stop loss order to protect again a unexpected recession

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Tenesmus83
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stop loss order to protect again a unexpected recession

Post by Tenesmus83 » Sun Jan 19, 2020 11:06 am

I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?

KlangFool
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Re: stop loss order to protect again a unexpected recession

Post by KlangFool » Sun Jan 19, 2020 11:13 am

Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
It is a very bad idea! You should not invest in ETF at all. You should sell all your ETFs and put the money into a target retirement fund and/or a LifeStrategy fund.

KlangFool

UpperNwGuy
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Re: stop loss order to protect again a unexpected recession

Post by UpperNwGuy » Sun Jan 19, 2020 11:30 am

OP, please explain your thinking. It sounds like a bad idea to me.

dukeblue219
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Re: stop loss order to protect again a unexpected recession

Post by dukeblue219 » Sun Jan 19, 2020 11:31 am

Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
Sure, if you can find a stop loss order that works like a time machine! Otherwise, it's just a "loss realization" order.

Selling just because your investment fell 10% is no way to protect it from further loss, and it's a great way to ensure you'll miss out on a recovery. Would you sell your house at a low price just because you saw a neighbors house sell for the same?

Topic Author
Tenesmus83
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Re: stop loss order to protect again a unexpected recession

Post by Tenesmus83 » Sun Jan 19, 2020 11:34 am

my thinking is that usually a recession will last more several months. Its a hedge from further losses if I can get out in the early part of the recession.
Going down 50% in equity is not fun.

Lee_WSP
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Re: stop loss order to protect again a unexpected recession

Post by Lee_WSP » Sun Jan 19, 2020 11:36 am

Only if you’re able to time the gap and get back in at an lower price. Otherwise you caused more damage than if you did nothing.

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cheese_breath
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Re: stop loss order to protect again a unexpected recession

Post by cheese_breath » Sun Jan 19, 2020 11:58 am

All a stop loss order does is submit a sell order when your ETF value falls to your specified price. All sell orders submitted before yours will be executed before yours. By the time yours is executed the price may have fallen by much more.
The surest way to know the future is when it becomes the past.

CurlyDave
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Re: stop loss order to protect again a unexpected recession

Post by CurlyDave » Sun Jan 19, 2020 12:00 pm

Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
I use an order which is similar in concept, but IMHO vastly superior called a "trailing stop". Not all brokerages offer this type of order, but if yours does it is a very reasonable thing to do.

The way it goes is that I designate a percentage drop (I use 5% on ETFs) and the order "trails" the price of the shares. If they fall 5% from the maximum price achieved after placing the order it becomes a market sell order.

Now this is going to be controversial, but in a rapidly rising market like we are in currently, I use this as a substitute for a bond holding. I do not place the order on my entire holding, only 20-40% of the shares I hold. I capture 95% of the recent maximum price, thereby participating in most of the gains. This blows the doors off a bond holding, but definitely has more risk.

I started doing this a bit over a year ago, and have purchased a short-term bond fund (ICSH) with the proceeds. I had an AA of 100/0, and wanted to bring it to about 80/20 but was reluctant to give up the stock performance.

IMHO, an ordinary stop loss order is a terrible idea and should be called a "prevent gain" order instead.

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".

TheLaughingCow
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Re: stop loss order to protect again a unexpected recession

Post by TheLaughingCow » Sun Jan 19, 2020 12:07 pm

CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm
Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
I use an order which is similar in concept, but IMHO vastly superior called a "trailing stop". Not all brokerages offer this type of order, but if yours does it is a very reasonable thing to do.

The way it goes is that I designate a percentage drop (I use 5% on ETFs) and the order "trails" the price of the shares. If they fall 5% from the maximum price achieved after placing the order it becomes a market sell order.

Now this is going to be controversial, but in a rapidly rising market like we are in currently, I use this as a substitute for a bond holding. I do not place the order on my entire holding, only 20-40% of the shares I hold. I capture 95% of the recent maximum price, thereby participating in most of the gains. This blows the doors off a bond holding, but definitely has more risk.

I started doing this a bit over a year ago, and have purchased a short-term bond fund (ICSH) with the proceeds. I had an AA of 100/0, and wanted to bring it to about 80/20 but was reluctant to give up the stock performance.

