About news updates and stop losses

//About news updates and stop losses

 

dearfellowinvestor_s

 

riskShortly after a sharp price decline of two companies recommended in the newsletter (-11% and -18%) I received a good question from a subscriber asking:

1. If the newsletter follows a stop-loss strategy and

2. If news updates are sent out if there are large price movements such as those above.

 

What is a stop-loss?

Let me first explain what a stop loss strategy means.

If you follow a stop loss strategy you would sell an investment once it reaches a specified price, usually a percentage fall (25% for example) from the price you paid.

It would thus be a way you can limit your loss from an investment.

 

As with everything – test it

I am sure you will agree that a stop-loss strategy makes intuitive sense. After all, we all want to limit the losses we make on our investments.

I have written about, and been in favour of, a stop-loss strategy in the past. However after a LOT of testing I don’t recommend that you follow it in the Quant Value newsletter.

 

Lower volatility and lower returns

What I found was that a stop-loss strategy leads to lower returns even though it did reduce volatility (large price movements up or down) somewhat.

I am sure you will agree that higher returns are better even if it means you will experience larger price movements of your investments.

 

That is why only 2%

Because large price movements are always possible is the reason why I recommend that you don’t invest more than 2% of your total investment portfolio in any one of the Quant Value newsletter’s investment ideas.

If you do this, even if there is a large drop in price, the impact on your total portfolio (and return) will be minimal.

 

Recovery possible

Also as the newsletter recommends undervalued companies with positive share price movement this means that a recovery in the share price is very likely.

 

Track record proves right decision

Additionally because the investment model of the newsletter is very selective, with a very good 15 year track record, the strategy of not following a stop loss strategy has worked well.

 

Losses guaranteed

This does of course not mean that you will make money on every investment the newsletter recommends.

In fact I will guarantee that you will lose money on some investments.

But because of the good long term track record of the newsletter’s investment model, it means that over all the recommendations your returns will be very satisfactory.

 

Largest loss more than made good

For example the largest loss on a single idea recommended in the newsletter was 42.8% (Roularta Media Group) but this was more than made up by the best ideas:

 

Company                            Return

Pandora                              +173.1%

Regenersis                         +148.5%

William Hill                         +118.1%

 

News updates

Getting back to the question about company news updates.

If there is a change in recommended investments, for example a spin off, share split, merger or buyout offer I will send you a news update so that you always know what to do with your investment.

However there won’t be any news updates on large share price movements (up or down).

As mentioned the newsletter’s investment model has been successfully tested over long periods (15 years) and numerous research studies have found that it is best to interfere with it as little as possible.

 

Your own stop-loss

If you however find large price decreases difficult to manage it is perfectly okay for you to follow your own stop loss system, to sell on a 20% price drop for example.

 

Wishing you profitable investing

Tim_sign3

 

By | 2017-05-21T07:19:01+00:00 June 10th, 2014|