Are people that have exit strategies fools?

We must ponder the reasons why investors adopt exist strategies. I agree that if a share is collapsing owing to real reasons (i.e. Partygaming, Marconi) then it is time to sell up, move out, cut your loses, and say I won’t do that again.

However, if you hold shares in a company that is boringly solid, and you sell them merely because the market is see sawing its way down owing to the natural rhythm of things then I for one think this is a mistake.

My questing to you is this - if your shares go down 5% is this a reason for selling up or a reason to buy cheaper shares?

depends on your outlook, your strategy, your timeframe and your goals IMO.

Just because a stock may be heading North, it doesn't meaning you can't make a profit out of the downmove too, then buy into it again if everything matches up correctly.

the other thing about stocks is that decent ones may have generous dividends.
so, long term, the dividend yields may compensate for any short-term fluctuations in price.

even if the stock price flat-lined for the year, the hidden benefit may be dividend yield.

Isnt Warren Buffets style to "buy as if you intend to keep the stock forever"?

in2uxs said:

We must ponder the reasons why investors adopt exist strategies. I agree that if a share is collapsing owing to real reasons (i.e. Partygaming, Marconi) then it is time to sell up, move out, cut your loses, and say I won’t do that again.

However, if you hold shares in a company that is boringly solid, and you sell them merely because the market is see sawing its way down owing to the natural rhythm of things then I for one think this is a mistake.

My questing to you is this - if your shares go down 5% is this a reason for selling up or a reason to buy cheaper shares?

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To answer your question: no, they are not fools - exit strategies are absolutely key in professional trading. Once you have entered a position, the market will do what it likes and the only control you then have over your position is your exit..........and your exit will ultimately decide whether you take a big loss, a small loss, a small profit, or a big profit.

As for: "is it sensible to sell if a stock loses 5%" - I would say in general no (although I agree with wasp in that it does depend on your strategy). There is a huge difference between a $5 stock losing 5% and something like Google (a $480 stock) losing 5%.

The question is: how do you know when the stock is just see-sawing and not just about to begin a substantial downward move. The answer is that you don't, which is where your exits that cut your losses are of paramount importance. Those losses are often difficult to take because you WANT the stock to be see-sawing; you WANT to stay in the position so that it can carry on its upward climb. But what you want has no bearing on the market whatsoever, so you're probably best exiting the position until the continuation of the upward climb is confirmed.


Thanks

Damian

good to see that the word m***s has been airbrushed out, and the word fools has been inserted.

5% is 5% whether it is on a $5 dollar stock or $480.

The problem with exit strategies is when do you get back in the market. So you buy a stock at £10.00 and it goes to £9.50. There is no bad news associated with the stock its just going down as stocks do from time to time. If you genuinely like the company and you sell up out of "the thing to do" when do you come back in again? If it goes up 10p do you enter again ... only then to see it go back down 10p. If you are not careful you can be one step behind the see sawing action and as such can lose a great deal of money.

I have heard several investors say that they buy they very rarely sell. Many investors have time frames that stretch years yet reading some of the posts on here many "investors" think a time frame more than a day is investing. It is little wonder so many people get hosed in the market.

well the uptrend in stocks has lasted for over 200 years - so if you've got time on your side that's not a bad edge.

in2uxs said:

Many investors have time frames that stretch years yet reading some of the posts on here many "investors" think a time frame more than a day is investing. It is little wonder so many people get hosed in the market.

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This is the Trade2Win website after all. The clue's in the name, people on this website aren't 'investing' as most definitions would have it. Yes, a lot of traders lose for a variety of reasons. But so do a large number of longer-term investors. If you really struggle to understand (ie can only state the bleeding obvious about) why a stock whipsaws about, then you might be better off contributing to an 'investors' forum somewhere, rather than one aimed at traders.

Mr. Buffett made his considerable fortune by buying solid companies, and holding. Stocks have risen hugely over a long period of time. Maybe we are at the beginning of another long cycle upwards. Maybe we are not.

