Should I, and if so how, can I use a stop-loss in my portfolio?

This is a question asked by a lot of subscribers.

All the research this information is based on can be found here: Truths about stop-losses nobody wants to believe

 

With the normal investment ideas (not the Corona investment ideas) the newsletter follows the following stop-loss strategy:

  1. A trailing stop-loss is where you calculate the losses from the highest price the company has reached since it was recommended
  2. Only look to see if the stop-loss percentage has been exceeded once a month, on the newsletter’s publication date – the first Tuesday of the month. If you look at it daily, you may sell if the share price becomes volatile. This will also ensure that you keep your trading costs as low as possible.
  3. Sell your investment if, at the monthly review date, the trailing stop-loss level of 20% has been exceeded
  4. Measure the trailing stop-loss in the currency of the company’s primary listing. This means measuring the stop-loss of a Swiss company in Swiss Francs (CHF) even if your portfolio currency is Euro (EUR).
  5. Adjust the trailing stop-loss for dividend payments as the share price usually falls by the amount of the dividend payment.
  6. Reinvest the cash from the sale in a current newsletter investment idea. This will make sure that you sell losing investments and invest the proceeds in the current best ideas.

 

These rules raise a few questions, which you have probably also asked yourself.

Here are the answers to the questions we get most often.

 

My buy price is different. Should I follow my own stop loss?

You most likely did not buy at the same price mentioned in the newsletter. If your buy price is not much different, say 1% to 3%, you can simply follow the newsletter stop-loss instructions. The 20% trailing stop loss it follows is more than good enough to limit your losses.

Remember the best back tested trailing stop losses were 15% and 20%, so anything in that range is good enough.

 

I am very sensitive to losses. Can I lower my stop-loss percentage?

Of course, you can, and you must.

As I said the best trailing stop losses that were tested were 15% and 20%. You can thus simply make your stop loss 15% and follow that.

If you are very uncomfortable with losses, you can also use 10% but know that you will get stopped out more often because of normal market volatility. Because of this, you will have higher brokerage costs.

 

Should I only look at the stop loss once a month?

In the newsletter and in my own portfolio I only look at the trailing stop loss once a month. This is to keep trading costs low and not sell investments because of normal market volatility.

You can of course look at your stop losses as often as you feel comfortable with, weekly for example.

 

Can I follow a stop loss on the Corona Market Crash investment ideas?

If you feel more comfortable doing it, yes definitely.

Use one of the percentages and frequency of looking at the stop loss mentioned above.

 

Find and use an investment system that works for you

I hope my answers above have let you realise that there is no “right” way to invest.

You of course must base your investment strategy on what works, but after you have done that, you can (and must) change it to fit your nature.

No one can tell you what feels best to you and lets you sleep comfortably, only you can do that.

Remember the only investment strategy you will be able to stick with in good and bad times is the one you feel comfortable with.  

 

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