Stop Losses Don't Make You Happy Either

“Stocks are crashing, but I'm completely relaxed. Because my stop loss saved me. And I'll get back in at the bottom.” Oh, if only it were that easy ... 

With a stop-loss order, a security is sold when a certain price is reached. For example, the investor places a stop loss at 15 percent below their buy price. The idea is to protect yourself from major losses. If the share actually falls by 15 percent, it is sold with a market order.

Things often turn out differently than you think

Anyone who places a stop-loss order expects prices to fall further. But every sale is followed by new price developments. In August, the stock market in Japan fell into a black hole. Anyone with a stop loss in the market got sold out. Prices then quickly turned upwards again. 

Now the question arises: What do I do after the stock has been sold due to the stop loss? Do I buy it again? And if so, when and at what price? If not, what do I buy instead? Simply another stock, again with a stop loss? A complex world of decision trees opens up. Who needs that?

And even more decisions at the beginning: Where to set the stop loss in the first place? At an arbitrary price that looks “right” on the chart? At a fixed percentage of the buy price? At a multiple of the daily price fluctuation? Depending on the traded volatility of the last 20 or 60 days? The list goes on and on. 

The strategy counts

For fundamental investors like the Gutmann equity team, stop-loss orders are out of the question. They contradict the Gutmann philosophy of buying excellent business models and participating in entrepreneurial success for a long time. This also includes riding out setbacks on the stock market. 

There is no perfection in the financial markets. They are unpredictable. It is much more important to devise a strategy and stick to it in the long term.