I can think of a few others who didn't stop out among them Nick Leeson and Brian Hunter.

Managing money without a plan (call it a strategy if your prefer) whether you think you are trading it ,or investing it is the best of all ways to fail (ask your mutual fund manager for further details). You don't have a plan if you don't know on what terms you are prepared to sell. It's as simple as that.
As for Mr Buffett ,never have so many quoted so few (one) without understanding exactly why it is they will never be able to emulate him. His money costs him virtually nothing ,he has paid virtually no personal taxation in relation to his gains and his persona gives him leaverage / control which we cannot even begin to aspire to. I wouldn't even call him a trader , or an investor . He runs businesses , he's a businessman.
What you appear to be trying to say is that a slavish , mechanical method for exiting does not make sense to you ? Frankly , I wouldn't care how mechanical , or nonsensical it appeared if the numbers coming out of the other end are right.

For the record , after adjustment for inflation the vast majority of returns on stocks IS attributable to dividends and NOT capital gains. Unfortunately , that does not necessarily means that that will always be true over a single lifetime of investment. Later trends in the last quarter of the 20th C is for dividend payments to diminish in favour of , yes well that is the question. If it were in favour of capital reinvestment we might view that positively. If it were in favour of overpaying mediocre management I think we might be a lot unhappier. Take your pick over which you think is applicable.

in2uxs said:

5% is 5% whether it is on a $5 dollar stock or $480.

The problem with exit strategies is when do you get back in the market. So you buy a stock at £10.00 and it goes to £9.50. There is no bad news associated with the stock its just going down as stocks do from time to time. If you genuinely like the company and you sell up out of "the thing to do" when do you come back in again? If it goes up 10p do you enter again ... only then to see it go back down 10p. If you are not careful you can be one step behind the see sawing action and as such can lose a great deal of money.

I have heard several investors say that they buy they very rarely sell. Many investors have time frames that stretch years yet reading some of the posts on here many "investors" think a time frame more than a day is investing. It is little wonder so many people get hosed in the market.

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With this situation, it really does depend on what your strategy is.

As a long-term investor, if a stock was pulled down with the rest of the market, but you still believed the company's fundamentals to be strong, then a minor fluctuation of 5% wouldn't bother you enough to sell. You'd hold on in the belief that the downturn is temporary and the true strength of the company will show through in the share price in the long-term.

However, as a short to medium-term trader (and this would be my approach), you would probably be better exiting the position because, as a trader and not an investor, you would want to capture as much of the short-term up move as possible.


Thanks

Damian

in2uxs said:

then it is time to sell up, move out, cut your loses, and say I won’t do that again.

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Won't do what again? Won't buy a stock again? Won't think I can see into the future again? Won't fall for stockboard hype again? Won't hold on to a stock when it has fallen 5% again? Or just won't buy Partgaming or Marconi again? If you can't work out what your mistake was how are you going to avoid doing it again?

in2uxs said:

5% is 5% whether it is on a $5 dollar stock or $480.

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ever heard of volatility?

in2uxs said:

The problem with exit strategies is when do you get back in the market.

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If you don't know what your criteria are for getting into the market how did you end up holding a stock in the first place

in2uxs said:

It is little wonder so many people get hosed in the market.

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Yes it is little wonder but why do you think it is? Is it because their trading/investing timeframes are too long, or too short? Is it because they don't have an exit strategy, or because they do have an exit strategy?

Regards,

Gareth

in2uxs said:

We must ponder the reasons why investors adopt exist strategies. I agree that if a share is collapsing owing to real reasons (i.e. Partygaming, Marconi) then it is time to sell up, move out, cut your loses, and say I won’t do that again.

However, if you hold shares in a company that is boringly solid, and you sell them merely because the market is see sawing its way down owing to the natural rhythm of things then I for one think this is a mistake.

My questing to you is this - if your shares go down 5% is this a reason for selling up or a reason to buy cheaper shares?

Click to expand...

It depends purely on whether you are trading using fundamentals or whether you are a technical trader. The former will hold, the latter will sell then short the stock.