re stops. (long) You might be totally correct. You won't convince me though. I'll be on the other side of the argument.
"Value investments are based on a given set of facts about a company, and conclusions about future value based on those facts." ... Very often a sagging share price is a foreshadowing of bad news to come."
I read this as purchases are made based on company facts, but stock sales (by stop orders) are driven by market price irrespective of known facts. To me that's value buying, but not value selling.
I can describe what I believe I see as: "Very often share price fluctuations are random and do not foreshadow any bad news to come."
"A stop never prevents you from buying back an investment if you believe the fundamentals are still intact."
That would seem to be so, but in my experience, it doesn't work that way at all. Once out, the person goes on to something else, or is reluctant to buy back, or wants to wait for an even better price, or buys back and then resells lower and just gives up.
The classic lament of value investors is that they buy too early (and maybe sell too soon). I'm a believer that this is so. I accept it and go with it. I'm not trying to compensate for it. Using stops might be popular with small investors; I don't recall any books I've read about value investing recommending this tactic though.
"Look at a three-year chart of CPN. If a long-term investor had stopped out at 50 and waited for a better chart and better news to buy back, they could have saved a huge amount of money."
The chart's a parabola.
finance.yahoo.com
There are two possible conditions here. Moving stops up to protect profits as stock rises vs. using stops to prevent losses as the stock drops. CPN around 50 as a value buy? I don't see that, and it's hard for me see you suggesting that it is or was at 50. If we are talking now about that former aspect, using stops to protect gains (to save a huge amount of money), I could see using stops as a mechanical way to take profits.
If you are saying anyone who bought CPN on its way down, say 20 or so, and considered it a value at that price, would've been better served to have been stopped out of the position, then sure, stops worked great in this particular instance. But I won't go from that particular to make a general conclusion.
We will not convince each other here. I don't believe either side of this argument can provide definitive proof about the success of stop orders. I can say I am sorry to have lost money on some of the stocks that I've held that've tanked. Some I went with until completely bk. So stopping would have helped me here. Quite a bit. OTOH, I've bought some of the same stocks you have either before or after, and for some of these, I have continued to hold them and profit from them while you have stopped or sold out for small losses or small gains.
It is my overall impression, that for me, pain comes before gain, and of the many stocks that drop after I buy them, the ones that rise make up for the ones that don't. But I can't prove it, and I could be wrong.
Paul Senior |
