'average' price so as to not get triggered by normal market fluctuations.

Setting the stop-loss price is very important too ... Anyone who picks a random value like 10% below a share price for 'all' their shares is not someone I would listen too for investing advice.

More research is needed to set the price of any stop-loss order and that includes the ongoing movement of each stop-loss as the share price rises etc.

TakeCareOfThePennies_2

paramaniac1 wrote: »

If it's a good company with solid fundamentals, stay with it and see the drops as opportunities to buy more, not to sell. That’s what Warren Buffett does.

Let's see what Warren Buffett had to say about his 5% stake in Tesco in his letter to investors shall we ?

Attentive readers will notice that Tesco, which last year appeared in the list of our largest common stock investments, is now absent. An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier. I made a big mistake with this investment by dawdling.

He continues:

My leisurely pace in making sales would prove expensive. Charlie calls this sort of behavior “thumb-sucking.” (Considering what my delay cost us, he is being kind).

And concludes :

In the world of business, bad news often surfaces serially: You see a cockroach in your kitchen; as the days go by, you meet his relatives. We sold Tesco shares throughout the year and are now out of the position.

What are the key statements we can highlight ?

• An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier.
• I made a big mistake with this investment by dawdling.
• My leisurely pace in making sales would prove expensive.

See what I mean about knowing when to cut your losses, and needing to go about it in a cold-hearted manner when the time comes ?

As I said before, learning when to sell is the most important lesson of investing, and beware of the optimist that lives inside all investors.

Better to sell with regret than keep with regret.

And on the subject of buying cheap :

My first mistake, of course, was in buying control of
Berkshire. Though I knew its business - textile manufacturing -
to be unpromising, I was enticed to buy because the price looked
cheap. Stock purchases of that kind had proved reasonably
rewarding in my early years, though by the time Berkshire came
along in 1965 I was becoming aware that the strategy was not
ideal.

Unless you are a liquidator, that kind of approach to buying
businesses is foolish.

First, the original "bargain" price
probably will not turn out to be such a steal after all. In a
difficult business, no sooner is one problem solved than another
surfaces - never is there just one cockroach in the kitchen.

Second, any initial advantage you secure will be quickly eroded
by the low return that the business earns.

Time is the friend of the wonderful business, the enemy of the
mediocre.

I could give you other personal examples of "bargain-
purchase" folly but I'm sure you get the picture: It's far
better to buy a wonderful company at a fair price than a fair
company at a wonderful price. Charlie understood this early; I
was a slow learner. But now, when buying companies or common
stocks, we look for first-class businesses accompanied by first-
class managements.

So buy cheap if you like, but beware the old proverb that you can't polish a turd, but you can roll it in glitter. Make sure you've done your homework thoroughly before jumping into a "bargain" !

paramaniac1

brasso wrote: »

So now you've miraculously morphed into a long-term-buy-and-hold Warren Buffett advocate, basing investment decisions on long term fundamentals..... when shortly before this you were talking up stop-losses and announcing the success of your technical trading system, the result of 3 years of research, that had uncovered the previously concealed 'real reasons' that stock prices fluctuate?

I'm outta here before I go nuts.

Sorry can't I do both?

jennyjenssen1990

Hi, I would like to re-invest my money, of course not whole amount but definitely some amount and rest would like to spend on needs.

KGriff

jennyjenssen1990 wrote: »

Hi, I would like to re-invest my money, of course not whole amount but definitely some amount and rest would like to spend on needs.

Jennyjenssen1990 ... Can you clarify, are you resident here in the uk or Sweden? If you need advice, people here will need a lot more details of your circumstances etc. so that they can see what advice to offer you.

Kind regards...