IMHO, an ordinary stop loss order is a terrible idea and should be called a "prevent gain" order instead.

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
When do you buy back in?

Lee_WSP
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Re: stop loss order to protect again a unexpected recession

Post by Lee_WSP » Sun Jan 19, 2020 12:15 pm

TheLaughingCow wrote:
Sun Jan 19, 2020 12:07 pm
CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm
Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
I use an order which is similar in concept, but IMHO vastly superior called a "trailing stop". Not all brokerages offer this type of order, but if yours does it is a very reasonable thing to do.

The way it goes is that I designate a percentage drop (I use 5% on ETFs) and the order "trails" the price of the shares. If they fall 5% from the maximum price achieved after placing the order it becomes a market sell order.

Now this is going to be controversial, but in a rapidly rising market like we are in currently, I use this as a substitute for a bond holding. I do not place the order on my entire holding, only 20-40% of the shares I hold. I capture 95% of the recent maximum price, thereby participating in most of the gains. This blows the doors off a bond holding, but definitely has more risk.

I started doing this a bit over a year ago, and have purchased a short-term bond fund (ICSH) with the proceeds. I had an AA of 100/0, and wanted to bring it to about 80/20 but was reluctant to give up the stock performance.

IMHO, an ordinary stop loss order is a terrible idea and should be called a "prevent gain" order instead.

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
When do you buy back in?
He doesn't. He's using it to trigger a rebalance event.

Turbo29
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Re: stop loss order to protect again a unexpected recession

Post by Turbo29 » Sun Jan 19, 2020 12:53 pm

CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm


Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
I had a trailing stop on SPY when the 2010 flash crash hit. It was an expensive lesson.
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Re: stop loss order to protect again a unexpected recession

Post by adamthesmythe » Sun Jan 19, 2020 12:56 pm

Turbo29 wrote:
Sun Jan 19, 2020 12:53 pm
CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
I had a trailing stop on SPY when the 2010 flash crash hit. It was an expensive lesson.
This is what I think of. As I understand it, a stop loss order means that the brokerage will TRY to sell if the drop is large enough to trigger. It does not guarantee they will be actually able to sell at, say, 10% loss.

In a flash crash- can you lose a bunch of money AND have the market immediately go up again?

Turbo29
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Re: stop loss order to protect again a unexpected recession

Post by Turbo29 » Sun Jan 19, 2020 12:59 pm

adamthesmythe wrote:
Sun Jan 19, 2020 12:56 pm
Turbo29 wrote:
Sun Jan 19, 2020 12:53 pm
CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
I had a trailing stop on SPY when the 2010 flash crash hit. It was an expensive lesson.
This is what I think of. As I understand it, a stop loss order means that the brokerage will TRY to sell if the drop is large enough to trigger. It does not guarantee they will be actually able to sell at, say, 10% loss.

In a flash crash- can you lose a bunch of money AND have the market immediately go up again?
That's exactly what happened to me. My position in SPY was sold and the price rebounded before I even knew it had been sold.
It is by the goodness of God that in our country we have those three unspeakably precious things: freedom of speech, freedom of conscience, and the prudence never to practice either of them. --M. Twain

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Re: stop loss order to protect again a unexpected recession

Post by eye.surgeon » Sun Jan 19, 2020 1:07 pm

Tenesmus83 wrote:
Sun Jan 19, 2020 11:06 am
I have ETFs in all my retirement accounts. Is it a good idea to put in a stop loss order if my portfolio drops below a certain threshhold?
There is no such thing as an unexpected recession. I guarantee you there will be one. There will also be a recovery.

Ask yourself if it would make sense to have an automatic trigger to double all your investments if the stock hits a record high. It makes about as much sense as a stop loss order triggering an automatic sell at a low.
"I would rather be certain of a good return than hopeful of a great one" | Warren Buffett

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Re: stop loss order to protect again a unexpected recession

Post by Mactheriverrat » Sun Jan 19, 2020 2:39 pm

\Deleted
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Re: stop loss order to protect again a unexpected recession

Post by magicrat » Sun Jan 19, 2020 2:40 pm

A recession will not trigger a stop loss order

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Re: stop loss order to protect again a unexpected recession

Post by Mactheriverrat » Sun Jan 19, 2020 2:49 pm

A lot of bogleheads don't care about recessions.

