Investors: Is
Your Selling Strategy in Order
Getting your selling strategy in order and formalized is
probably one the facets of investing that you have the most control over. If handled
properly, it will protect your money from big losses, instill confidence in
yourself, and avoid much financial stress and anxiety.
Having an exit strategy is most appropriate now that the stock market is in a precarious place, having recently falling into correction territory with plus 10% losses in the popular averages.
With Thursday’s action behind us, the major equity (stock) market indices are down close to 20% from their late summer highs. That’s right on the cusp of a defined Bear Market! Note that bonds have come alive here and Gold is rising also.
Thus far in the fourth quarter, here’s the tally:
Stocks (Dow and S&P 500) down 13% and down 15%
Bonds, intermediate / long: up 3.3% and up 4.5%
Gold, bullion price: Up $72 / ounce, or up 6.1%
Cash and short term money market funds are paying 1.5% to 2% annually, so they were ahead a tad over the 3 months.
Technical Analysis - Think About the Math
Investors do not know with certainty how their stocks will perform. There are just too many variables affecting the buy and sell decisions of millions of investors. Political, economic, company specific announcements, interest rates, etc. are all outside of our control mostly when assessing risks. These factors all swim around in a large punch bowl – we never know which sip will be the bad one for us.
BUT, what you can control to a large extent is your behavior with your investments on when to SELL. What does that look like? There’s one strategy that’ll work for us all. Perhaps your financial advisor or planner did not explain to you: STOP LOSS.
In its simple explanation, you would sell your stock when it fell a certain percent from your cost price – or the most recent HIGH price. That will lock in the gain or loss for you. Let’s look at Apple stock, a darling of Wall Street for years now, until the recent 30%+ decline. Apple stock reached $232.66 in early October (green rectangle on the chart). That’s factual and known then and now.
It does not matter what you paid for Apple stock – that is past news. You can only SELL it for what others will pay you today! So, the term STOP LOSS can either lock in a GAIN for you – if you paid less – or limit a LOSS for you – if you paid more.
I use a 7% to 8% stop price because that has shown to be a wide enough measure to weed out the short term blips of price action. So, your sale would be at near $215 using 7% or 8%. The blue line is another indicator (moving average) that I use as a confirmation signal to sell, beyond the discussion today).
See the green circle where the price was very erratic? If you were busy and could not sell, you should have SOLD in the $200-205 range as a final trigger pull. A $200 sale would be a 14% loss, which is still manageable and acceptable in fast moving conditions.
You NEVER want to be in a position to give up a 30% or 40%
decline in a stock you own, and could
have mitigated that decline greatly!
Apple’s down $75 a share or 33% from its high; that means it
needs a 49% gain to get back to $232! Likely soon? A 15% loss needs just a 18% gain to get back
to even-steven.
Caveat: Not every
stock you own will show the same pattern or clarity that Apple has shown us.
But in the end analysis, TECHNICAL ANALYSIS and STOP LOSS selling can provide
you with a better batting average with your portfolio of stocks.
Browse on over to a popular financial site like: FINANCE.YAHOO.com,
or your brokerages site and plug in the ticker symbol and view your chart to go
through this exercise with your stock holdings.
E-mail or call with any questions, and have a Merry Christmas and safe Holiday
ahead.
I’ll recap 2018 in my next post in January.
🎄🎄🎄
Sure enough, we’ve enjoyed a nice robust rally for close to 10 years now, and if you have been fortunate to own assets like stocks or mutual funds, you are no doubt happy campers.
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