Do you have a personal stop loss?

[Montecfo]

I think if you have a stop loss figure then your asset allocation is not on sync with your risk tolerance.

Number one rule of investing in my opinion is "stay fully invested".

 

[Starsky]

Starsky, what if there is a 40% flash crash and your stop loss is not filled at your 12-15% but at the 40%? Then by the end of day the market has fully recovered?

I'll take that chance. I'm sure there are a lot more examples of 5-15% fluctuations than 40% in a day; and if it's going down 40% it's not recovering overnight. AFAIK, there are exactly zero historical examples of this happening in the first half of the year. If it does, we're in for something real.

Bad stuff happens in the second half of the year. My Q3-Q4 limits are very tight right now - today they are less than 5% - and will probably start to trigger in the next couple of days/weeks. I'm far more likely to get out early than late; in fact, I would expect to be out completely in a couple of weeks if the current situation continues to deteriorate. I'll still have a nice profit for this bull run and sleep very well at night. If it keeps going up, I'll just keep my adjusting my targets upward.

I just don't see a lot of upside in the market between now and the end of the year, and I've been burned more times than not for being greedy. (My PM is definitely loving it tho! ) There are times when a 3% guaranteed return starts to look pretty good...

 

[tdv2]

I'll take that chance. I'm sure there are a lot more examples of 5-15% fluctuations than 40% in a day; and if it's going down 40% it's not recovering overnight. AFAIK, there are exactly zero historical examples of this happening in the first half of the year. If it does, we're in for something real.

Bad stuff happens in the second half of the year. My Q3-Q4 limits are very tight right now - today they are less than 5% - and will probably start to trigger in the next couple of days/weeks. I'm far more likely to get out early than late; in fact, I would expect to be out completely in a couple of weeks if the current situation continues to deteriorate. I'll still have a nice profit for this bull run and sleep very well at night. If it keeps going up, I'll just keep my adjusting my targets upward.

I just don't see a lot of upside in the market between now and the end of the year, and I've been burned more times than not for being greedy. (My PM is definitely loving it tho! ) There are times when a 3% guaranteed return starts to look pretty good...

Even if it was that simple to get out and subsequently back in based on a percentage which of course it's not, what about the taxes you have to pay and the loss of dividends while sitting on the sidelines? Say the market chops around up and down 7% for a few years, how does your model react to that?

 

[Blueskies123]

While I have not used stop losses thousands of times over many decades my limited experience (3 times), all my stop losses were executed at some point, usually within a few days or weeks, only to find the stock fully recovered a month later.
It is one of reasons I moved to ETF's that can be sold from phone any time I want.

 

[Starsky]

Even if it was that simple to get out and subsequently back in based on a percentage which of course it's not, what about the taxes you have to pay and the loss of dividends while sitting on the sidelines? Say the market chops around up and down 7% for a few years, how does your model react to that?

Taxes and dividends are not a big concern for me in my IRA. I don't typically have a lot of dividend stocks, I like growth, and there are no taxes to worry about until later. All my Wall Street investments are in our IRAs with the exception of about $150K that I have liquidated most of and converted to PM and cash - I'll happily take the tax hit on that. It's a lot of assets in the market tho - over $1.2M - and I want to keep it, not give it back to the Street.

FWIW, most of my wealth is in rental property. My 'model' doesn't depend on my stocks at all. It's all a safety net. I don't mind missing out on the market for awhile because I don't depend on any of my stocks for income. If I get out now, I'll probably get back in in January and see what happens. If the market's up and down for awhile, it really doesn't really matter if I'm in or not. I would definitely choose a different AA in that case, probably date-targeted retirement funds.

This is not a technical call, just a gut one from years of experience and a desire to try something a bit more conservative for a change. Sacrificing July-Dec returns for a year isn't a huge loss and I don't see a lot of good news on the horizon. We've done very well this year. If someone could explain why the market is doing so well in a totally crap economy, maybe I'd stay in.... people get so used to Bull markets, they forget that for about 10 years, stocks went nowhere in the early 2000's. My 401K sucked for a long time and took years to recover from the big crashes. I don't have that kind of time to recover now or the desire to play that game.

 

[Starsky]

There is a lot of evidence that the market has momentum - if it's up today, it's more likely than not to go up tomorrow, and vice versa. So, absent trading costs, selling everything after a down day, and getting back in after the next up day is a rational strategy. But in the real world, trading costs more than offset that advantage.

At $5 a trade?

