Trailing Cut Loss is for everyone

If you were to invest $100,000 in 2004 and the next 4 years (end 2007), you achieve a gain of 25% annually with all money re-invested. How much would you made?
end of 2004 - $125k
end of 2005 - $156k
end of 2006 - $195k
end of 2007 - $244k

If in year 2008, you lose 60% of your gains, how much would you have made?
END OF 2008 - $97K left (a loss of $3k after holding for 5 years)

If instead of holding from 2004 to 2008, you get out of the market once there is a 25% decline from the highest point in your stocks since you purchase in 2004. How much would you have made?

Assuming in the year 2008, a 25% decline in your portfolio value is noted and you get out of all your equities.
End 2008 - $180k (a profit of $80k after holding for 5 years)

Food for thought. If you have the conviction to take profit off the table, wouldn't it have been better? You cannot time the market, but you can use your portfolio value to show you the way out.

*By the way, 25% is set because we do not want the violatility of the market to trigger your cut loss when the market is only experiencing a minor setback. Most bear markets decline is between 30% to 60%. So if it gets to 25%, you can be sure there must be something fundamentally wrong for a lot of stock holders to want to get out ahead of you. For traders, they might be more interested in cut loss level of 8% - 10% since they are actively trading the market instead of buying and holding for a market cycle.

Portfolio Update April 2009

Cumulative Return since Inception: -9.78%

Dividend/Coupon/Interest received YTD : $20,400

P/S: Despite the market run up, I have allocated more into equities for the month of April. Going forward, I expect to be putting more cash to work whenever a correction happens (like what is happening today).

Individual stocks are from Hong Kong, Singapore and Australia. ETFs are from US, Europe, Hong Kong and Australia.

The Global Financial Solution

In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place.

Everyone is heavily in debt.

Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

• The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.
• The butcher takes the money and races to his supplier to pay his debt.
• The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
• The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.
• The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.

At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his E100 back and departs.

There was no profit or income. But everyone no longer has any debt and the small town’s people look optimistically towards their future.

Could this be the solution to the global financial crisis?

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Source: Unknown