Danger Of Using "Stop Loss"

MOS fat fat....Hmm.... When most likely you can find them more in abundance?
Of course even then value still is very important.

While value investors trumpet MOS, it should be noted that in investing, the number ONE rule is always 'Don't Lose Money'.

To the person who had 30% of his portfolio vested in CMZ when Glaucus Research released its short-sell report on 26th Aug 2013, he would have wish that he had some kind of stop-loss mechanism in place, by the time CMZ halted trading of its shares. SMOL summed it up very nicely - it is all about risk-management and 'stop loss' is one of this. Risk management is about answering the question of 'What if I am wrong?', MOS addresses this question partially but what about 'What if i am TOTALLY wrong?'. Collectively, i suspect value investors are over-confident of their contrarian ability.

That said, price-alone stop losses are not the value investor's cup of tea, because again, value investors pride themselves in paying 50cents for a dollar worth of goods. But i would still continue to implore all to look back in the recent past (eg.2008) and ask, how do i successfully integrate a stop-loss mechanism that fits my temperament/style to reduce the damage done, especially for those who are always 100% vested in the market.

(23-10-2013, 08:18 PM)Temperament Wrote: MOS fat fat....Hmm.... When most likely you can find them more in abundance?
Of course even then value still is very important.

normal times, MOS also can be fat fat.

(23-10-2013, 11:38 PM)weijian Wrote: While value investors trumpet MOS, it should be noted that in investing, the number ONE rule is always 'Don't Lose Money'.

To the person who had 30% of his portfolio vested in CMZ when Glaucus Research released its short-sell report on 26th Aug 2013, he would have wish that he had some kind of stop-loss mechanism in place, by the time CMZ halted trading of its shares. SMOL summed it up very nicely - it is all about risk-management and 'stop loss' is one of this. Risk management is about answering the question of 'What if I am wrong?', MOS addresses this question partially but what about 'What if i am TOTALLY wrong?'. Collectively, i suspect value investors are over-confident of their contrarian ability.

That said, price-alone stop losses are not the value investor's cup of tea, because again, value investors pride themselves in paying 50cents for a dollar worth of goods. But i would still continue to implore all to look back in the recent past (eg.2008) and ask, how do i successfully integrate a stop-loss mechanism that fits my temperament/style to reduce the damage done, especially for those who are always 100% vested in the market.

I totally agree. Margin of safety helps to manage market and firm specific risks. A stop loss helps mitigate the effects of operational risks such as estimation errors or misunderstanding the company's operations. The biggest risk IMO, is being wrong and not knowing it.

(23-10-2013, 11:38 PM)weijian Wrote: While value investors trumpet MOS, it should be noted that in investing, the number ONE rule is always 'Don't Lose Money'.

To the person who had 30% of his portfolio vested in CMZ when Glaucus Research released its short-sell report on 26th Aug 2013, he would have wish that he had some kind of stop-loss mechanism in place, by the time CMZ halted trading of its shares. SMOL summed it up very nicely - it is all about risk-management and 'stop loss' is one of this. Risk management is about answering the question of 'What if I am wrong?', MOS addresses this question partially but what about 'What if i am TOTALLY wrong?'. Collectively, i suspect value investors are over-confident of their contrarian ability.

That said, price-alone stop losses are not the value investor's cup of tea, because again, value investors pride themselves in paying 50cents for a dollar worth of goods. But i would still continue to implore all to look back in the recent past (eg.2008) and ask, how do i successfully integrate a stop-loss mechanism that fits my temperament/style to reduce the damage done, especially for those who are always 100% vested in the market.

100% (or more) invested all the time is asking for troubles.
Even Seth Klarman is 50% invested most of the time. Buffett
is a different animal coz insurance float will supply bullets every day.

If believe in manic-depressive Mr Market, then there should be no stop-loss based on price alone. Cut loss when facts showed that investment thesis is wrong.
When you are wrong on fact/analysis. Price up or down, also wrong. (though make money when wrong is preferred...hahaha).

Problem is always being wrong and not knowing it...hahaha. Know wrong yet dont do anything - it is ego/pride issue not investment.

hi opmi,
one type of rice feed many type of people 一样米养百种人。

for example, ghchua not only using cash for securities and also CPF for UT.