 

[gayl]

Not that I suggest anyone follow me BUT:

IRA = no stop loss as I do not anticipate withdrawing prior to RMD

Roth, Legacy = just let it roll thru as I never plan on taking it out bc it's the kids & grandkids inheritance. Too easy for me to jump out at the wrong time and back in at the wrong time. Safer this way in the long run as I am notoriously bad at timing

Brokerage = established at the point that I get in. But I use a trailing stop. I know a lot of advisers don't like that but I sleep better at night. I usually leave it at a 10% drop. So I've been bumped out of BAC once this year.

 

[tdv2]

Taxes and dividends are not a big concern for me in my IRA. I don't typically have a lot of dividend stocks, I like growth, and there are no taxes to worry about until later. All my Wall Street investments are in our IRAs with the exception of about $150K that I have liquidated most of and converted to PM and cash - I'll happily take the tax hit on that. It's a lot of assets in the market tho - over $1.2M - and I want to keep it, not give it back to the Street.

FWIW, most of my wealth is in rental property. My 'model' doesn't depend on my stocks at all. It's all a safety net. I don't mind missing out on the market for awhile because I don't depend on any of my stocks for income. If I get out now, I'll probably get back in in January and see what happens. If the market's up and down for awhile, it really doesn't really matter if I'm in or not. I would definitely choose a different AA in that case, probably date-targeted retirement funds.

This is not a technical call, just a gut one from years of experience and a desire to try something a bit more conservative for a change. Sacrificing July-Dec returns for a year isn't a huge loss and I don't see a lot of good news on the horizon. We've done very well this year. If someone could explain why the market is doing so well in a totally crap economy, maybe I'd stay in.... people get so used to Bull markets, they forget that for about 10 years, stocks went nowhere in the early 2000's. My 401K sucked for a long time and took years to recover from the big crashes. I don't have that kind of time to recover now or the desire to play that game.

That make more sense...I guess. What I hear you saying is that your gut is telling you there is going to be a correction and that it will last until January. Personally, having been investing for a long time, my choice is to have an asset allocation that suits my risk tolerance at the current point in my journey. I have substantial assets outside my 401k's (more that 2/3 of my total NW) so taxes are an issue for me.

Personally I'm not willing to take risks that rely on gut feelings. As I have said before, I am my own worst enemy and that what I have learned is I am over confident in my ability to time or pick individual stocks. I would only expect to be right 50% of the time at best on getting in and out so it's no advantage for me. What I do know for certain is that if I own the whole market in a low cost index I can do better than 75-80% of investing community net of fees and taxes.

 

[PoorOldCountryBoy]

OTM put options are a very cheap insurance. Even that is not necessary if holding more than 10 years.

 

[ERD50]

Not that I suggest anyone follow me BUT:

IRA = no stop loss as I do not anticipate withdrawing prior to RMD

Roth, Legacy = just let it roll thru as I never plan on taking it out bc it's the kids & grandkids inheritance. Too easy for me to jump out at the wrong time and back in at the wrong time. Safer this way in the long run as I am notoriously bad at timing

Brokerage = established at the point that I get in. But I use a trailing stop. I know a lot of advisers don't like that but I sleep better at night. I usually leave it at a 10% drop. So I've been bumped out of BAC once this year.

So how does this help you? You sold BAC at 10% below some number (not sure how that was determined - recent high, purchase price, 200 day moving average, other?). When/what did you sell it at? Where is it now?

It just seems like a prediction, but I can't see any basis for the prediction. So BAC dropped 10% from X? What does that say about its prospects to go lower (OK, you may have protected yourself from a further drop), or to just go higher (you sold low)? Seems like the odds are about 50-50 on that.
An individual stock is generally more volatile than a basket of stocks. Selling on 10% drops seems to just be locking in losses, going to cash, and then waiting for...what? How do you decide when to get back in?

I just don't follow the strategy.

-ERD50

 

[gayl]

When learning I was taught to always have an exit strategy. The talking heads that I was taking the seminars from always suggested both a profit-and-loss exit. I've never found any use in a profit exit point because as long as it's going up I'm still making money. I did however Institute a trailing stop loss. Got in day b4 election. When I got out I had made well over 4 figures. It took a dump and I got back in and now I'm up again. I know a lot of the gurus, that would be the seminar speakers at Fidelity & Schwab, state to establish your 5% stop loss bracket at entry but I've always that bracket way too restrictive.

