What would you do?

paramaniac1

jimjames wrote: »

It's true that I'll never win the lottery. I'm £100 a year up on that one.

What about the years when they don't return 8% and actually drop 50%? How much would you have then? Leverage works both ways.

Rather ironic that I'm now arguing against investment after the previous posts!

Worst daily drops in last 90 years were Black Monday, which saw a drop of 23% in 1987, and the Wall Street Crash which dropped 13% in 1929.Using a Stop loss order would minimise your risk.

brasso

paramaniac1 wrote: »

Comfortable thanks.

So have you followed your own advice, or not? I'd presume you'd have been raking it in over the past few years -- or is it a foolproof system you've only recently stumbled across?

TakeCareOfThePennies_2

Hello KGriff,

Thanks for your posts today, I am currently in the midsts of a weekend break away, so I don't really have the time to climb back onto the hamster wheel that this thread has become.

After a very quick speed read, I think broadly speaking yes, you seem to understand the point I'm trying to get across.

If the opportunity arises I will endeavour to return and post again, for now all I'll say to the others is the following:

Remember what the Central Banks are doing at the moment with QE etc. They want to push you, the investor, away from the "safe assets" and subconsciously encourage you to take on more risk.

Don't fall into the trap. Don't take on more risk than you should. Keep those cash reserves in shape. Don't be the lemming following the herd in their march towards the end of the cliff.

Just ask yourself. If savings accounts were paying today what they were "in the good old days", would you still be overweight in the markets given your risk profile ? I would hazard a guess the answer is no. Not only would you not be, but you would not be in the markets running aggressive portfolios because you are chasing returns.

KGriff

paramaniac1 wrote: »

Worst daily drops in last 90 years were Black Monday, which saw a drop of 23% in 1987, and the Wall Street Crash which dropped 13% in 1929.Using a Stop loss order would minimise your risk.

Paramaniac1,

Just to clarify, a stop-loss order is 'most likely' only ever put in place when your stock or fund is high and the stop-loss would (or should) still provide you with a profit above the book cost. I'm not sure your post clarifies that position.

Otherwise you ought to be throwing more money at the stock or fund, whilst its share price is low. Why sell it at a loss? I don't see that as a good strategy. I'm sure you will go onto clarify your post.

Investors should hold their nerve or even perhaps use 'other' alternative stock or investment purchases, to offset a loss.

The stop-loss is a safety net, set above the book cost, taking fees and cgt into consideration.

However I have seen many use it to accept a level of loss on their investment, which to me is the path to poor investing and eventual ruin, or at the very least, a poor return on their shares portfolio.

I hope you don't mind me trying to clarify your comments, as there are lots of relatively inexperienced investors here on the forum who may read this thread.

Unless anyone here disagrees with my own views on a stop-loss order?

noggin1980

KGriff wrote: »

Paramaniac1,

Just to clarify, a stop-loss order is 'most likely' only ever put in place when your stock or fund is high and the stop-loss would (or should) still provide you with a profit above the book cost. I'm not sure your post clarifies that position.

Otherwise you ought to be throwing more money at the stock or fund, whilst its share price is low. Why sell it at a loss? I don't see that as a good strategy. I'm sure you will go onto clarify your post.

Investors should hold their nerve or even perhaps use 'other' alternative stock or investment purchases, to offset a loss.

The stop-loss is a safety net, set above the book cost, taking fees and cgt into consideration.

However I have seen many use it to accept a level of loss on their investment, which to me is the path to poor investing and eventual ruin, or at the very least, a poor return on their shares portfolio.

I hope you don't mind me trying to clarify your comments, as there are lots of relatively inexperienced investors here on the forum who may read this thread.

Unless anyone here disagrees with my own views on a stop-loss order?

oh yes there is very much so, you just lost your friend, i hope your braced for the debate to come

TakeCareOfThePennies_2

KGriff wrote: »

Unless anyone here disagrees with my own views on a stop-loss order?

I don't disagree with you per-se on stop orders (taken in their true sense being an electronic order on the dealer's system).

I do however use price alerts for anything I'm not activley monitoring (i.e. more "buy & hold") , which I term soft, mid and hard. Soft and hard are set at the outset. Mid doesn't exist initially, it only is brought to life if low is triggered.

Soft triggers a manual review. Re-validate the story behind the investment. If the story is unchanged, the investment stays. Mid alert is initiated at this stage.

Mid triggers a second manual review. Re-validate the story again, in greater detail, and over the period of a couple of days with a break in between to freshen the eyes. Why has the investment dropped again by a not insignificant amount ? If the story is unchanged, the investment stays.

Hard is generally my manual "stop-loss". The investment has been through Soft and Mid reviews by this stage, which means the reason for continuing to hold the investment would have to be pretty spectacular. In other words, the conclusion is that the story has probably changed and I haven't picked up on the reason why (yet).

Fortunately I've never reached the hard level more than twice, and on both occasions my decision to sell was correct (the stock either continued to drop, stagnated or recovered a little, but never fully).

