|This week saw a dump in Wallgreens on weak earnings. Institutional outflow from Netflix, Tesla stock dropped 10% and it had nothing to do with Musk’s antics for once (the automaker has lost about a third of it’s value in the last two quarters), oh and the financial world is now awash in Brexit flow charts.|
Lets get to it.
This Week’s Question – Stop Loss
Spending the week reading about stop losses in the wake of the inversion has been eye-opening. Considering the all the hoopla around the dump in December. Bottom line up front: stop losses are ultimately designed to keep your emotions from separating you from your money. I too am guilty of looking at a trade and not executing a sell based off of what I believe, not what I know. Remember, past performance is no guarantee of future results.
When it comes to a stop-loss, there is no one size fits all approach. There are a few different techniques that have proven results and of course every finical service will try and sell you on why you need to pay them to let you use their software to calculate the best exit point. Some of them are similar but carry different names. I’ll try and sum it up here, but this is by no means exhaustive.
Confluence Stops are best for traders who are looking at highly technical metrics. I am going to avoid getting into the weeds here due to the style of investing this newsletter promotes, but its worth looking at if you’re inclined. Volatility Stops take broader market trends into account when considering the stop range, thus the higher the volatility the wider the range. This tends to favor longer term portfolios in bull markets. Trailing Stop-Losses adjust the sell point based on momentum as well as the technical aspects of value. Jason Van Bergen wrote a great article about trailing stop-losses, so I’ll just direct you there for now.
As a dividend growth investor stop-loss is not a big issue for me. I’m in most of my positions for the long haul and the dividend. Even if they market tanks I still make money. Yet I do hold some Index lower yield positions. Due to the growth of these securities they can account for up to 40% of my holdings at times. I too am often surprised by this number. The takeaway from Q4 and the bond T-note inversion is this. I’ll be setting trailing stop-losses on my indices and big boys and using this as a backstop against a broader market drop. The dividend investments, anything with a yield of 2.75 and up, will stay regardless of broader movement.
This Week’s Conclusion
Keep a sharp lookout on your portfolio. The next major drop isn’t going to bounce back like it has in past years. There will always be good deals out there, you’re just gonna have to do more research on the business end of things. Oh, and if anyone understands Brexit at this point, me know.
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