In my studies I have found that the confirmed of rising Unemployment rate is usually followed by a recession.

Just saying.
IMHO.
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Re: stop loss order to protect again a unexpected recession

Post by livesoft » Sun Jan 19, 2020 2:54 pm

Use your brain! One can get their broker to send them alerts for all kinds of things including such drops in prices. Get the alert on your cell phone or computer, then make a decision. Don't have anything automatic happen.

I use price drop alerts so that I can think about buying shares when others might be dumping shares without thinking. Flash crashes are great!
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Re: stop loss order to protect again a unexpected recession

Post by Lee_WSP » Sun Jan 19, 2020 3:06 pm

adamthesmythe wrote:
Sun Jan 19, 2020 12:56 pm
Turbo29 wrote:
Sun Jan 19, 2020 12:53 pm
CurlyDave wrote:
Sun Jan 19, 2020 12:00 pm

Before using a trailing stop, research the order characteristics carefully, especially behavior in a "flash crash".
I had a trailing stop on SPY when the 2010 flash crash hit. It was an expensive lesson.
This is what I think of. As I understand it, a stop loss order means that the brokerage will TRY to sell if the drop is large enough to trigger. It does not guarantee they will be actually able to sell at, say, 10% loss.

In a flash crash- can you lose a bunch of money AND have the market immediately go up again?
There is at least a fifty percent chance you'll regret putting in the order if that's what you think they're there for.

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Re: stop loss order to protect again a unexpected recession

Post by Grasshopper » Sun Jan 19, 2020 3:17 pm

I put stop orders in while hiking in Yosemite, for several weeks with no cell service. Katrina hit NO the market dropped and rebounded. I came home looked at the S&P and said looks like I made some money while I was gone. Nope missed the whole up swing after getting stopped out.

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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 3:25 pm

KlangFool wrote:
Sun Jan 19, 2020 11:13 am
You should not invest in ETF at all. You should sell all your ETFs and put the money into a target retirement fund and/or a LifeStrategy fund.

KlangFool
You'll have to explain this to me.

In my retirement accounts, I hold VTI, which is just the ETF version of VTSAX. I hold it among two other funds (also Vanguard ETFs) to make up my equity portion.

Why are you saying one should not invest in ETFs at all?
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KlangFool
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Re: stop loss order to protect again a unexpected recession

Post by KlangFool » Sun Jan 19, 2020 3:31 pm

watchnerd wrote:
Sun Jan 19, 2020 3:25 pm
KlangFool wrote:
Sun Jan 19, 2020 11:13 am
You should not invest in ETF at all. You should sell all your ETFs and put the money into a target retirement fund and/or a LifeStrategy fund.

KlangFool
You'll have to explain this to me.

In my retirement accounts, I hold VTI, which is just the ETF version of VTSAX. I hold it among two other funds (also Vanguard ETFs) to make up my equity portion.

Why are you saying one should not invest in ETFs at all?
watchnerd,'

The statement is specific to OP. Do you think someone that believes the stop-loss order makes sense for ETF should invest in the ETF?

Buy, Hold, and Rebalance. OP cannot even handle the hold section. Much less the rebalance and AA adjustment part.

KlangFool

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Re: stop loss order to protect again a unexpected recession

Post by Forester » Sun Jan 19, 2020 3:38 pm

-----
Last edited by Forester on Wed Mar 18, 2020 9:42 am, edited 1 time in total.

FI4LIFE
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Re: stop loss order to protect again a unexpected recession

Post by FI4LIFE » Sun Jan 19, 2020 6:11 pm

Every time I tried to set stop losses, I would set them for a 10% loss, then the stock would drop 10.00001% for like 5 minutes. The stop loss would kick in, then the stock would quadruple in price the following month.

OK, this is an exaggeration, but that's how it felt. They never worked well for me.

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Re: stop loss order to protect again a unexpected recession

Post by MarkBarb » Sun Jan 19, 2020 6:25 pm

When the market drops quickly, some people panic and sell. They don't follow Bogle's "stay the course" philosophy. For those people, stop losses are great because they automate the panic selling.

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Re: stop loss order to protect again a unexpected recession

Post by TorusSpotter » Sun Jan 19, 2020 7:06 pm

Mactheriverrat wrote:
Sun Jan 19, 2020 2:49 pm
In my studies I have found that the confirmed of rising Unemployment rate is usually followed by a recession.