KGriff

noggin1980 wrote: »

oh yes there is very much so, you just lost your friend, i hope your braced for the debate to come

It's like I can't even try to clarify another persons comments... That's all I am trying to do here.

I think you have misunderstood my post.

I assume from your reply, I shouldn't be allowed express my view on the 'constructive use' of a stop-loss order.

Oh well, I wait to see the criticism of my viewpoint.

noggin1980

TakeCareOfThePennies wrote: »

I don't disagree with you per-se on stop orders (taken in their true sense being an electronic order on the dealer's system).

I do however use price alerts for anything I'm not activley monitoring (i.e. more "buy & hold") , which I term soft, mid and hard. Soft and hard are set at the outset. Mid doesn't exist initially, it only is brought to life if low is triggered.

Soft triggers a manual review. Re-validate the story behind the investment. If the story is unchanged, the investment stays. Mid alert is initiated at this stage.

Mid triggers a second manual review. Re-validate the story again, in greater detail, and over the period of a couple of days with a break in between to freshen the eyes. Why has the investment dropped again by a not insignificant amount ? If the story is unchanged, the investment stays.

Hard is generally my manual "stop-loss". The investment has been through Soft and Mid reviews by this stage, which means the reason for continuing to hold the investment would have to be pretty spectacular. In other words, the conclusion is that the story has probably changed and I haven't picked up on the reason why (yet).

Fortunately I've never reached the hard level more than twice, and on both occasions my decision to sell was correct (the stock either continued to drop, stagnated or recovered a little, but never fully).

His and your views are almost the complete opposite, he believes you should invest more when the share price has fallen or at least hold your nerve and believes using a stop loss to accept a certain level of loss is poor investing and perhaps even the path to ruin.

Whereas you are really quite insulting about people who hold onto a fund that has plummeted and your method of investing is to always and without further thought sell a stock once it's reached your predetermined stop loss something like -20%.

I guess though you are hoping to avoid another bowlhead beating.

noggin1980

KGriff wrote: »

It's like I can't even try to clarify another persons comments... That's all I am trying to do here.

I think you have misunderstood my post.

I assume from your reply, I shouldn't be allowed express my view on the 'constructive use' of a stop-loss order.

Oh well, I wait to see the criticism of my viewpoint.

I didn't misunderstand you, you misunderstood me and that was completely my fault.

Sorry mate I shouldn't have been cheeky and just explained, the person you have been agreeing with on this thread had a long debate on another thread about stop losses. He was really very rude about someone who didn't sell there mining fund after it had dropped very significantly.

He believes in using stop losses to cut your losses when you are down over say 20%

I completely agree with everything you wrote in that post and have no criticism of it.

KGriff

To clarify stop-loss orders for tiamaria (or anyone who is unsure). Keeping things simple...

If you own shares of ABC Co., which is currently trading at £50, and want to hedge (protect) against a big decline, you could enter a stop-loss order to sell your ABC holdings at £48. This type of stop-loss order is also called a sell-stop order.

If ABC trades below £48, your stop-loss order or instruction is triggered and converts into a 'market order' to sell ABC at the next available price. If the next price if £47.90, your ABC shares would be sold at £47.90.

But what if ABC closes at £48.50 one day, and then reports weak quarterly earnings after market close? If the stock 'gaps' down, and opens at £44.90 the next day, your stop-loss order (now called a market order) is automatically triggered and your shares sold at the next available price, say £45. In this case, your stop-loss order did not work out as you expected, since your loss on ABC is 10% rather than the 4% you had expected when you placed the stop-loss order.

I understand why people may lose money in this situation, particularly if the stop-loss order is just above the book cost or the stock suffers 'overnight' rapid decline.

This is a major drawback of stop-loss orders, but like TakeCareOfThePennies explains it is great tool if you are away on holiday etc. The drop whilst the market is closed is a reason why investors use stop-limit orders instead of stop-loss orders.

Stop-limit orders seek to sell the stock at a specified limit price – rather than the market price – once a specified price level is breached. Although stop-limit orders will also not work if the stock is halted down or has a price gap, the risk of the long position being sold at a significantly lower price than the specified stop price is lower than with a stop-loss order.

Note that these orders though (in my view) are best used to protect realised or unrealized gains on any shares you hold, although in this case it would have been more accurate for me to refer to them perhaps as 'stop orders' rather than stop-loss orders.

I should clarify that I think the very best use of the 'stop-loss' order is to protect a gain... That was the real point of my post. I was trying to see if that was the view of paramaniac1... I was just not sure of the view he was expressing, hence I was (I thought politely), just asking for some clarification.

Or indeed if others involved in this thread had a different viewpoint to me, as I think to use such a stop-loss order just for the purposes of 'limiting actual loss', is not an approach to take by a new investor such as tiamaria, who started this thread to seek advice and was being advised to ’heavily' invest a lot of their £40-50,000 virtually straight away in stocks and shares.

My position was that I thought tiamaria should begin with a slightly more balanced or cautious approach to stocks and shares that's why my earlier advice was to opt for the 123 account, a cash ISA and the remainder (£9,760) for use in early share trading.