Re: Just bought my 1st 2 stocks
[ QUOTE ]
If you are playing the fundamental game, and you are truly doing your homework, then buying as a stock goes down and continues to go down may make sense.
But most people, do not evaluate their stock purchases enough to know when a stock going down is still a value as opposed to a negative change!
New players to the stock market that don't do their homework, as well as short term traders... MUST use stop losses!... to control their risk!
[/ QUOTE ]
Even though I think stop losses are silly, this advice is actually pretty good.
If you can read and understand a quarterly report, understand the balance sheet, income and cash flow statements, you can estimate intrinsic value. Even if you have uncertainties, you can give yourself a large margin of safety. In that case if you buy below your margin of safety, it's foolish and counter productive to have a stop loss.
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. You shouldn't be investing in individual stocks, but a stop loss helps protect you from yourself.
If you are a losing poker player, playing small in relation to your bankroll won't necessarily help you win, but it sure will help you play longer.
|