3 responses to “3 reasons not to use Stop Loss – answer to Jon Trausti’s question about Free Stock Strategy”

1. 

   JTS

   May 28, 2012

   Thank you for this good answear deminvest,

   I understand, and it is true, stocs tend to go up and down many times before climbing eventually very high.. so stop loss will cost alot in trading fees.

   My stock story (in short):

   Around the year 2000 I sold my house here i Iceland, and went into stocks, using the only cash I owned then, around $40.000 (then).

   First I bought good stock here in Iceland, but I did not have patience and sold (better had waited few mounths)..

   Then I went into daytrade, and finnally paid my self into a group where there where “Stock Watcher” and it costed around $500 to be in the game. His task was to find stocks and we (closed group) would buy and sell as he told us. Sometimes we lost and sometimes we profit. I did not follow every rule he had set, and I did let my emotions run wild… many times… ( He told us to not to think of the stocks as monney, but as units, to take out any feeling of loss ).. Smart, but I could not do it.

   To make a long story short, I was going to learn to Option Buy whe I only had about $10.000 left.. I had been trading stocks for about 2 years and was burning my monney.. I bearly got out with $10.000 and was very badly burned ( It took me several years to get over this mentally )… And I told my self, I will never do this again.. or at least not unless I had learned how to do it.

   Now Im in a different place, I run a company and have for about 8 yeras and I would like to Invest.. I think your strategy is very interesting and the only thing that stops me now are the laws here in Iceland they passed on during the last years crises. So now I cant move monney out of the country to buy stocks..

   Well.. thats all, just wanted to share my experience.

   best regard,
   JTS

   Reply
2. 

   deminvest

   May 28, 2012

   Thank you for sharing your experience Jon.

   I have also made many investment mistakes. I even have a category on this Blog about them:

   The most comical of my mistakes was New Century Finanacial a company specializing in Subprime Mortgages Which went broke first as the subprime mess came out, causing me a 100% loss on that pick.

   What saved me was my monthly approach. Worse damage a mistake could make would kill one month of my saving.

   One question: can’t you invest on US stocks using an Icelandic bank account?

   Reply
3. 

   deminvest

   May 29, 2012

   Dear Jon,

   have a great time on Spain beaches!

   You found one of my weaknesses. I have not yet decided a rule about this. In my experience:

   * buying more shares of the same stock when it goes down is bad. I lost lots of money that way with BIDZ, Blockbuster, Renren, RIM and others

   * buying more shares of a good stock, like Google, can be a good move only if it goes down because the broad market is going down.

   I wrote a post about it.

   As a general rule, it is not good to buy anything BECAUSE it is going down. If it is going down there may be a reason I don’t know. Also a stock can go down for weeks, months or years, but there is only one day in which it hits the minimum. There is little chance to catch that day.

   Some investors say that buying a falling stock is like catching a falling knife. It is better to pick it once it has fallen on the ground:

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