Placing a stop-loss order with vanguard

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cals400ex
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Placing a stop-loss order with vanguard

Post by cals400ex » Sun Sep 02, 2018 12:47 pm

I just want to make sure that I understand how this works.

I first need to either currently hold or I need to buy a stock/ETF/fund, etc.
I then go go Sell ETF and stocks (assuming it is a stock/etf).
Enter the symbol that I want to place a stop loss on.
Enter how many shares that I want the stop loss on.
Choose order type. I'm assuming I would choose "stop" if I want the stock/etf to sell regardless of what happens assuming the stop price is met?
Enter stop price.
Duration: choose Day or 60-day.
Choose cost basis method (first in, first out or specific identification).

1. Is there anything else I need to know about this?
2. Are "stop" or "stop limit" order types more common?
3. The fee from vanguard is $7.00 for this transaction in addition to the $7.00 fee to buy a stock/etf?
4. If the duration is set to 60-day, at the end of the 60-day period I would need to place another stop loss order (assuming the previous stop order was never triggered and I still wanted a stop order on the specific stock/etf after that 60-day period has lapsed)?
5. Vanguard doesn't offer trailering stop orders?
6. What is the difference between the two cost basis methods?
7. Is there any reason not to do these stop orders (besides being taxed on any gains this calendar year)?

I appreciate your help!
Last edited by cals400ex on Mon Sep 03, 2018 2:39 pm, edited 3 times in total.

ThrustVectoring
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Re: Placing a stop-loss order with vanguard

Post by ThrustVectoring » Sun Sep 02, 2018 1:50 pm

There's no such thing as a free lunch. Stop-loss orders don't work like people think they should.

First, the market doesn't have to ever offer you a price near your stop-loss. If you buy a stock at $125 and put in a stop-loss at $120, the market could discover fraud and open tomorrow at $100. Or it could even have trading halted and never trade again. The thing that actually takes away downside risk are put options, and those are expensive.

Second, a very brief drop in price can trigger your stop-loss, only for the price to immediately rebound and leave you with a large loss. Same scenario, but the stock price opens tomorrow at $119.73, triggering your stop-loss that sells at that price and leaves you with no position and a realized loss. Five minutes later, the stock price is back to $125. Whoops.

The correct investing approach is to buy index funds and hold onto them basically forever.
Current portfolio: 60% VTI / 40% VXUS

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fortyofforty
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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sun Sep 02, 2018 3:43 pm

I am surprised that Vanguard doesn't offer trailing stops. But, I agree with the advice to buy broad market index funds and hold them forever.
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Re: Placing a stop-loss order with vanguard

Post by Iridium » Sun Sep 02, 2018 4:19 pm

cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
3. The fee from vanguard is $7.00 for this transaction in addition to the $7.00 fee to buy a stock/eft?
No. That is the total commission. No extra charge for stop loss.
cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
4. If the duration is set to 60-day, at the end of the 60-day period I would need to place another stop loss order (assuming the previous stop order was never triggered and I still wanted a stop order on the specific stock/eft after that 60-day period has lapsed)?
Yes. You would have to send in a new order every 60 days. Note that orders that are not executed do not have a commission.
cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
6. What is the difference between the two cost basis methods?
With specific identification, you choose the tax lot to be sold. With FIFO, the oldest tax lots are sold. If you are planning to sell all the shares, there is no difference.
cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
7. Is there any reason not to do these stop orders (besides being taxed on any gains this calendar year)?
The strategy's cost is hidden and provides false assurance. As others said, false assurance in that bad news is typically timed for outside market close, so you'll get whatever price the shares trade at after the opening cross, even if that is far below your stop loss price. It has hidden cost in that the market frequently overcorrects on news. So, a fair percentage of the time, you'll find that you cannot buy back into your shares at the price you sold them at.

It is also subject to market 'wackiness', search news archives on the 'flash crash'. It is also personal taste, but it just feels strange to me to unthinkingly (by definition, as it is automated) sell shares after they have become a better deal. If I buy shares at $80, it makes my head hurt trying to wrap my mind around the idea that I will want to turn around and sell those shares at any price I can get, just because someone else was able to buy those shares at $70.