Just saying.
IMHO.
updated chart
Image

https://stockcharts.com/h-sc/ui?s=%24%2 ... =689013772
Check out Pam Martens' excellent post from just 2 days ago about how these unemployment numbers are manipulated:
https://wallstreetonparade.com/2020/01/ ... ll-street/

Of course even if we had the real numbers we still wouldn't be able to predict when the recession will start, but your graph paints a picture that the US economy is in a healthy state, and I think we are definitely not.

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Re: stop loss order to protect again a unexpected recession

Post by unclescrooge » Sun Jan 19, 2020 7:54 pm

FI4LIFE wrote:
Sun Jan 19, 2020 6:11 pm
Every time I tried to set stop losses, I would set them for a 10% loss, then the stock would drop 10.00001% for like 5 minutes. The stop loss would kick in, then the stock would quadruple in price the following month.

OK, this is an exaggeration, but that's how it felt. They never worked well for me.
A long time ago i recall reading a study saying that 22 or 23% was the optimal stop loss to prevent bring whipsawed by the market, or having the market makers run your stops.

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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 7:57 pm

KlangFool wrote:
Sun Jan 19, 2020 3:31 pm
watchnerd wrote:
Sun Jan 19, 2020 3:25 pm
KlangFool wrote:
Sun Jan 19, 2020 11:13 am
You should not invest in ETF at all. You should sell all your ETFs and put the money into a target retirement fund and/or a LifeStrategy fund.

KlangFool
You'll have to explain this to me.

In my retirement accounts, I hold VTI, which is just the ETF version of VTSAX. I hold it among two other funds (also Vanguard ETFs) to make up my equity portion.

Why are you saying one should not invest in ETFs at all?
watchnerd,'

The statement is specific to OP. Do you think someone that believes the stop-loss order makes sense for ETF should invest in the ETF?

Buy, Hold, and Rebalance. OP cannot even handle the hold section. Much less the rebalance and AA adjustment part.

KlangFool
The problem is with stop loss orders, in this context.

ETFs are perfectly fine for buy and hold.

It's the action, not the fund choice, that is the issue.
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Re: stop loss order to protect again a unexpected recession

Post by Phineas J. Whoopee » Sun Jan 19, 2020 8:01 pm

Stop loss is a misnomer. The orders don't do that. It's a way to sell you something so another can profit off you. If somebody calls it a sell stop order then at least they're being honest.

Recessions and bear markets are not the same things.

PJW

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Re: stop loss order to protect again a unexpected recession

Post by KlangFool » Sun Jan 19, 2020 8:01 pm

watchnerd wrote:
Sun Jan 19, 2020 7:57 pm
KlangFool wrote:
Sun Jan 19, 2020 3:31 pm
watchnerd wrote:
Sun Jan 19, 2020 3:25 pm
KlangFool wrote:
Sun Jan 19, 2020 11:13 am
You should not invest in ETF at all. You should sell all your ETFs and put the money into a target retirement fund and/or a LifeStrategy fund.

KlangFool
You'll have to explain this to me.

In my retirement accounts, I hold VTI, which is just the ETF version of VTSAX. I hold it among two other funds (also Vanguard ETFs) to make up my equity portion.

Why are you saying one should not invest in ETFs at all?
watchnerd,'

The statement is specific to OP. Do you think someone that believes the stop-loss order makes sense for ETF should invest in the ETF?

Buy, Hold, and Rebalance. OP cannot even handle the hold section. Much less the rebalance and AA adjustment part.

KlangFool
The problem is with stop loss orders, in this context.

ETFs are perfectly fine for buy and hold.

It's the action, not the fund choice, that is the issue.
watchnerd,

It is the investor behind the action that is the issue. If a person does not know enough to "buy, hold, and rebalance", the person should not use ETF and the 3-funds portfolio.

KlangFool

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watchnerd
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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 8:05 pm

KlangFool wrote:
Sun Jan 19, 2020 8:01 pm

watchnerd,

It is the investor behind the action that is the issue. If a person does not know enough to "buy, hold, and rebalance", the person should not use ETF and the 3-funds portfolio.

KlangFool


I feel it's better to educate people on why stop losses are a bad idea, in this context.

