How significant is a 6% loss in 3 months?

[momothebored]

Is a 6% loss in 3 months something people should panic about?

Not my portfolio, someone else's.

From what I gather, he bought into fundamentally good stocks at good discounts to valuations then got smacked because they were so overbought.

He's one of those old guys that believes technicals are nonsense, although I did warn him that what he was buying was grossly overbought.

 

[Brumby]

Is a 6% loss in 3 months something people should panic about?

Not my portfolio, someone else's.

From what I gather, he bought into fundamentally good stocks at good discounts to valuations then got smacked because they were so overbought.

He's one of those old guys that believes technicals are nonsense, although I did warn him that what he was buying was grossly overbought.

It is a question that can't be answered because it lacks context.

It is said that the average life span of a new forex account is 3 weeks before it is blown.

 

[momothebored]

Context is that he's retired and investing for a living.
Am not sure if it's a bad patch, from what he says, he usually waits for a bear market then buys his FA stocks.

I don't think he's accustomed to losing? Sounds like he got carried away.

These aren't for US stocks, quite a few non-index Asian stocks have been correcting last few weeks.

What I'm asking is, is a 6% loss a big deal in a professional's context?

I'm about break-even since Jan.

It is a question that can't be answered because it lacks context.

It is said that the average life span of a new forex account is 3 weeks before it is blown.

 

[Brumby]

Context is that he's retired and investing for a living.
Am not sure if it's a bad patch, from what he says, he usually waits for a bear market then buys his FA stocks.

I don't think he's accustomed to losing? Sounds like he got carried away.

These aren't for US stocks, quite a few non-index Asian stocks have been correcting last few weeks.

What I'm asking is, is a 6% loss a big deal in a professional's context?

I'm about break-even since Jan.

There is no single answer because it is dependent on the profile of the investor/speculator. The profile is subject to a number of factors including :

1)Tolerance to risk - Everone is different on how much risk is acceptable
2)Investment horizon - The older you get, the shorter the time horizon you have to make good. For example, on average it took 25 years to recover from the 1929 crash
3)Size of portfolio. Size enables diversity and mix to smooth out overall risk and return.
4)Draw down might be compensated by higher yield investments especially for a retiree as recurring income can be useful.

An objective assessment can only be made against the investment strategy and program that is driving the choice and investment decisions. If the current plan is within the risk parameters, then there is nothing to be concern over.

If there is no plan, a 6 % fluctuation in investment value is probably not something that I personally would loose sleep over because investing is not risk free.

 

[WR1]

Not as significant as a 7% loss...

whats 6% anyway - does n't sound like much

come back and ask if your friend looses 60%

the market is nearing strong wkly resistance that will stop the rally within a few wks
your friend should take a break and wait for the falls

 

[momothebored]

Wow you must lose a lot regularly! :cheesy:

no offence meant.

Not as significant as a 7% loss...

whats 6% anyway - does n't sound like much

come back and ask if your friend looses 60%

 

[VielGeld]

This entirely depends on your strategy... Is 6% an exceptional loss in the case of this guy? Is his reason for entering the trades still valid? Is -6% beyond his loss tolerance? Etc.

To me, 6% would be a normal drawdown, but cause for review. 10% would tell me something's wrong. But that's just me...

 

[momothebored]

This entirely depends on your strategy... Is 6% an exceptional loss in the case of this guy? Is his reason for entering the trades still valid? Is -6% beyond his loss tolerance? Etc.

To me, 6% would be a normal drawdown, but cause for review. 10% would tell me something's wrong. But that's just me...

I'm trying to help him (he's my dad).. unfortunately he's burning money he shouldn't be burning at this point.

The fundamental catalysts in the stocks are all intact, but the charts are still mostly overbought by far.

Most have corrected by a good 5% - 10%, but the MACD death crosses and Stochastic bearish crosses etc are just about to form. RSIs mostly in the 60-70 range.

The idea was to:
(i) Define the universe of good FA stocks
(ii) Buy them in bear markets - or when stocks were oversold on weekly charts (i.e. lower Bollinger band, Stoch<20, MACDH< whatever)

The problem was that he was afraid of missing a rally, saw cheap valuations, then chased the stocks at the top.

Thanks for all answers.


Looks like the smart thing to do would be to take his money out of the market and wait for the correction, as originally planned.

 

[VielGeld]

I'm trying to help him (he's my dad).. unfortunately he's burning money he shouldn't be burning at this point.

[...]

Looks like the smart thing to do would be to take his money out of the market and wait for the correction, as originally planned.

Hmm... Food for thought: what if the stocks make new highs within the next couple days/weeks/months?

Yes, from your description it sounds like a poor entry and a trade that shouldn't have been taken. However, you seem to be speaking from a technical point of view while he has his eyes on the fundamentals.