Initially, he diverse heavily by buying loads of securities at small quantities.

Now, he had gain much confidence and his latest game plan is to buy/over-weight on value stocks with larger MOS (provided it had not reach his single stock limits).

To him, having a long term perspective is the risk management tools.

amazing... isn't it?

(We will never be like him because everyone perceived danger differently.)

天天快乐

(24-10-2013, 12:06 AM)opmi Wrote:

(23-10-2013, 11:38 PM)weijian Wrote: While value investors trumpet MOS, it should be noted that in investing, the number ONE rule is always 'Don't Lose Money'.

To the person who had 30% of his portfolio vested in CMZ when Glaucus Research released its short-sell report on 26th Aug 2013, he would have wish that he had some kind of stop-loss mechanism in place, by the time CMZ halted trading of its shares. SMOL summed it up very nicely - it is all about risk-management and 'stop loss' is one of this. Risk management is about answering the question of 'What if I am wrong?', MOS addresses this question partially but what about 'What if i am TOTALLY wrong?'. Collectively, i suspect value investors are over-confident of their contrarian ability.

That said, price-alone stop losses are not the value investor's cup of tea, because again, value investors pride themselves in paying 50cents for a dollar worth of goods. But i would still continue to implore all to look back in the recent past (eg.2008) and ask, how do i successfully integrate a stop-loss mechanism that fits my temperament/style to reduce the damage done, especially for those who are always 100% vested in the market.

100% (or more) invested all the time is asking for troubles.
Even Seth Klarman is 50% invested most of the time. Buffett
is a different animal coz insurance float will supply bullets every day.

If believe in manic-depressive Mr Market, then there should be no stop-loss based on price alone. Cut loss when facts showed that investment thesis is wrong.
When you are wrong on fact/analysis. Price up or down, also wrong. (though make money when wrong is preferred...hahaha).

Problem is always being wrong and not knowing it...hahaha. Know wrong yet dont do anything - it is ego/pride issue not investment.

Ha! Ha!
At times, i am not so sure i am wrong. i just want to monkeying around to see whether i am really wrong.

i have 2 IPO about 25 years ago. Both companies survive until now. One i suspect has been using "financial engineering" that has opened and closed subsidiary companies. So it seems this company is not making money but can survive until today. It's price hardly goes above IPO's price.
The other company is quite "honest" in it's operation. It has it ups and downs. i have bought even more and have sold some. Today this company is making money again.

Hi Weijian, I'm the person who has 30% invested in China Minzhong.

On hindsight, stop-loss would have killed all my gains and put me in deep red.

So would a stop-loss on Dukang and Sino Grandness (I got out on panic, but immediately went back in at the price I sold or slightly lower the very next day, the rebound was lightning fast).

Till this day, I still haven't put a single stop loss on any of the stock I bought, and I prefer controlling risk by doing lots of prior homework and proper diversification.

Sincerely.

One thing about STOP LOSS is that we are opening data collectively available for people to manipulate.
Someone can have a tool to capture all the stop loss points, and theoretically engineer a collapse to profit from it.

If this can be done, it can happen !

Quote 1
"That said, price-alone stop losses are not the value investor's cup of tea, because again, value investors pride themselves in paying 50cents for a dollar worth of goods. But i would still continue to implore all to look back in the recent past (eg.2008) and ask, how do i successfully integrate a stop-loss mechanism that fits my temperament/style to reduce the damage done, especially for those who are always 100% vested in the market."
Quote 2
"I totally agree. Margin of safety helps to manage market and firm specific risks. A stop loss helps mitigate the effects of operational risks such as estimation errors or misunderstanding the company's operations. The biggest risk IMO, is being wrong and not knowing it."

Unquote:-
Well put;
If you think "STOP LOSS" is a risk management tool to use as not to be caught with your pants down in case the Market suddenly visited by a BLACK SWAN. It's a good tool because nobody can know when the BLACK SWAN will pay you a visit.

i think Stop Loss can be used appropriately at the time you want to sell your stock too.
But i am very greedy here or over confident about the market. i use "Limit Order instead of Stop Loss". If i use Stop Loss, it's a mental "Stop Loss lah.