Telling them to just use mutual funds, without explaining stop loss downsides, doesn't educate them, it just gives them training wheels.

We're just going to have to agree to disagree.
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Re: stop loss order to protect again a unexpected recession

Post by KlangFool » Sun Jan 19, 2020 8:33 pm

watchnerd wrote:
Sun Jan 19, 2020 8:05 pm
KlangFool wrote:
Sun Jan 19, 2020 8:01 pm

watchnerd,

It is the investor behind the action that is the issue. If a person does not know enough to "buy, hold, and rebalance", the person should not use ETF and the 3-funds portfolio.

KlangFool


I feel it's better to educate people on why stop losses are a bad idea, in this context.

Telling them to just use mutual funds, without explaining stop loss downsides, doesn't educate them, it just gives them training wheels.

We're just going to have to agree to disagree.
watchnerd,

A) <<I feel it's better to educate people on why stop losses are a bad idea, in this context.>>

Then, they continue to use ETF to their detriment.

B) <<Telling them to just use mutual funds, without explaining stop loss downsides, doesn't educate them, it just gives them training wheels.>>

Versus telling them that they should not use ETF unless they are willing to learn "Buy, Hold, and Rebalance".

Which one is more helpful? Helping someone to continue going over a cliff or tell them to stop before they fall over a cliff. That is the question.

People can only learn when they know they need to learn something.

KlangFool

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Re: stop loss order to protect again a unexpected recession

Post by Mactheriverrat » Sun Jan 19, 2020 8:48 pm

TorusSpotter wrote:
Sun Jan 19, 2020 7:06 pm
Mactheriverrat wrote:
Sun Jan 19, 2020 2:49 pm
In my studies I have found that the confirmed of rising Unemployment rate is usually followed by a recession.

Just saying.
IMHO.
updated chart
Image

https://stockcharts.com/h-sc/ui?s=%24%2 ... =689013772
Check out Pam Martens' excellent post from just 2 days ago about how these unemployment numbers are manipulated:
https://wallstreetonparade.com/2020/01/ ... ll-street/

Of course even if we had the real numbers we still wouldn't be able to predict when the recession will start, but your graph paints a picture that the US economy is in a healthy state, and I think we are definitely not.
Seems like your link is a blog by Pam Martens and Russ Martens. Every post is by Pam Martens and Russ Martens. Guess all their posts are their opinions and they are entitled to them.
Last edited by Mactheriverrat on Sun Jan 19, 2020 9:47 pm, edited 1 time in total.
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Re: stop loss order to protect again a unexpected recession

Post by Lee_WSP » Sun Jan 19, 2020 8:52 pm

You're assuming they listen.

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tvubpwcisla
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Re: stop loss order to protect again a unexpected recession

Post by tvubpwcisla » Sun Jan 19, 2020 9:08 pm

A stop loss will not work as it will be too late. If you are worried about a correction, that means you have too much money invested in stocks.

latak215
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Re: stop loss order to protect again a unexpected recession

Post by latak215 » Sun Jan 19, 2020 9:25 pm

19% loss a year ago may recur but now fed wants to keep interest rate low enough keep consumer spending going , downturn is unlikely. on etf s you can buy put option to protect you

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Re: stop loss order to protect again a unexpected recession

Post by Independent George » Sun Jan 19, 2020 9:43 pm

There's nothing wrong with implementing a stop loss, but the relevant question becomes: will you know when to jump back in? If you maintain consistent rules about it, you effectively have a momentum strategy (which can reduce volatility at the cost of returns during a bull market). If you're just going by 'feel', you are likely to cause more harm than good.

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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 10:20 pm

KlangFool wrote:
Sun Jan 19, 2020 8:33 pm


People can only learn when they know they need to learn something.

KlangFool
As I said, we'll have to agree to disagree.

Luckily, others in the thread are pointing out why stop loss is a bad idea, so the education is underway.
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Re: stop loss order to protect again a unexpected recession

Post by grabiner » Sun Jan 19, 2020 10:28 pm

The other problem with a stop-loss is that it only limits your losses if you sell and never get back in. If you buy at $100, and sell at $80, you have a 20% loss. Unless you want to let that $80 sit in cash forever, you have to buy something with it, and whenever you do, the market is just as likely to drop another 20% as it was when you sold. Another 20% drop makes your losses 36%.

