Re: Just bought my 1st 2 stocks
 

Tired and not having slept in a ridiculously long time, shouldn't be posting, but here goes...

Stocks are subject to sometimes very wide, and for the most part whimsical, short-term fluctuations. At times your stock going down is the result of negative news only somewhat related to the actual business. If you know what you're doing and did your homework i.e. you know the "real" value of the stock, a downswing is a great opportunity to be taken advantage of. Stop-loss is akin to telling your bank teller "YOU DID WHAT?!?!" when they say "we overfunded your account, but the money might as well remain yours."

Kirk

Re: Just bought my 1st 2 stocks
 

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Real estate, you own a piece of paper that says you're the owner if a brick an mortar house.

Stocks, you own a piece of paper that says you're the owner of a brick and mortar house with machinery inside wich produces goods/value.

I prefer the 2nd piece of paper.

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Owning a house is way better than owning a stock and it's not even close! I'll let others elaborate. [img]/images/graemlins/smile.gif[/img]

Re: Just bought my 1st 2 stocks
 

stated as a reason for stop loses

stocks can go down for no reason and stay down

the fundamentals VARY across time and place, its not a sure thing, and even if it was timeframe is still uncertain

this is obviously why you switch into blue chips with huge dividends when you grow older and want less risk

Re: Just bought my 1st 2 stocks
 

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But if you don't understand IV, or can't read financial statements well enough to estimate one, a stop loss is a lessor of evils.

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The lessor of two evils is still evil. If you can't do the things you listed, then you simply SHOULD NOT INVEST.

Re: Just bought my 1st 2 stocks
 

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The lessor of two evils is still evil. If you can't do the things you listed, then you simply SHOULD NOT INVEST.

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This is absolutely BAD advice!

There are many ways to make money from the stock market that don't require understanding or even caring about financial statements... just because they aren't YOUR way, doesn't make them wrong!

Re: Just bought my 1st 2 stocks
 

I should have made myself clear at the start.

This is a TRADING account and not an investing account.

Stop loss= Essential in a trading account IMO.

Re: Just bought my 1st 2 stocks
 

[ QUOTE ]
stated as a reason for stop loses

stocks can go down for no reason and stay down

the fundamentals VARY across time and place, its not a sure thing, and even if it was timeframe is still uncertain


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None of these reasons make a stop loss useful for a fundamental investor. Stocks can also drop 10% before they double, so you get stopped out of a huge gain.

And fundamentals don't "vary" at random or on a daily basis. If you believe a stock is worth $15, and you are willing to buy it at $10 (your "margin of safety"), why would you then sell it at $9? You should be buying more.

If new information leads you you re-estimate the stock's value at what it's trading at or less, then you sell it immediately, no matter what you paid for it. Waiting for your stop loss won't help there.

If you believe in fundamental analysis, your fundamental evaluation of the stock's true value should guide all of your buy sell decisions, not some mechanical sales rule. In that case, using stop losses will usually hurt your results, forcing you to sell positions when they are at even bigger discounts to true value.

These are all reasons why Buffett never uses stop losses.

One real life example. I once found a stock (MDF) that I was sure was worth close to $1.50, trading for 74 cents. It's real earning power was obscured by some money losing subsidaries, and a sharp new CEO had put together a plan to fix the company, jettison the losers, and focus on their core profitable business.

I bought my max at 74-75 cents. It immediately went down to 65 cents and I was sitting on over a 10% loss. I couldn't buy much more, so I just waited patiently. Every quarter the story unfolded, earnings increased, the balance sheet improved. I kept upping my valuation estimates as good news came through. Within a year I was finally able to exit at $3.

A stop loss would have cost me a 4x gain in one year. That's a pretty big price to pay for some false security.

Re: Just bought my 1st 2 stocks
 

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If new information leads you you re-estimate the stock's value at what it's trading at or less, then you sell it immediately, no matter what you paid for it. Waiting for your stop loss won't help there.

If you believe in fundamental analysis, your fundamental evaluation of the stock's true value should guide all of your buy sell decisions, not some mechanical sales rule. In that case, using stop losses will usually hurt your results, forcing you to sell positions when they are at even bigger discounts to true value.

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Cat,

This was exactly my point in the other thread... for fundamentalists, stops (exits) are based on value (a change in your you value calculation, that no longer makes the investment worthwhile) , rather than on technical criteria.

Re: Just bought my 1st 2 stocks
 

I'd live in a tent for a year rather than a crappy house for the rest of my life if I knew my stock would make me rich. [img]/images/graemlins/smirk.gif[/img]

Re: Just bought my 1st 2 stocks
 

There are stocks that go down when their earning projections go up. Mr. Market is a retard.