Friday, January 28, 2011

A stop too soon!

If you've read my other posts, you've heard me extol the virtues of stop-loss orders.  They are indeed a fantastic way to save your ass/bacon/rump/skin/shirt/hard earned scratch.  However some care needs to be taken setting proper values.  Why you ask?  Well, as I found out the hard way today if you set your stop too close on a position you know is solid and expect to have it for years to come it will trigger unnecessarily.

My previously established 10% is a great starting point to handle most solid blue chip companies.  (Blue chip = huge)  However for smaller companies or even recovering companies in the current floundering economic recovery, 10% is just too tight.

My position in AGF.b was triggered today because they announced their earnings.  Did they make a profit?  Yes.  Was it more than last year at this time?  Yes.  Did the stock go up in value?  NO!  It fell like a stone past my stop, triggering the sell.  Why did it fall?  The earnings were not as rosy as predictions had expected them to be.  Now if I had any cash on hand available to make a purchase this would have been a great buying opportunity.  But it's falling!  Why would I want to buy something that's going down in value?  Well, you can buy more for less money that's why!  Also, this one question will lead me to an entirely new blog posting for a later date, because it's better to buy on fear and sell on greed.

Anyway, because I like the company and I expect to want to buy more as funds permit, I bought back the position almost instantly.  So today I lost the cost of 2 commissions and a few bucks because of the difference between the sell and then re-purchase.

Another position I hold today (Ford Motor company) nearly also triggered it's stop.  It fell nearly 14% in value in one day because they too "missed" market expectations.  The markets are really quite crazy though.  This is a chance to BUY more because Ford is leaps and bounds beyond the other North American car companies.  They were the first ones to get the fact that they couldn't keep selling us total crap and expect to keep profiting from it.  They started making more interesting cars that people weren't revolted to drive.  (I still don't drive a Ford...  I'm not sure I ever will, but when they fell to nearly $1 per share in 2009 I said, who cares if they go bust!  100 shares won't kill me if they explode.)  Ford was the only North American car company that did NOT ask for bailout money.  They managed on their own without having to go into bankruptcy protection and now they are well on their way to recovery seeing as they posted the biggest profit they have had in over 10 years.

Biggest PROFIT since 1999 and the stock price FALLS 14% in one day!  Just remember how insanely skittish the market is...  Wait for BAD news like this on a company you like and use that as your chance to buy or increase your position.

Since I had purchased Ford for just over $1 per share, I never set a stop on it as I had next to nothing to lose!  So even if it had fallen $10 a share I'd still have a profit on my hands.  Yes, $1000 less profit for my 100 shares, but still a profit.

So, take some care setting your stops.  10% is good for many things, but 15% is safer if you want to make sure you hold on to your position.  20% is also useful too for other more risky investment products provided you know the price will swing and eventually swing in your favour.

Next time: diversity...  Having a few eggs in a few different baskets.

Disclaimer: Today you read entirely about my misfortunes.  Laugh all you want.  You can't sue me for my tale of woe and financial loss.  If you do, you're an idiot since I didn't tell you to do anything.  If you do take my advise for anything please do realize your actions are your own doing.  If you want to find the source of your failure go look in the mirror!  My opinion is exactly that.  If you don't do your own research then you and only you are the source of your loss or gain.  You have waived the right to sue and if you do think you can, good luck.  I'm broke.

No comments:

Post a Comment