A better way to limit your losses is to split your investments between high-risk and low-risk investments. If you have only half your portfolio in the stock market, and the other half in a high-quality bond fund (you could use an ETF such as BND, which is an index of all high-quality bonds), your risk is limited; if the stock market drops 40%, you lose only 20%.
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Re: stop loss order to protect again a unexpected recession

Post by DB2 » Sun Jan 19, 2020 10:36 pm

I do agree with Klangfool's sentiments. ETFs tempt a lot of people to push the sell button. Bogle talked about this as well.

I think many are better off with a balanced mutual fund.

Wellington and balanced index 'only' lost ~22% in 2008. These are ~60/40 funds. But even for some, 60% equity might be too high, of course.

I seem to recall Andrew Lo discussing research showing a 20% loss is about the max that many investors can psychologically tolerate.

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Re: stop loss order to protect again a unexpected recession

Post by aristotelian » Sun Jan 19, 2020 10:40 pm

Why not just hold bonds up to the amount where you would want to stop the loss?

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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 10:44 pm

DB2 wrote:
Sun Jan 19, 2020 10:36 pm
I do agree with Klangfool's sentiments. ETFs tempt a lot of people to push the sell button. Bogle talked about this as well.
While that may be true, it's becoming increasingly moot for a new generation of investors using things like Robinhood, Wealthfront, and Betterment.

Kids these days don't want the restrictions of grandpa's mutual funds.

So better to teach them how not to shoot themselves in the foot, cause ETFs are trending.
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Re: stop loss order to protect again a unexpected recession

Post by DB2 » Sun Jan 19, 2020 11:03 pm

watchnerd wrote:
Sun Jan 19, 2020 10:44 pm
DB2 wrote:
Sun Jan 19, 2020 10:36 pm
I do agree with Klangfool's sentiments. ETFs tempt a lot of people to push the sell button. Bogle talked about this as well.
While that may be true, it's becoming increasingly moot for a new generation of investors using things like Robinhood, Wealthfront, and Betterment.

Kids these days don't want the restrictions of grandpa's mutual funds.

So better to teach them how not to shoot themselves in the foot, cause ETFs are trending.
And 'buy and hold' had been taught for many years. Human instinct can be a pesky thing sometimes.

Do we have recent data on the outflows for Vanguard Total Stock Market ETF vs Mutual Fund?

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Re: stop loss order to protect again a unexpected recession

Post by watchnerd » Sun Jan 19, 2020 11:32 pm

DB2 wrote:
Sun Jan 19, 2020 11:03 pm



And 'buy and hold' had been taught for many years. Human instinct can be a pesky thing sometimes.

Do we have recent data on the outflows for Vanguard Total Stock Market ETF vs Mutual Fund?
I certainly don't have that data.

But what would it prove if we have it?
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Re: stop loss order to protect again a unexpected recession

Post by DB2 » Sun Jan 19, 2020 11:51 pm

watchnerd wrote:
Sun Jan 19, 2020 11:32 pm
DB2 wrote:
Sun Jan 19, 2020 11:03 pm



And 'buy and hold' had been taught for many years. Human instinct can be a pesky thing sometimes.

Do we have recent data on the outflows for Vanguard Total Stock Market ETF vs Mutual Fund?
I certainly don't have that data.

But what would it prove if we have it?
Probably not a lot. At first I was thinking greater outflows (relative to each) might indicate less buy and hold. Although a lot of it could also be institutions trading.

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Re: stop loss order to protect again a unexpected recession

Post by Financologist » Sun Jan 19, 2020 11:55 pm

It depends.

Here's a scenario to illustrate the point.

You currently hold $1.1m in a 401k account. You hold the entire balance in a single ETF.

You plan to retire on december 1, 2020. You know you need exactly $1m to retire comfortably.

Also you dream of owning a boat.. price = $200,000. If you can just get to $1.2m the boat is yours along with your comfortable retirement.

You're willing to let it ride one way or the other until you get that boat or the value of the account drops to $1m. At that point you're willing to forego the boat but want to guarantee yourself your comfortable retirement. In other words you're going for the boat but not at the expense of your comfortable retirement.

