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If you don't mind me asking, looking at your entire portfolio, what is the dollar amount you're investing and how is it spread out over stocks, bonds, funds, commodities? I really only need to know the dollar amount and percentage in stocks actually. Other than that, ballpark your age for me and I'll be able to give you one straight answer.
Personally, I set up a lot of positions for client accounts with a stop loss of 8%. I'll show you why I think, I use 8% and you use 15%. Chances are, you're not a high net-worth multi-millioniaire, because if you were, someone like me would be doing your investing for you, haha. But if you take a look at the differences in strategy, it goes something like this...
A stop-loss of 8% triggers a sell sometimes that a lot of people wish they hadn't done after-the-fact. Take a look at it this way. If you have a $10 dollar stock, with a stop loss at 8%, it will sell at 9.20. Now, if the stock goes to 9.20 but no lower, then back up to 10.50, you'll still have sold at 9.20. Basically, for a lot of people, a stop loss of 8% doesn't really give a stock a chance. 15% is much more reasonable in this case, because looking at our example, we wouldn't have sold at 9.20, and in turn would've eventually achieved a better price for the stop-loss' selling point once the market price reached 10.50.
Now, the reason I use 8% is hard to understand and for that matter fathom by the general consensus. In my business, a loss of 8% is more of a waste of time than it is a waste of money. You see, the logic is that in the time it would take for a company to come back from say...12% in the hole, with a stop loss of 15%, is a waste of time. So, instead, we put a stop loss at 8%, take the loss, and reinvest elsewhere quickly so that time is not wasted having cash sitting around. In actuality though, this is somewhat irrelevant as we rarely see a stop loss come into affect. After all, we are professionals and if we were losing 8% quite often, we wouldn't have jobs.
What percentage if any, do you use for your stop loss when buying stocks? Someone recommended to me to use 15%. Does that sound right?
There is no easy answer here, but my stop loss is between 5% - 10% depending how good or bad my entry is. The key here is to protect your capital. To do this effectively, one has to set a stop loss and follow through without looking back.
We have monies in a lot of places but the percentage we are investing in Stocks alone is about 20 percent. 3/4 of that is in an Annuity. So in actual Stocks that can be traded is 25 percent of the the 20 percent. Did that make sense?
We are taking over our Stocks ourselves not the Annuity. We have bonds, mutual funds, Fannie May and Freddie Mac. A lot of Real Estate. We are well diversified.
I'm just trying to learn all this Stock stuff and I bought some positions on my own and I'm going to start to learn to invest more in them.
Someone does handle our investments but we retired 3 years ago and now the dust has settled and we are looking for a better investor. In the meantime the Stocks are my baby. I will make some mistakes along the way but I am really enjoying this so far.
I can tell by the 2 responses I just got that my 15% is to high. I will lower it.
We have monies in a lot of places but the percentage we are investing in Stocks alone is about 20 percent. 3/4 of that is in an Annuity. So in actual Stocks that can be traded is 25 percent of the the 20 percent. Did that make sense?
We are taking over our Stocks ourselves not the Annuity. We have bonds, mutual funds, Fannie May and Freddie Mac. A lot of Real Estate. We are well diversified.
I'm just trying to learn all this Stock stuff and I bought some positions on my own and I'm going to start to learn to invest more in them.
Someone does handle our investments but we retired 3 years ago and now the dust has settled and we are looking for a better investor. In the meantime the Stocks are my baby. I will make some mistakes along the way but I am really enjoying this so far.
I can tell by the 2 responses I just got that my 15% is to high. I will lower it.
I am glad that you are playing only with a small portion of your money. The stock market looks deceptively easy, but it is not. What investment books have you read? There are two books I highly recommend, and they are available at most public libraries.
1. One up on Wall Street by Peter Lynch
2. A Fool and His Money: The Odyssey of an Average Investor by John Rothchild
Tight stops are a good way to lock in losses and get frustrated in a volatile market. I am a long term investor and think that 15% is more appropriate for most of my buys. Most investors need a solid strategy and thoughtful execution, but active traders approach the market differently… which are you trying to be?
Cdelena, well put. Tight stops do lead to losses if you aren't carfully selective, and you will easily get frustrated in a volitile market. You put into easy to read words what I as trying to say.
Seeing as how you're 41 and 43, you've got a few more years of money in stocks before you want to pull out a little and flush your portfolio putting that money into bonds and such. You know, more "sure things". But, since you are retired already, it's completely up to you. I rarely deal with people at that age who are retired. I guess the best I could tell you would be to make the decision yourself, depending on how good you feel your selective judgment is. If you have a tendancy to pick earners, a stop loss of 8% could be great, however it seems like you're somewhat new to this, so I would suggest sticking with your 15%. Reason being, I calculated that about 5% of your investments are those in traded stock. That's actually a very good amount for someone in your age/work status category now that I think of it. It's almost as if regardless of being rather young, you're thinking like a retired person thinks, which is great. What can easily happen with a tight stop loss is that 5% is simply not enough to take the kind of volitility in the market and it would soon be 4%, then 3%, etc. With a loosened stop loss, you're obviously less likely to need one, and your picks will be allowed more time to flourish. Plus, if you are chosing stocks which rake in dividends, you have more time to collect. My advice...stick to your 15%.
Actually I removed all my stop loses last Wednesday. So I do not have any stops on any of my positions. My story might be different then most. We have some stocks that never had stops on them. But 2 weeks ago I bought several stocks and I put in 15% stops on them but I removed them when I saw what started to happen to the market only a few days after I bought them.
In actuality, I'm glad that I did that because they have come back up some. Who knows. I'm learning and I have so much more to learn.
We have always been in the market since my husband began working in 1990, it's just that "I" personally have never actually traded. I know it's hard to give advice without actually knowing the persons portfolio but I do appreciate all the help I have received.
Thank You,
Roma
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