Forum Archive Index - May 2000

[Nigel McCarter <n.mccarter@clear.net.nz>]

Agreed Jesse, 
but practicalities often intervene

Take Baycorp 
Say you bought at $10.40 last week, with the aim of making a long term (two
year plus) capital gain because assessment of the company is good etc etc etc.
Yesterday it was  $9.50 which is - 8.7%, perilously close to a stop loss of
10% ($9.36).  Most of us will have at some time sold on a stop loss, only
to see the stock promptly recover and shoot to new highs.  This is
particularly true of "small cap" stocks, which tend to be more volatile.
In the case of 10% slide in the price of a value company, investors need to
ask if the long term prospects of the company changed so much to justify a
sell.  
That is, ask if the current decline is temporary or the begining of longer
term decline.  

In the BCH case, I don't know, but I don't think FRO/RMG is going to make
that much difference.  

This is where self delusion part of share investing comes in, because it is
very easy to say no, it hasn't, and the stock will soon recover.

Now, having had poor experience with flesh and blood brokers in the past,
and being something of a cheapskate, I use etrade and Access for Web
broking.  I have to check the stock prices regularly to see if the price is
approaching a stock loss because I am not relying on a real broker.  I'm
not aware of any electronic system in New Zealand, (or Australia for that
matter) or sell on a stop loss.  Though an email watch list that will
automatically tell me if the price is declining.  

Now if I go away for a couple of weeks, the price may move  down by more
than the stop limit, but I will not be able to pull out of the investment,
even if the loss exceeds my comfort zone.  A good argument, some would say,
for having a flesh and blood broker ... 

IN contrast, one can always put in a sell order at a relatively high price
in order to lock in a profit. 


Again it gets back to being very clear why one is buying a share in the
first place.

For the record, I shall hang on to BCH unless it dips below $9.00 (-14%),
because I think the long term prospects are good.

Nigel


At 08:29 PM 5/4/00 +1200, you wrote:
>'  …  I don't think ten per cent stop loss rules ..... work particularly
>well for
>  several reasons'.
>
>Hi Nigel,
>agree. Every investment is different, but imho, every investor should
>have a plan. Personally, if I'm trading a stock, I know before I buy it
>where my out is, whether its a gain or a loss. The most difficult thing
>is executing it or sticking to it. It's so easy to reach your profit
>goal and say, please, please, just one more point! Same thing when
>cutting a loss.
>
 (... remainder of first post deleted)
Nigel McCarter
Safety Management and Information Services Ltd
Box 23 019 Hamilton
Phone 64 7 858 2429 Fax 64 858 2689
Mobile 02 212 4901

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