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Re: Placing a stop-loss order with vanguard

Post by livesoft » Sun Sep 02, 2018 4:21 pm

One can have Vanguard send you an alert to your phone whenever a price point is reached ... going up or going down. You can then decide what to do. I think it is insane to set up stop-loss, stop-limit, or other such orders that are automatically triggered days away. You want to know the context of the world on the days your prices might be triggered, and then make an pseudo-intelligent decision about whether to submit an order then or not.
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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sun Sep 02, 2018 4:59 pm

One possible use I could see is if someone is attempting to "value average". Then, if the desired gain is reached before their time period expires, they could set a stop to guarantee that, at least, they'd get to the value they were seeking. If the stop is never reached, the additional gains are simply locked in at the expiration of whatever time period they'd set.

I hadn't really thought of the extreme movements that can occur after trading hours, though. That would pose a problem, especially if an individual security or focused ETF were used. Not a problem for me to worry about, though.
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Re: Placing a stop-loss order with vanguard

Post by grabiner » Sun Sep 02, 2018 7:48 pm

ThrustVectoring wrote:
Sun Sep 02, 2018 1:50 pm
There's no such thing as a free lunch. Stop-loss orders don't work like people think they should.

First, the market doesn't have to ever offer you a price near your stop-loss. If you buy a stock at $125 and put in a stop-loss at $120, the market could discover fraud and open tomorrow at $100. Or it could even have trading halted and never trade again. The thing that actually takes away downside risk are put options, and those are expensive.
And even if it does work as intended, it doesn't stop your losses unless you sell and never buy back. If you buy a stock at $125 and have a stop order at $100, and you sell at $100, you have limited your losses to 20%. But if you use that $100 to buy another stock, that stock might drop to $80, causing you to have a total loss of 36%. Protective puts have the same issue here, so they make sense only if you will sell the stock and not buy it back.
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cals400ex
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Re: Placing a stop-loss order with vanguard

Post by cals400ex » Mon Sep 03, 2018 8:58 am

Iridium wrote:
Sun Sep 02, 2018 4:19 pm
cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
3. The fee from vanguard is $7.00 for this transaction in addition to the $7.00 fee to buy a stock/eft?
No. That is the total commission. No extra charge for stop loss.

I must be looking at this incorrectly. I would first need to place a "buy order" for the stock (which is $7.00). Then, from my understanding, I would need to place a "sell order" for this stock using the stop-loss (which appears to be another $7.00, assuming the transaction takes place)....


Everyone else makes valid points. I am an index fund investor. I save 40-50% of my after tax income each year, all of which is in low cost index or DFA funds except a few dollars that I save to "play" with. I was just trying to understand how the stop-loss works.

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Re: Placing a stop-loss order with vanguard

Post by RudyS » Mon Sep 03, 2018 9:59 am

cals400ex wrote:
Mon Sep 03, 2018 8:58 am
Iridium wrote:
Sun Sep 02, 2018 4:19 pm
cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
3. The fee from vanguard is $7.00 for this transaction in addition to the $7.00 fee to buy a stock/eft?
No. That is the total commission. No extra charge for stop loss.

I must be looking at this incorrectly. I would first need to place a "buy order" for the stock (which is $7.00). Then, from my understanding, I would need to place a "sell order" for this stock using the stop-loss (which appears to be another $7.00, assuming the transaction takes place)....


Everyone else makes valid points. I am an index fund investor. I save 40-50% of my after tax income each year, all of which is in low cost index or DFA funds except a few dollars that I save to "play" with. I was just trying to understand how the stop-loss works.
You pay a commission to buy the security. Then, there is a single commission when you sell it. No charge to just place the order until it's executed. Doesn't matter that it's a stop-loss order. So the round trip is $14.

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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Mon Sep 03, 2018 3:37 pm

I realize "stop-loss" is jargon and frequently referred to in the financial press, but there ain't really any such thing.

There are market orders, which say to sell or buy at the highest or lowest (respectively) price anybody currently in the market says they're willing to trade at. Barring severe disruptions market orders are always filled.

There are limit orders, which say to sell or buy but only at a particular price or better (better for the person placing the order). A limit order may never be filled, because maybe nobody ever will meet the price you've limited it to.

There are stop orders, which say to sell or buy once the most recent market price, that is the price at which the most eager seller and most eager buyer agreed to trade, crosses a number you specify. When the threshold is breached the stop order is executed like a market order.

There are stop-limit orders, which work like limit orders (with a limit you choose) once the most recent market price crosses a threshold you chose. Like all limit orders they may never be filled.

