Posts filed under “Trading”

Apprenticed Investor: Stop-Loss Breakdown

Tscm_1The latest "Apprenticed Investor" column is up:   Apprenticed Investor: Stop-Loss Breakdown

This week’s column is probably the most important one I’ve ever written. I hope you read it.

Our discussion of stop losses is to help you learn one thing:  How can you avoid anyone position from causing giant losses; The key takeaway is a short lesson in developing that methodology.

Here’s an excerpt:

There’s an old joke about the investor who never used any stop losses. His friend knew his big positions were getting crushed.

Out of concern, the friend asked, "How are you sleeping?"

"Like a baby" he answered.

"Really? You aren’t nervous or upset?"

"I sleep like a baby" he repeated.

"That’s amazing. I’d never be able to sleep through the night with those types of losses."

"Who said anything about sleeping through the night? I said I slept like a baby: I wake up every two hours, wet myself and cry for 30 minutes before falling back to sleep."

That’s why risk management is so critical: to save you from sleeping like a baby, and in the long run to save you a lot of money.

I believe that having a stop loss strategy is the single most important tool that is overlooked or ignored by individuals who manage their own money.

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Source:
Apprenticed Investor: Stop-Loss Breakdown
TheStreet.com, 11/4/2005 3:04 PM EST
http://www.thestreet.com/_tscs/comment/barryritholtz/10251394.html

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