If the FAs are intact, then I find this is more a question of risk management. You'll now have to weigh selling and re-entering at a lower price, selling and potentially missing out on the move, or holding on to what you have right now and bite the bullet on the drawdown.

There is no clear-cut answer. It depends on your/his tolerance for risk in the worst-case scenario.

Good luck whatever happens and let your dad consider this a lesson from the market...

 

[Brumby]

I'm trying to help him (he's my dad).. unfortunately he's burning money he shouldn't be burning at this point.

The fundamental catalysts in the stocks are all intact, but the charts are still mostly overbought by far.

Most have corrected by a good 5% - 10%, but the MACD death crosses and Stochastic bearish crosses etc are just about to form. RSIs mostly in the 60-70 range.

The idea was to:
(i) Define the universe of good FA stocks
(ii) Buy them in bear markets - or when stocks were oversold on weekly charts (i.e. lower Bollinger band, Stoch<20, MACDH< whatever)

The problem was that he was afraid of missing a rally, saw cheap valuations, then chased the stocks at the top.

Thanks for all answers.


Looks like the smart thing to do would be to take his money out of the market and wait for the correction, as originally planned.

There is a difference between speculation and investment especially if you are a retiree.

In investing, there is a concept of time in the market vs. timing the market. Essentially the thinking is that it is very difficult to correctly pick cycles and so rather than to wait for a major coprrection, the idea is to stage your investments by buying portions as and when there is a dip so that you are in the market. The idea of staggerred buying on dips is to ensure an overall better average then chasing prices. Institutions whose focus is on a value strategy will do this. If the investment choices are in sound companies rather than speculative plays, then even when there is a major bear cycle, it tends to hold up better and normally will provide good yields.

Given your situation, I would suggest the following :
i)Review the existing porfolio. Those with sound FA and good yields, I would suggest holding them rather than trying to time the investment.
ii)Those that are speculative plays I would suggest that you use TA to determine whether to hold or dispose. Typically retiree should avoid these type of plays as they lack the skills to manage them with a profitable outcome.
iii)Review the investment strategy. Ensure some kind of diversification rule to prevent concentration and risk of ruin. Investments should be in sound companies only. Staged buys where appropriate.

You have what you have today. The point is what do you do for the future?

 

[malaguti]

Is a 6% loss in 3 months something people should panic about?

Not my portfolio, someone else's.

From what I gather, he bought into fundamentally good stocks at good discounts to valuations then got smacked because they were so overbought.

He's one of those old guys that believes technicals are nonsense, although I did warn him that what he was buying was grossly overbought.

6% is very little to be honest, but again that context thing..if all his other trades he gained 20% then obviously 6% is healthy
if you could tell me just one of the ones your old man's invested in, and where he entered I'll tell you whether he has anything to be worried about how's that?

 

[tommac]

retail punters are always the last to get in. Why buy into an overblown market. There WILL be a better time to buy. To answer your question, if he`s down 6% in this market then something needs looking at

 

[BobbyBB]

unfortunately he's burning money he shouldn't be burning at this point.

Sorry but it sounds like he a) doesn't really know what he's doing and b) is out of his depth.

First, he's having as ask if a 6% loss in the markets is ok. A proper investor who knows what he's doing in turn knows how to answer this question.

Second, he's burning money he shouldn't be burning. Then why is he investing in stocks which always carry a large downside risk (even though it might be low, it's still there even for the biggest companies, think BP, think Tesco, think all the banks, all their prices got battered at one time or another over the last few years yet they're all massive companies).

Third. He seems to expect that whatever he buys makes him money, so when losses happen he's surprised.

Don't take this the wrong way, just pointing out the facts based on the evidince. The markets are lethal for those without proper experience.....

 

[eyeofhorus]

If 6% is a worry then I'd imagine this is more about trading and not investing: in trading terms a 6% drawdown on total capital is significant but not fatal: cause for a stop and review on trading plan and execution

If this is 6% based on INVESTING then no, it is not a big deal: I set stop-losses of the order of 10-20% on fundamentally sound shares when I INVEST (not trade). Unless the fundamentals have changed, then a reduction in price for the same fundmanentals equates to a better value propostions (good ol value investing 101). If you are scaling in then a reduction in price allows buying more up to the max capital allocation (not to be confused with averaging down or Martingaling): this improves overall yield on capital .
If he is retired then his focus should be on income yield and not so much on capital appreciation though this is of course very important: on this basis it doesn't matter if the capital value fluctuates once the yields are constant (a bit like a cow may lose weight but once it is still providing milk its not a big concerns...unless its fatal wight loss!). Given concerns with capital loss I suspect there shares were not bought for yield which is a concern as we are due a healthy pullback soon as there are so many profits on offer (i've personally done a lot of trimming this week!)

