Just bought my 1st 2 stocks

[1C5]

Got 100 shares of Cheesecake Factory (CAKE) and 200 shares of Yankee Candle Company (YCC)>

Not 100% sure of each purchase but I wanted to make sure IB worked. [img]/images/graemlins/shocked.gif[/img]

Put pretty tight stop loss on each of them so will only be town $200 each if they really tank.

I like YCC as they just took a hit with bad earnings yesterday and are not cutting staff and underperforming stores, I think they can make a comeback...we will see though.

And CAKE, if I don't get stopped out, I think they will have a good holiday season when the hurricane stuff is cleaned up in FL and the East coast.

[r3vbr]

The concept of "stop-loss" is irrational.

As someone smart once said..
If you value something at 10, you're a buyer at 8 and a seller at 12.

So if you buy a stock at 10 and put a stoploss at 8 means you're a seller at 8? that doesnt make sense. People who do this are buying something they have no idea what it's worth

[1C5]

So if I do my research and am wrong on a stock, (Are you 100% right in picking stocks?) it would be better to have no stop loss and just "hold on for the ride" even if the stock drops 50%?

Your reasoning makes no sense either.

PS, I just got stopped out of my CAKE stock, -$170 .

Well, if it drops big without a corresponding news item, you should carefully redo your research and analysis. If you still think the stock was undervalued when you first bought it, you should probably buy more rather than sell.

These drops can be great buying opportunities. MIK, for example, has a tendency to overreact and drop 20% when they miss earnings projections by a couple pennies. Then it overreacts the other way when the next quarter beats projections.

[Peter666]

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

[r3vbr]

So you're content in buying a stock for 10$, and them if it falls to 5$ for no reason, you sell?

Do you do this with everything in your life (i.e. house/car/etc)

Let's say you are a businessman who travels a lot so you buy a New York appartment valued at 1 million USD to sleep there when you're in town, and also because you think prices are going up and feel like speculating on real estate. Now let's say the market crashes the very next day, and now the market only pays 500k for the brand new appartment wich you didnt even use..

Would you even consider selling it at this new price?

Why would it be any different with stocks? Please explain.

[buffett]

[ QUOTE ]
The concept of "stop-loss" is irrational.


[/ QUOTE ]

He's right. Here's a quote from Ben Graham:

"In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, 'This too shall pass.' Confronted with a like challenge to distill the secret of sound investment into three words, we venture the motto, MARGIN OF SAFETY."

So if you think CAKE is worth $35, don't pay $35 for it. Don't even pay $30 for it. Wait until it gets to such a low price ($25 for some, $20 for others, depends on taste) that the probable downside from there won't hurt as much. Sure, as 1C5 said, you may be wrong and the stock may drop to 50% of its value. But the fall from 25 to 17.50 is much smaller than from 35.

One of the greatest investors of today is Mohnish Pabrai. When he bought Tesoro, he first paid $7.50 (because he thought it was worth, conservatively, $15). He bought it all the way down to about $2, and he sold it at $15. It's now at $57.

You're never going to get the absolute bottom, and you're never going to get the absolute top. But if you invest with a margin of safety, you can strive to be as good as Mr. Pabrai (whose annualized after-fee returns are in the neighborhood of 32% for the past 6 years or so).
-web

[Sniper]

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!

[DesertCat]

[ 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.

if you don't set stops you shouldn't be in the mkt....PERIOD!