In this case, a stop-loss could prevent the account balance from falling beneath $1m (you could also consider an order to auto-sell once you're account balance reaches $1.2m).

However, absent a very specific purpose like this, I could not see myself using a stop loss for a retirement account. If I thought my asset allocation was not appropriate I would rebalance right away.

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Re: stop loss order to protect again a unexpected recession

Post by tre3sori » Mon Jan 20, 2020 4:00 am

Around 2007 the bank of a family member got her into "protecting" her portfolio with stop loss orders. When 2008 and the Great Financial Crisis came about, liquidity dried out, share prices dropped, nobody wanted to buy. Her orders finally were executed almost exactly at the lowest lows. When she got back in 2010, prices had rallied already by a fair amount. So in retrospect by "protecting" her portfolio with stop loss orders she realized the losses and missed out on the gains. The bank was the one that picked up her stocks at a nice discount.
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Re: stop loss order to protect again a unexpected recession

Post by nisiprius » Mon Jan 20, 2020 7:39 am

You can't eliminate the risk of stocks that easily. It's not as if stocks were risky for us ordinary klutzes, but experienced investors know of this magic thing called a stop loss order, and by using it they get stock market returns without risk.

The problem is that just because a stock, or an ETF, or the stock market has fallen sharply by a largish amount, that does not automatically tell you which way it will go next, or whether you "should" sell it--or, quite possibly, buy it. No matter how you try to set your order, it is just as possible that a market glitch and rebound will make your order execute and lock in your loss, while us buy-and-hold types get the rebound.

Let me demonstrate. Try hard not to peek at the answers.

1) The stock market is down 19.3%. Should you sell?

Image

2) The stock market is down 17.4%. Should you sell?

Image

And now, "the rest of the story." In one case, an almost-20% fall was immediately followed by a large rise. In the other, a similar fall was followed by a further, larger fall. You just don't know.

Image

Image
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Re: stop loss order to protect again a unexpected recession

Post by JoMoney » Mon Jan 20, 2020 7:55 am

FIrst, a "recession" doesn't necessarily mean that stocks will fall a significant amount.
But regardless, I wouldn't do it.
I suspect most on here would have a trigger to "rebalance" and it would call for buying more stocks, not selling them.
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Re: stop loss order to protect again a unexpected recession

Post by nisiprius » Mon Jan 20, 2020 7:57 am

tre3sori wrote:
Mon Jan 20, 2020 4:00 am
Around 2007 the bank of a family member got her into "protecting" her portfolio with stop loss orders. When 2008 and the Great Financial Crisis came about, liquidity dried out, share prices dropped, nobody wanted to buy. Her orders finally were executed almost exactly at the lowest lows. When she got back in 2010, prices had rallied already by a fair amount. So in retrospect by "protecting" her portfolio with stop loss orders she realized the losses and missed out on the gains. The bank was the one that picked up her stocks at a nice discount.
This illustrates another important point.

We have the illusion that the stock market is perfectly liquid. That's because it is almost perfectly liquid most of the time, and that's the result of a century or of work and experience and rules to make it that way.

So, we have the idea that there is a published number called "the market price," and that at any instant, we can sell our stock and get something very close to the market price. Usually, we can. Usually there are lots of investors both buying and selling every stock, and "specialists" ready to buffer any mismatches.

But the stock market is an auction. You can only sell your stock if someone else is willing to buy it. Normally, the job of the "specialist" is to make sure that happens--if nobody else wants to buy your stock, they will.

In a true financial crisis, this all breaks down, and the texture of the market--the fact that you really need someone who wants to buy your stock--becomes visible. There may be people who would love to buy your stock if they could, but are currently out of money. You also get time delays in executing orders because the system becomes overloaded. In the 1920s you would read about the ticker falling hours behind. Obviously it doesn't happen that way now, but even the electronic systems have their limits, and during the Flash Crash they did get overloaded and fall behind.

I assume that I'm not smarter than the rest of the market, and I assume that in a crash I am going to get clobbered... and indeed, to some extent, being a casual "mass affluent" investor I probably will not get the best possible treatment. Rather than trying to hold a high stock allocation and dodge the bullets, I figure, me, I'm just as likely to dodge into a bullet. So I keep my stock allocation low enough that I can just shrug, stay the course, feel the pain and stay invested anyway.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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