Assuming we are talking about investing a couple of guiding principles

1) Never buy anything you cant afford to lose
2) because of 1) never buy too much of any stock, sector or correlated market: hence the importance of a balanced portfolio
3) Work out capital allocation rules (max % of total capital that can be spent on any one stock, sector, market). This then forms the basis for assessing the relative exposure of your portfolio to stocks/sectors/markets: hence under weight, over weight . Monitor and reallocate depending on underlying performance ... rebalancing and reallocating
4) Always try and keep some capital in cash: there is nearly never ever a good reason for being 100% invested: if nothing else, the opportunity cost and optionality is lost when you have no liquidity


I'd recommend a critical review of your dad's portfolio with potentially a liquidation of some of the worst performers: take the money and invest in a few good funds instead as stock picking is bloomin hard.

I am a full time trader and investor with no axe to grind and no funds to sell...just my opinions and my own capital to lose!

 

[momothebored]

I fully agree, something DID go wrong and needs to be looked at.
We did find the problem. And it was a basic one:

Fundamentals were a go, technicals were a no, simple as that.
So going to wait till fundamentals and technicals are both a go.

Thanks to all for the answers.

I can live with missing whatever is left of the rally, if anything is left at all.
I can't live with losing another chunk.
So exit, stage left, will come back when it's a bear market.

any advice on what to hold while waiting? bonds?

retail punters are always the last to get in. Why buy into an overblown market. There WILL be a better time to buy. To answer your question, if he`s down 6% in this market then something needs looking at

 

[Splitlink]

Sorry but it sounds like he a) doesn't really know what he's doing and b) is out of his depth.

First, he's having as ask if a 6% loss in the markets is ok. A proper investor who knows what he's doing in turn knows how to answer this question.

Second, he's burning money he shouldn't be burning. Then why is he investing in stocks which always carry a large downside risk (even though it might be low, it's still there even for the biggest companies, think BP, think Tesco, think all the banks, all their prices got battered at one time or another over the last few years yet they're all massive companies).

Third. He seems to expect that whatever he buys makes him money, so when losses happen he's surprised.

Don't take this the wrong way, just pointing out the facts based on the evidince. The markets are lethal for those without proper experience.....

Sorry, I must have misread the thread. I get the impression that it is the poster who's doing the worrying, not so much the investor.

Poor Dad! He was, probably, as happy as Larry before Sonny Jim took an interest in his portfolio. You don't seem to have heard the one about too many cooks, it seems. If he was not panicing before, he's just about to!

I'll tell you, I never asked for advice on investing on a trading site,

Er, love to you all

Granddad.

 

[BobbyBB]

I fully agree, something DID go wrong and needs to be looked at.
We did find the problem. And it was a basic one:

Fundamentals were a go, technicals were a no, simple as that.
So going to wait till fundamentals and technicals are both a go.

Things often never repeat, yet sometimes they do. This is why successful investingt/trading is so hard.

Next time he loses I'll bet that the fundamentals were a go and so were the technicals. Then where will the problem be?

Or he wants to buy something like EasyJet a few months back, his reason the fundamentals looks great. Hold off you say, the technicals are too extended. The stock then doubles in a month or two.

You father then says, technicals are crap.

However, the next stock he buys, the technicals say 'over extended' and this time they were 100% right as the stock price plunges.

Maybe I SHOULD listen to my son he says. Then another easy jet type play comes along, fundamantals say up, technicals say hold off. The stock then increases by 20% over the month. He's not onboard.

Just throwing some potential scenarios out there, the same probelms that everyone has to face.

The best advice is probably to let him do his thing and you do yours. Then you're both 100% in control of the decision making process and won't be able to blame the other one when losing trades happen.

Good luck.

 

[momothebored]

Firmly back in the black.

thanks for all the well wishes.

Since returning to the black, been taking money off the table as well waiting for very selective entries (oversold) into said equities.

Hmm... Food for thought: what if the stocks make new highs within the next couple days/weeks/months?

Yes, from your description it sounds like a poor entry and a trade that shouldn't have been taken. However, you seem to be speaking from a technical point of view while he has his eyes on the fundamentals.

If the FAs are intact, then I find this is more a question of risk management. You'll now have to weigh selling and re-entering at a lower price, selling and potentially missing out on the move, or holding on to what you have right now and bite the bullet on the drawdown.

There is no clear-cut answer. It depends on your/his tolerance for risk in the worst-case scenario.

Good luck whatever happens and let your dad consider this a lesson from the market...

 

[BobbyBB]

Firmly back in the black.

All's well that ends well.

If I ever wanted to be a playwright I think that would make a great title

 

[BusyFXtrader]

I don't think that the 6% loss in three months will hurt your investment and your trading prowess. Right?