Cutting losses is for losers

[mrmarket]

Quote from AAAintheBeltway:

Some of you guys need to lighten up a little and have some fun. MrMarket is yanking your chains, and you rise to the bait like clockwork.

OK, MrMarket, how about explaining what if anything will cause you to ditch a loser. Do you run your existing holdings through your various scans to see if they still qualify, or is it a matter of once in, you hang on to them unless they blow up? Also, what percentage do you allocate to each holding? Is it fixed or does it vary over time?

Triple A...good questions:

I have sold losers in the past...that's what broke my streak of 53 in a row. Normally I will sell them if something fundamental changes in the company or its environment. If a stock's price drops, but the company is still growing its revenues and earnings, I'll stick with it. I can read these companies like an open book, because I understand business processes. I know what makes a company successful, and I know what will make it fail.

The percentage on each holding varies...for example if I have 14 stocks in my port, I may invest up to 20% or as little as 3% in any one stock, depending on how much I like it and how much free cash I have.

You're a good guy...AAA and I enjoy reading your posts as well. These other guys though need to get a clue.

 

[dgabriel]

Mr. Market is proof that a bull move will give a monkey with some longs the delusion that he has conquered the markets.

I wonder if Mr. Market thinks he has the power of flight when he takes an elevator up.

 

[Gordon Gekko]

Quote from mrmarket:

The percentage on each holding varies...for example if I have 14 stocks in my port, I may invest up to 20% or as little as 3% in any one stock, depending on how much I like it and how much free cash I have.

$$$mrmarket$$$, ANSWER THIS.

do you exit portions of the positions at times or always all at once?

i really hope your losers aren't 1 share sizes now, just so you can rack up a high consecutive (?) win rate for totally closed positions.

 

[Gordon Gekko]

Quote from Harry123:

It promotes high thread count and awareness of his site and methods. Now the next question might be what is his ulterior motive, does he even have one?

here are some possibilities:

-plans on charging for something in the future (book, stock picks via web site, etc.).

-wants people to follow his advice/buy his picks, with the hope of it directly or indirectly increasing the value of his positions.

-he's just a nice guy, doing all this for fun.

mrmarket is an antagonistic (to create discussion of his spam) spammer promoting his interests. i'm surprised Baron/moderators let him get away with it here.

 

[harrytrader]

Not a question of statistic it's a question of framework. In Trader's framework it is absolutly killing to not cut losses whereas in investors framework yes it is true that they ideally never cut their losses (it is even one of the high recommandation of invstors like Buffet) because they have normally chosen stocks that are fundamentally sane. Of course a bad investor can be loser like a bad trader but a good investor should normally be a winner. So I'm not defending Mr Market in particular since I just didn't look at his stocks because I don't have time to look at fundamentals, I defend the investor framework which is as justifiable if not more than trader's framework. And globally on long term investors are globally the winners because they capitalise on time that's why assurance companies have stronger financials than bankers which are like short term traders or gamblers.

Quote from OHLC:

Seems like Mr Market was never taught statistics nor econometrics...

The stock market distribution is not a normal 'Gauss' distribution.
It is often referred to as 'fat tails'.
This means abnormally large moves are possible in either way.
A 15% profit or whatever fixed target, when applied to a fat tail environment (for example the stock market from a daily perspective), results in two things :
-large proportion of winning trades
-large losses

Basically, this 15% rule does not allow any profit from the large unusual moves. Regarding losses, it allows the huge moves to actually develop against the position.

Of course, the number of winning trades is important, just like the number of loosing trades using very tight stops would be.
This is psychologically comfy, Mr Market delays the time when he will have to recognize his failure.

But anyway, this way of doing has a really negative expectancy.
I hope Mr market will be back in a couple of months, showing us how much he lost by letting his positions go against him 100% , and quickly cutting any gain on the profitable trades.

I see that Mr market has no understanding of money management.


Mr market is a hugely uneducated dwarf.


OHLC

 

[harrytrader]

As for Gauss distribution or not this is exactly what the investor's framework implicitly cope with. Unlike a trader that uses super leverage and thus would be killed by averaging when market goes against him, an investor will do so and by doing so his average position will tend towards the normal law because whatever the distribution (it can be even a weird triangle) the average should tend towards the normal law : this is the effect of the so called Central Theorem Limit in probability. if you can't average, which is the case of traders framework since they risk the ruin before, then you can't benefit from this law.

It is not so astonishing that the investor framework is somehow the opposite of the trader's framework since in this jungle market one is the prey of the other and vice versa hee hee !

The bad think is to mix the both frameworks: chosing bad stocks, averaging with high leverage and never cut losses in doing so.

 

[benysl]

wonder what would happen to you if you has bought Enron or Worldcom buying it all the way down



thetraderprofit
Senior Member

Registered: May 2002
Posts: 311


06-21-03 01:03 PM
What to do with losers
The thing to do with losers is to have enough capital that whatever position you have, it doesn't really bother you.

Then, start adding to your position until the stock goes your way.

It's called "averaging down" when the stock goes to zero.

 

[harrytrader]

An investor wouldn't chose Enron or Worldcom except the fake ones from Big Brokers that just stealthed their clients. Even if he had done so by bad luck he would never put enough money on a position to risk his portfolio seriously.

Quote from benysl:

wonder what would happen to you if you has bought Enron or Worldcom buying it all the way down



thetraderprofit
Senior Member

Registered: May 2002
Posts: 311


06-21-03 01:03 PM
What to do with losers
The thing to do with losers is to have enough capital that whatever position you have, it doesn't really bother you.

Then, start adding to your position until the stock goes your way.

It's called "averaging down" when the stock goes to zero.

 

[mrmarket]

Quote from Gordon Gekko:


here are some possibilities:

-plans on charging for something in the future (book, stock picks via web site, etc.).

-wants people to follow his advice/buy his picks, with the hope of it directly or indirectly increasing the value of his positions.

-he's just a nice guy, doing all this for fun.

mrmarket is an antagonistic (to create discussion of his spam) spammer promoting his interests. i'm surprised Baron/moderators let him get away with it here.

Let me answer your hypotheticals:

If my stock picks were so bad, it would be unlikely that there would be anyone willing to pay for them. So are you saying my picks are good?

Again...why would the herd follow my picks if I were not successful in finding good stock picks.

I am a nice guy and this has been fun. I also am trying to learn from like minded investors. I've found many in my Yahoo Group, very few over here.

 

[mrmarket]

Quote from harrytrader:

Not a question of statistic it's a question of framework. In Trader's framework it is absolutly killing to not cut losses whereas in investors framework yes it is true that they ideally never cut their losses (it is even one of the high recommandation of invstors like Buffet) because they have normally chosen stocks that are fundamentally sane. Of course a bad investor can be loser like a bad trader but a good investor should normally be a winner. So I'm not defending Mr Market in particular since I just didn't look at his stocks because I don't have time to look at fundamentals, I defend the investor framework which is as justifiable if not more than trader's framework. And globally on long term investors are globally the winners because they capitalise on time that's why assurance companies have stronger financials than bankers which are like short term traders or gamblers.

Harry...this is a brilliant and cogent analysis. You have stated so eloquently what I have introduced to this forum.

Thanks!