"Stop-loss" is slang for a stop-limit order to sell.

Stop-limit orders to sell don't stop losses. It would be more accurate to term them "guaranteed loss" orders.

That's not to say stop-limit orders to sell have no place, but misunderstandings of what they're likely to do have none.

PJW
Last edited by Phineas J. Whoopee on Tue Sep 04, 2018 9:43 am, edited 2 times in total.

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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Mon Sep 03, 2018 7:10 pm

In what sense are you "guarantee[ing]" a loss? Wouldn't that depend on your purchase price?
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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Mon Sep 03, 2018 7:16 pm

fortyofforty wrote:
Mon Sep 03, 2018 7:10 pm
In what sense are you "guarantee[ing]" a loss? Wouldn't that depend on your purchase price?
As you and I have discussed, the loss is from a recent higher asset value. The structure of a sell stop-limit order is that, if it ever executes at all, it will do so at a price lower than what the security's recently was.

Do we really have to go around again between ourselves over whether a loss is a loss?

PJW

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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Mon Sep 03, 2018 7:20 pm

Phineas J. Whoopee wrote:
Mon Sep 03, 2018 7:16 pm
fortyofforty wrote:
Mon Sep 03, 2018 7:10 pm
In what sense are you "guarantee[ing]" a loss? Wouldn't that depend on your purchase price?
As you and I have discussed, the loss is from a recent higher asset value. The structure of a sell stop-limit order is that, if it ever executes at all, it will do so at a price lower than what the security's recently was.

Do we really have to go around again between ourselves over whether a loss is a loss?

PJW
Nope. As long as we agree on the definition of a loss. If the price of any security goes up after you sell for any reason, you could consider it a "loss" since you could have held it a bit longer and gotten more for it. And I would still disagree. The purpose is to prevent you from losing even more than you already did, hence the shorthand name. No need to go over it again.
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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Mon Sep 03, 2018 7:31 pm

fortyofforty wrote:
Mon Sep 03, 2018 7:20 pm
...
Nope. As long as we agree on the definition of a loss. If the price of any security goes up after you sell for any reason, you could consider it a "loss" since you could have held it a bit longer and gotten more for it. And I would still disagree. The purpose is to prevent you from losing even more than you already did, hence the shorthand name. No need to go over it again.
They do not do that.

PJW

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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Mon Sep 03, 2018 7:46 pm

Phineas J. Whoopee wrote:
Mon Sep 03, 2018 7:31 pm
fortyofforty wrote:
Mon Sep 03, 2018 7:20 pm
...
Nope. As long as we agree on the definition of a loss. If the price of any security goes up after you sell for any reason, you could consider it a "loss" since you could have held it a bit longer and gotten more for it. And I would still disagree. The purpose is to prevent you from losing even more than you already did, hence the shorthand name. No need to go over it again.
They do not do that.

PJW
Actually, they do.

From Investopedia:
A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position in a security.
You are free to take it up with them. Believe what you want, and define losses how you like. I'm out. :beer
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Re: Placing a stop-loss order with vanguard

Post by ThriftyPhD » Mon Sep 03, 2018 8:31 pm

fortyofforty wrote:
Mon Sep 03, 2018 7:46 pm
Phineas J. Whoopee wrote:
Mon Sep 03, 2018 7:31 pm
fortyofforty wrote:
Mon Sep 03, 2018 7:20 pm
...
Nope. As long as we agree on the definition of a loss. If the price of any security goes up after you sell for any reason, you could consider it a "loss" since you could have held it a bit longer and gotten more for it. And I would still disagree. The purpose is to prevent you from losing even more than you already did, hence the shorthand name. No need to go over it again.
They do not do that.

PJW
Actually, they do.

From Investopedia:
A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Stop-loss orders are designed to limit an investor’s loss on a position in a security.
You are free to take it up with them. Believe what you want, and define losses how you like. I'm out. :beer
But there is no guarantee they will be able to sell at that price. If you set a stop loss at $50, and there is a flash crash where the price drops rapidly with low trading volume, your order might not go through until the price is $25. Then twenty minutes later, it's back up to $60.

