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Quick Lesson: Cut loss, is that trading or investing, FA or TA?
By Pehon | February 15, 2007
I’ve created a controversy with some of my readers by practicing a “cut-loss” at the 7-8% point on my China Farm holding. So is that trading or investing? If the fundamentals of a company is that good, why be shocked at the 7-8% loss in shareprice?
Well, to recap. My China Farm shares were bought at $0.995, and sold at $0.915, for a 8% loss. If i was still holding on to my China Farm shares, I would be looking at a -25% paper loss, which would require a 33% rise to break even.
Emotions have to be taken out of investing. Yes, the ideal state will be to buy a fundamentally sound company and hold on to it through thick and thin. However, I wouldn’t think its practical for relatively small investors like me and you (well unless you have a $5,000,000 portfolio, i’m talking about you).When i was talking about “traders” and “investors”, I’m basically talking about “traders” who practice Technical Analysis, who sits infront of a chart to find the pivot point and potential breakout point. “Investors” are fundamental analysts who look at the financial statements and research information to dictate their choise of investments.
Having a cut loss point of 7-8% does not make you a “trader”. It can be a capital protection technique for “investors”. Like me.
Topics: Quick Lesson |
February 15th, 2007 at 11:03 pm
Totally agreed. As mentioned in my previous comments under your China Farm Review post, one really need to have a capital preservation mindset, and have a trailing exit strategy. Then you can always live to fight another day
Good discipline on China Farm btw. I wasn’t disciplined enough in cutting loss on LongCheer, so now in a bad position 
February 15th, 2007 at 11:10 pm
Maybe you can think about taking profit too. Same logic as if u have taken profit, then it is realized. When it drop further back, u will have make the maximise potential on it. Fundamental and Technical do work hand in hand with each other.
February 17th, 2007 at 12:46 pm
are you going to re-invest in CFE?
regards.
A
ps: great blog.
February 17th, 2007 at 1:15 pm
this 7% cut loss concept only possible if
a. you have only a few holdings
b. you have time to monitor the stocks
for busy working adults and/or who hold many many counters, thats not a valid option.
regards.
A
February 17th, 2007 at 3:02 pm
i feel angry to cfe which has hurt me a lot. But i wont invest in it again
February 17th, 2007 at 5:49 pm
aragon,actually the cut loss technique is applicable to everyone. I’m having a job that doesn’t allow me to watch the live stream all the time. I will look at the closing / daily trading range at the end of the day to see what i should do the enxt day.
And in a few days i’ll talk about specialisation vs diversification.
February 18th, 2007 at 6:36 am
dear anonymous, that’s the price of speculation…trust you’ll have better luck next time.
dear pehon, thanks for your comments. i guess you like a focused approach than a diversified approach.
regards.
aragorn
February 18th, 2007 at 10:59 pm
hi pehon
eagerly awaiting for ur article on diversification. I intend to pile on one penny stock …
Happy CNY !
February 18th, 2007 at 10:59 pm
hi pehon
eagerly awaiting for ur article on diversification. I intend to pile on one penny stock …
Happy CNY !
February 18th, 2007 at 11:58 pm
Hi Pehon,
I am awaiting your article as well. I have been reading Buffett’s philosophy of concentration rather than diversification, so I would like to hear your views. According to BUffett, diversification is required only for people who do not know what they are doing. I myself prefer a strategy of concentration in the 7 counters I hold now.
February 19th, 2007 at 8:37 pm
hi musicwhiz
if u look at BT diversification of over 10 stocks, one of the portfolio has a 300% gain over 5 yrs.
let’s hear frm pehon.