Thursday, December 10, 2009

Let your profits run and Cut your Losses

"Another fallacy - Exit when you make an 'above-average' profit ie 50% gain in 3 months."

Yes, I choose to let my profits run and cut my losses using trailing cut loss of 25% (but very troublesome, have to update my excel sheet daily with the highest closing price since i purchase the stock).. A bit wide but it will not force me out easily with whiplash on the stock prices (When i feel the biz fundamentals are still good for me). The 25% is still manageable with my position sizing. I believed traders used 8-10% as an appropriate cut loss strategy.

For me, I select stocks based on FA and reference to macro cycle, and then let the trailing cut loss take me out. Don't think too much - Sometime stock prices fall too much for no reason known to you.. it must means someone else knows something you don't.

Maybe not a very good example to illustrate this.. but Suntec Reit was giving excellent yield even though its gearing was not too much and its business fundamentals seem unchanged. The share price was depressed (under bk value) and now we know why... a rights issue.. (things that are beyond our control and only known to insiders)


a1 said...

turned out suntec din have rights issue leh
your source is wrong/unreliable

Wealth Journey said...

True :) My mistake..
Probably heard it thru the grapevine or news of possible capital raising at that time.

Thanks for highlighting.. but you get the gist of what I am saying. Was just trying to sight an example.. but a bad one :)