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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Tue Sep 04, 2018 9:30 am

ThriftyPhD wrote:
Mon Sep 03, 2018 8:31 pm
...
But there is no guarantee they will be able to sell at that price.
Exactly right.
ThriftyPhD wrote:
Mon Sep 03, 2018 8:31 pm
If you set a stop loss at $50, and there is a flash crash where the price drops rapidly with low trading volume, your order might not go through until the price is $25. Then twenty minutes later, it's back up to $60.
The financial markets jargon term stop-loss, as I explained upthread, is slang for a stop-limit order to sell. If the order in your example, which would make no sense to place, has $50 for both the stop and limit portions it would execute during the trip back up.

The reason not to set the stop and the limit to be the same is precisely because of this effect. The stop-limit sell order, once the stop is breached, executes like a sell limit order. Should the price be going down rapidly, by the time the stop is triggered the limit no longer can be met.

Now, in terms of your example of executing at $25, that could only happen if the stop were $50, and the limit no higher than $25. If that's the order a person places then they shouldn't be surprised by a fill at $25.

I was responding to the claim that a "stop-loss" protects one from losing still more than already occurred. As I wrote, it does not do that. As long as the limit one set will allow it, the loss can be considerably more. If the limit doesn't allow it the order will not be filled at all, leaving the loss to increase as much as Mr. Market decides, up to and including 100%.

I think it's clear there are posters here who read "stop-loss" and don't really understand how sell stop-limit orders work.

If between my first post in this thread and this post I've not explained well enough please say so and I'll try again.

PJW

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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Wed Sep 05, 2018 1:09 pm

It appears events have overtaken my understanding. It seems today that it's usual to use the term stop-loss to refer to a stop order, not a stop-limit order. I don't know why people put an extra five characters at the end now. Before, at least the five characters -loss replaced the slightly longer -limit.

It is certainly the case that when I first received an introduction to the topic, somewhere in the late 1980s or early 1990s, stop-loss was just a more confusing way to express stop-limit.

Today stop-loss seems to be just a more confusing way to express stop.

PJW

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Re: Placing a stop-loss order with vanguard

Post by inbox788 » Thu Sep 06, 2018 6:47 pm

cals400ex wrote:
Sun Sep 02, 2018 12:47 pm
1. Is there anything else I need to know about this?
...
7. Is there any reason not to do these stop orders (besides being taxed on any gains this calendar year)?
The risk, complication, and costs isn't worth any perceived potential benefits. What exactly are you trying to achieve? You can limit your losses by simply buying ITM calls, but long term, that's a losing strategy (trading costs and premiums), and stop orders are similarly flawed.

https://www.investopedia.com/terms/s/stoppedout.asp

Just the trouble with bookkeeping and taxes is enough to deter me from these strategies, unless I "knew" there was a big payoff.

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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Fri Sep 07, 2018 6:55 pm

Unfortunately, there are some posters here who make claims but don't have any justification for making them. A stop-loss order can and does allow a person to exit a position when the price drops to or below a certain amount. Stops the loss. Done. Maybe the price jumps back up. Maybe the price drops even further. Hence the use. You don't know. If you cannot sit and watch the market all day, or have access to the internet (while driving, perhaps), you might miss large stock price movements. Retirees have the time to monitor their investments. Other people who are still earning a living often do not.

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.

In the interest of clarity, I tried again. Perhaps I haven't explained myself clearly. However, it appears unlikely that logic or common sense will prevail. So, to the OP: do some research and decide for yourself if it's in your interest to place a stop-loss order.
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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Sat Sep 08, 2018 9:00 am

What if, forty of forty, it don't go up?

What if it goes up but all at once after a holding period of decades?

You can say other posters are being illogical or lack common sense, but if you then construct an unlikely scenario to make your point you've not done much.

PJW

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Re: Placing a stop-loss order with vanguard

Post by Turbo29 » Sat Sep 08, 2018 9:19 am

fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.

Except in the 2010 flash crash by the time my stop for SPY executed it was way below what I had paid. Then it bounced right back up above what I had paid. Losses in the five figures.

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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sat Sep 08, 2018 10:42 am

Turbo29 wrote:
Sat Sep 08, 2018 9:19 am
fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.

Except in the 2010 flash crash by the time my stop for SPY executed it was way below what I had paid. Then it bounced right back up above what I had paid. Losses in the five figures.
Then for you in that one instance it didn't work out as you hoped it would, and you ended up with losses to be tax-loss harvested. Your stop-loss should have been a stop-limit order. You also apparently had legal recourse, should you have sought it, since that incident was purposely done. Had the market continued down (as it did in 1929) you would be jumping for joy. You gambled that there would be no flash crashes until your GTC stop-loss order expired.

