Great article Richard. I must re-read the Zulu principle. I agree with most of the sectors you avoid (certainly banks, junior miners & oilers and jam-tomorrow single product tech / bio techs although have held larger pharma over the years e.g. #AZN and $VRTX and some tech (e.g ARM back in the day). When I first started out and knew even less about investing than I do now, I lost about 80% of my investment in RBS. Thankfully I had only invested small sums but still the lesson was learned - I use stop losses now although it sometimes results in being kicked out of perfectly good shares it does avoid the catastrophic losses and helps me sleep at night, plus I can always buy back - do you use stops?
Have you always diversified with ~15 different co's or did you concentrate in to fewer when you started out? Do you limit or diversify across sectors (e.g. hold max of 5 retail stocks)?
I used to use stops googleyes but in recent times mm's sem to have got wise to marking down to just below obvious stop levels then marking back up so stops seem less effective and more costly imo.
I used to hold a lot more than 6 stocks, unable to resist what looked like a bargain, now I'm more discipined
agree - the MM's definitely have stop-hunting programs running to try and shake you out (if its SETSqx I try to give more room to these to avoid the inevitable shakeouts and I am mostly using mental stops with alerts set for these rather than physical stops).
if you're investing, you wouldn't sell when something goes down (stop loss). you will hold or preferably buy more. if you liked it at 70p then you must love it at 50p! .. if your house went down in value would you sell it ? if you had a profitable self-owned business, and thought it was worth £500k, and someone offered you only £250k for it, would you sell?
Well it does depend why it fell. If the co has discovered a fraud, or some new competition has blown them out of the water it may be that you were wrong and holding on might not be the best idea. When you discover you are wrong it is often good to realise it imo. If the fall is short to medium term noise then it may well be good to hold on.
great to see a reply from you, I've just finished reading all of your blogs actually. very well written, thanks.
yes of course it depends why it fell - but my point was to googleyes in regards to using a stop-loss for investment scenarios : "it sometimes results in being kicked out of perfectly good shares" ... if something is perfectly good, doesn't make much sense to realise a loss.
I guess it depends on how much conviction you have when holding and what price you entered at, I tend to hold loosely and more so if I am late entering. I vowed to avoid letting small losses become large losses a long time ago and tend to stick to this rule - it has kept me away from major losses and helped me avoid the worst of bear markets. We rarely know at the time what was causing the fall in share price, this often only comes in hindsight and yes sometimes its just the overall market being dragged down by macro news (which we've had a lot of the last 18 months) but these are still events that can have major impacts to your holdings - things which seem cheap can keep getting cheaper and things that seem expensive can keep getting dearer. Albeit I sometimes get taken out of shares that turn back up immediately after, equally (and sometimes more often) they continue to fall. If you are taken out you can always re-enter but if it keeps falling, you will just lose more of your capital (you can call it a paper loss if you like but the reality is, its a real loss until and if the price recovers). Whether you identify as an investor or a trader, this is a game of speculation and the most important thing for me is to stay in the game - stops allow me to do that and as I said, I don't always set hard stops but use mental stops with price alerts for SETSqx shares - MM's will widen spreads and if you see low volumes you can sometimes identify it as a tree shake. Recovery from a 7%, 10% or 20% loss is far easier than recovery from a 50% or 80% loss.
You used the analogy of selling a house if it goes down in value but let me re-phrase it to you, would you not pay insurance on your house because you thought the chance of it falling down too small? To me, a stop-loss is insurance. I'm prepared to pay that premium to avoid catastrophic loss in the event I am wrong (which based on past results I'd say I'm right only about 50/50).
yes, will do something soon, might be a week or two
Great article Richard. I must re-read the Zulu principle. I agree with most of the sectors you avoid (certainly banks, junior miners & oilers and jam-tomorrow single product tech / bio techs although have held larger pharma over the years e.g. #AZN and $VRTX and some tech (e.g ARM back in the day). When I first started out and knew even less about investing than I do now, I lost about 80% of my investment in RBS. Thankfully I had only invested small sums but still the lesson was learned - I use stop losses now although it sometimes results in being kicked out of perfectly good shares it does avoid the catastrophic losses and helps me sleep at night, plus I can always buy back - do you use stops?
Have you always diversified with ~15 different co's or did you concentrate in to fewer when you started out? Do you limit or diversify across sectors (e.g. hold max of 5 retail stocks)?
I used to use stops googleyes but in recent times mm's sem to have got wise to marking down to just below obvious stop levels then marking back up so stops seem less effective and more costly imo.
I used to hold a lot more than 6 stocks, unable to resist what looked like a bargain, now I'm more discipined
agree - the MM's definitely have stop-hunting programs running to try and shake you out (if its SETSqx I try to give more room to these to avoid the inevitable shakeouts and I am mostly using mental stops with alerts set for these rather than physical stops).
if you're investing, you wouldn't sell when something goes down (stop loss). you will hold or preferably buy more. if you liked it at 70p then you must love it at 50p! .. if your house went down in value would you sell it ? if you had a profitable self-owned business, and thought it was worth £500k, and someone offered you only £250k for it, would you sell?
Well it does depend why it fell. If the co has discovered a fraud, or some new competition has blown them out of the water it may be that you were wrong and holding on might not be the best idea. When you discover you are wrong it is often good to realise it imo. If the fall is short to medium term noise then it may well be good to hold on.
great to see a reply from you, I've just finished reading all of your blogs actually. very well written, thanks.
yes of course it depends why it fell - but my point was to googleyes in regards to using a stop-loss for investment scenarios : "it sometimes results in being kicked out of perfectly good shares" ... if something is perfectly good, doesn't make much sense to realise a loss.
yes, I'm no longer a fan of stoploss settings
I guess it depends on how much conviction you have when holding and what price you entered at, I tend to hold loosely and more so if I am late entering. I vowed to avoid letting small losses become large losses a long time ago and tend to stick to this rule - it has kept me away from major losses and helped me avoid the worst of bear markets. We rarely know at the time what was causing the fall in share price, this often only comes in hindsight and yes sometimes its just the overall market being dragged down by macro news (which we've had a lot of the last 18 months) but these are still events that can have major impacts to your holdings - things which seem cheap can keep getting cheaper and things that seem expensive can keep getting dearer. Albeit I sometimes get taken out of shares that turn back up immediately after, equally (and sometimes more often) they continue to fall. If you are taken out you can always re-enter but if it keeps falling, you will just lose more of your capital (you can call it a paper loss if you like but the reality is, its a real loss until and if the price recovers). Whether you identify as an investor or a trader, this is a game of speculation and the most important thing for me is to stay in the game - stops allow me to do that and as I said, I don't always set hard stops but use mental stops with price alerts for SETSqx shares - MM's will widen spreads and if you see low volumes you can sometimes identify it as a tree shake. Recovery from a 7%, 10% or 20% loss is far easier than recovery from a 50% or 80% loss.
You used the analogy of selling a house if it goes down in value but let me re-phrase it to you, would you not pay insurance on your house because you thought the chance of it falling down too small? To me, a stop-loss is insurance. I'm prepared to pay that premium to avoid catastrophic loss in the event I am wrong (which based on past results I'd say I'm right only about 50/50).
Very good articulation CR. Are you going to cover bowls soon?