Hi

I think this goes to the trading vrs investing strategies, i found stop losses useful for trading and counterproductive for investing. Investing, in my case, is in mature growth stocks like REA/MQg etc (both owned) I have valuation based buy and sell prices and follow those. trading for me is in lower quality stocks, that have wider stock price variability so lends themselves to stop loss trading. ie, they have enough potential upside in them allowing for getting in and out. also i am prepared to average down only in quality.

hope this makes some sense :)

As I said, I do not use stop losses at all, well, I think probably twice in the last 35 years, but my thoughts on that specific question are: If the stocks are trending well, as MQG certainly seems to do, you would want to be "in" them when the trend is up, and on the sidelines when the trend is down, as long as those trends are for decent periods of time, like months. Not worth getting in and out every time they move a little bit, but I certainly like to jump on a quality company when they've been in a decent downtrend and they turn up and start trending the other way. Not so keen when they look like they have already had a really good run and might be nearing the end of it. In that respect, I don't know that stop losses would be very useful because the trends don't tend to end just because they've hit a certain price point or a certain percentage above or below another milestone price point. I know that technical analysts don't see it that way. They tend to think that trends are based on mathematical equations related to previous highs and lows, but that's rubbish because when a company is in a downtrend and releases some really positive news, the share price will usually react positively immediately regardless of those technical indicators or technical theories. Likewise with significant bad news when they're in an uptrend, it usually breaks the trend. So - once again - I'm not going to base my decisions on price points, which is what stop losses do. I want to engage my human brain and look at the chart to pick the trend, look at the fundamentals, look at the market sentiment, look at the company guidance, see how that all fits within my investment thesis, and make some predictions about what I think is most likely to happen in the near term, mid term and longer term based on all of that and anything else I know about that company and that industry at this point in time. Even with many more eyes on them, large caps still tend to overshoot in both directions on the back of sentiment. They just probably do it less in percentage terms than microcaps. Taking all of that into account, I still can't see where stop losses are going to add any value.

One area where stop losses MIGHT work, and this is a pretty thin argument to be honest, is with larger companies that you regard as set and forget investments, and you don't intend to follow them much at all. You could be sitting on a 50% gain and lock in a stop loss that is 20% above your purchase price, and roughly 30% below the current price, as a quick example, and then if they fall, you should still come out of it with a reasonable profit. But I'm not tempted to do that either, because I don't really regard any company as a set and forget investment these days. Everything is too dynamic and fast moving for that. Also, as SolvetheRiddle says, that's really trading, not investing. Investing for me is staying with an investment as long as your investment thesis remains solid, regardless of what the share price does, and as long as you don't find something even better to switch that money into, so only selling to move into a better investment (in my opinion) or because the investment thesis is broken (or severely impaired). But different strokes for different folks. There are many different approaches to investing.

I never use stop losses. As an investor I think it’s important to seperate business performance from share price. If you’re using stop losses, you’re simply not doing that. I only sell a business when my thesis is broken, making the reason for my investment no longer valid. As soon as price becomes the focus, particularly in the short term I think that’s not a great way to go about it.

This is ofcourse different for a different style but doesn’t work for long term investing in my view.

@Hands, I largely agree with Bear's position.

I don't consider myself a 'seasoned trekker' by any means, but my take is - it all comes back to the companies you own and the reason you are invested. In my position, I want to have done my research, know the company well and have a fair idea of what I think its worth. With that in mind, I will never set stop losses because it may well be that I sell at what I personally consider a really attractive price. In fact I tend to hold the opposite position to stop losses - when an investor might look to implement one, I am more likely to issue a buy order (relevant to the context, of course). This may be when investors are panicking and there is 'blood on the streets'. I think the latter in particular is the very reason why I think they are actually a bad idea for the majority of long term investors - I don't want to be selling when there is widespread fear, there is a good chance I am looking to do the opposite.