Today is exactly why I like a wide bracket. But I only have that bracket in my trading account which is approximately 5% of my net worth. Everything else is now indexed. And that's primarily due to others on the retire early forum

 

[gayl]

A SELL trailing stop limit moves with the market price, and continually recalculates the stop trigger price at a fixed amount below the market price, based on the user-defined "trailing" amount. The limit order price is also continually recalculated based on the limit offset.
Trailing Stop Limit Orders | Interactive ...
Interactive Brokers ›

This is a TRADING not INVESTING strategy

 

[ERD50]

When learning I was taught to always have an exit strategy. The talking heads that I was taking the seminars from always suggested both a profit-and-loss exit. I've never found any use in a profit exit point because as long as it's going up I'm still making money. I did however Institute a trailing stop loss. Got in day b4 election. When I got out I had made well over 4 figures. It took a dump and I got back in and now I'm up again. I know a lot of the gurus, that would be the seminar speakers at Fidelity & Schwab, state to establish your 5% stop loss bracket at entry but I've always that bracket way too restrictive.

Today is exactly why I like a wide bracket. But I only have that bracket in my trading account which is approximately 5% of my net worth. Everything else is now indexed. And that's primarily due to others on the retire early forum

Is this BAC you are talking about? I'm not following you.

First you say: "I've never found any use in a profit exit point because as long as it's going up I'm still making money."

Then you say: "Got in day b4 election. When I got out I had made well over 4 figures."

That sounds like you got out based on gains. Or was it something else?

" It took a dump and I got back in and now I'm up again."

Looking at the BAC chart, the only 10% drop seems to have been right around the lows since election day. So how did getting out at the low and getting back in help you much (if at all?). Can you post your entry exit $/dates? I'm just curious, stop loss always seem like a sell low - buy high risk to me.

-ERD50

 

[gayl]

You have an interesting perspective. I view a trailing stop loss as a way to protect gains not to limit losses as it is in effect for 60 day periods unless modified establishing a new 60 day time limit

Do your own research -- personally not in favor of anything other than trailing stops which follow price increases but that's just my 2c

There are other ways to protect gains in your trading account. The trailing stop is just one of them. Another way is to buy puts. However buying puts requires cash and if I'm trying to protect a gain I really don't want to have to pay money for a putt to protect a gain when I can do it just as easily with a trailing stop for $4.95

 

[gayl]

Just did annual review and figured out that I actively trade only 1% of NW when factoring in real estate (not 5% as previously stated unless I limit it to just Schwab). It's so weird .... guess it's like playing poker .... hopefully win but only willing to play with a little.

 

[gcgang]

...only 1% of NW .... guess it's like playing poker .... hopefully win but only willing to play with a little.

1% is probably a good # for poker, recreational gambling, if you like to do that sort of thing. Not that there's anything wrong with that....

 

[gayl]

Just wondering -- do you count real estate when calculating net worth or just the amount in stock market? I'm confused ... or the amount your willing to sell? I'm leaving property to kids god willing & creek don't rise so I usually don't count it

 

[pb4uski]

Real estate is included in calculating net worth.

OTOH, when looking at retirement funding personal use real estate would be included or excluded depending on your plan for the property.... if you live there and never plan to sell then it would not be included since it doesn't provide income that you can live off other than indirectly in your level of spending.... if you plan to sell and rent or sell and downsize then a portion of it might be included in assessing retirement funding.

Investment real estate would typically be included in both net worth and assessing retirement funding since it provided income that you can use towards expenses.

 

[Jeffman52]

I think if you have a stop loss figure then your asset allocation is not on sync with your risk tolerance.

Number one rule of investing in my opinion is "stay fully invested".

+1 So far riding the market out has paid for itself. I've moved a few things around but for the most part, I don't try to time the markets. When the market crashed in 2008/2009, when I figured it was moving up from the low, I moved all my bond funds to mutual funds and made out like a bandit for the small amount that I had to move at the time. Then I re-balanced again a couple of years later. I would make that same move again under the same circumstances.

I've only had one truly bad time in stocks and that was when I was first starting out and I had put all my eggs in the corporate stock for my 401K. I did really well for a number of years and then....and then..... the stock got frozen prior to an announcement that the company had falsified its financial position to artificially inflate its stock price. By the time my stock was released to do anything with I had watched 100K turn into 10K. 3 years later it had never recovered and I liquidated it and re-invested it elsewhere. Its a mistake I never made again and I pass that knowledge along to anyone who listens.