In the words of futures trader Scott Phillips, "For every 500 times a stop saves your [behind], you might have one time when you get flash crashed."

ETA: Had you still had the stomach for investing in ETFs, you could have moved into VTI later in the month, or several times later in the year, at a significant value, taking advantage of your losses while getting back into the market. Of course, as with your regret over your specific stop-loss order, hindsight is 20/20.
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Re: Placing a stop-loss order with vanguard

Post by Phineas J. Whoopee » Sat Sep 08, 2018 11:37 am

fortyofforty wrote:
Sat Sep 08, 2018 10:42 am
...
ETA: Had you still had the stomach for investing in ETFs, you could have moved into VTI later in the month, or several times later in the year, at a significant value, taking advantage of your losses while getting back into the market. Of course, as with your regret over your specific stop-loss order, hindsight is 20/20.
Do I understand correctly, forty of forty, that your advice regarding stop orders is not financial, but rather psychological?

PJW

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Re: Placing a stop-loss order with vanguard

Post by randomizer » Sat Sep 08, 2018 12:14 pm

fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm
Unfortunately, there are some posters here who make claims but don't have any justification for making them. A stop-loss order can and does allow a person to exit a position when the price drops to or below a certain amount. Stops the loss. Done. Maybe the price jumps back up. Maybe the price drops even further. Hence the use. You don't know. If you cannot sit and watch the market all day, or have access to the internet (while driving, perhaps), you might miss large stock price movements. Retirees have the time to monitor their investments. Other people who are still earning a living often do not.

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.
It's trivial to construct a counter-example though where the loss is unambiguously real: I buy at $100, set a stop-loss to trigger at $90 to limit my downside, and find that it executes at $90, or $80, or $70 before the stock rebounds to $110. Totally unnecessary realization of a loss, and the downside is actually unlimited.
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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sat Sep 08, 2018 1:26 pm

randomizer wrote:
Sat Sep 08, 2018 12:14 pm
fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm
Unfortunately, there are some posters here who make claims but don't have any justification for making them. A stop-loss order can and does allow a person to exit a position when the price drops to or below a certain amount. Stops the loss. Done. Maybe the price jumps back up. Maybe the price drops even further. Hence the use. You don't know. If you cannot sit and watch the market all day, or have access to the internet (while driving, perhaps), you might miss large stock price movements. Retirees have the time to monitor their investments. Other people who are still earning a living often do not.

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.
It's trivial to construct a counter-example though where the loss is unambiguously real: I buy at $100, set a stop-loss to trigger at $90 to limit my downside, and find that it executes at $90, or $80, or $70 before the stock rebounds to $110. Totally unnecessary realization of a loss, and the downside is actually unlimited.
It is no more trivial than to construct an example in which the stop-loss fails. Assuming the stock price rebounds is no more valid than assuming the stock price continues falling all the way to zero after you sell. We can play the anecdotal game all day long. If stop-loss orders never worked, or never achieved what people wanted, they'd have faded from the scene long ago. You believe that the only reason they are still offered is because investors are ignorant or stupid. Vanguard continues to offer stop-loss orders, so somebody is using them.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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fortyofforty
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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sat Sep 08, 2018 1:28 pm

Phineas J. Whoopee wrote:
Sat Sep 08, 2018 11:37 am
fortyofforty wrote:
Sat Sep 08, 2018 10:42 am
...
ETA: Had you still had the stomach for investing in ETFs, you could have moved into VTI later in the month, or several times later in the year, at a significant value, taking advantage of your losses while getting back into the market. Of course, as with your regret over your specific stop-loss order, hindsight is 20/20.
Do I understand correctly, forty of forty, that your advice regarding stop orders is not financial, but rather psychological?

PJW
If an investor doesn't understand the risks in using these types of trades, she shouldn't use them. That is my advice. Clear enough?
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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randomizer
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Re: Placing a stop-loss order with vanguard

Post by randomizer » Sat Sep 08, 2018 1:33 pm

fortyofforty wrote:
Sat Sep 08, 2018 1:26 pm
randomizer wrote:
Sat Sep 08, 2018 12:14 pm
fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm
Unfortunately, there are some posters here who make claims but don't have any justification for making them. A stop-loss order can and does allow a person to exit a position when the price drops to or below a certain amount. Stops the loss. Done. Maybe the price jumps back up. Maybe the price drops even further. Hence the use. You don't know. If you cannot sit and watch the market all day, or have access to the internet (while driving, perhaps), you might miss large stock price movements. Retirees have the time to monitor their investments. Other people who are still earning a living often do not.

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.
It's trivial to construct a counter-example though where the loss is unambiguously real: I buy at $100, set a stop-loss to trigger at $90 to limit my downside, and find that it executes at $90, or $80, or $70 before the stock rebounds to $110. Totally unnecessary realization of a loss, and the downside is actually unlimited.
It is no more trivial than to construct an example in which the stop-loss fails. Assuming the stock price rebounds is no more valid than assuming the stock price continues falling all the way to zero after you sell. We can play the anecdotal game all day long. If stop-loss orders never worked, or never achieved what people wanted, they'd have faded from the scene long ago. You believe that the only reason they are still offered is because investors are ignorant or stupid. Vanguard continues to offer stop-loss orders, so somebody is using them.
You could make exactly the same argument for actively managed funds (they still exist, they sometimes work, people use them etc) but it doesn't mean you'll find much endorsement for them on a Bogleheads forum.
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fortyofforty
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Re: Placing a stop-loss order with vanguard

Post by fortyofforty » Sat Sep 08, 2018 4:59 pm

randomizer wrote:
Sat Sep 08, 2018 1:33 pm
fortyofforty wrote:
Sat Sep 08, 2018 1:26 pm
randomizer wrote:
Sat Sep 08, 2018 12:14 pm
fortyofforty wrote:
Fri Sep 07, 2018 6:55 pm
Unfortunately, there are some posters here who make claims but don't have any justification for making them. A stop-loss order can and does allow a person to exit a position when the price drops to or below a certain amount. Stops the loss. Done. Maybe the price jumps back up. Maybe the price drops even further. Hence the use. You don't know. If you cannot sit and watch the market all day, or have access to the internet (while driving, perhaps), you might miss large stock price movements. Retirees have the time to monitor their investments. Other people who are still earning a living often do not.

You buy at $10 per share. The price climbs to $90 per share. You place a stop-loss at $75. Flash crash, the price drops to $60 and worst case you miss the $75 and your order fills at $60. You just made $50 per share. Even if the price bumps back up to $90, all you have "lost" is opportunity. If it was not a flash crash and your order fills at $60, you've made $50 per share. How much have you lost when the price drops to $40, then $20, then $5 per share? Nothing. You've made money. Defining a gain as a "loss" is something you'd only read on a forum like this.
It's trivial to construct a counter-example though where the loss is unambiguously real: I buy at $100, set a stop-loss to trigger at $90 to limit my downside, and find that it executes at $90, or $80, or $70 before the stock rebounds to $110. Totally unnecessary realization of a loss, and the downside is actually unlimited.
It is no more trivial than to construct an example in which the stop-loss fails. Assuming the stock price rebounds is no more valid than assuming the stock price continues falling all the way to zero after you sell. We can play the anecdotal game all day long. If stop-loss orders never worked, or never achieved what people wanted, they'd have faded from the scene long ago. You believe that the only reason they are still offered is because investors are ignorant or stupid. Vanguard continues to offer stop-loss orders, so somebody is using them.
You could make exactly the same argument for actively managed funds (they still exist, they sometimes work, people use them etc) but it doesn't mean you'll find much endorsement for them on a Bogleheads forum.
Of course, but if you use actively managed funds from Vanguard in small doses, as part of a well-crafted portfolio, they will hardly do you much harm. Vanguard has proven that they can and do have a place, just as in Jack Bogle's personal portfolio.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | Diligentia. Vis. Celeritas. - Jeff Cooper | Original Vanguard Diehard

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Earl Lemongrab
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Re: Placing a stop-loss order with vanguard

Post by Earl Lemongrab » Sun Sep 09, 2018 2:11 pm

There can be some cases where it makes sense. My buddy is a retired executive from Megacorp. He had a bunch of company stock that he was selling gradually. He also had a stop-loss order. As he was permanently exiting his position, he didn't care much if a flash caused it to trigger.

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