My portfolio stop losses - review of how they performed in 2016

I would avoid using stop losses if the fall is down to a general market reaction. The danger there is that you start selling on dips and buying on rises. I'm also wary of selling on a sudden, unexplained drop. I don't know how frequent tree shaking is, but unexplained drops are generally followed by spikes back up. I do sell immediately on a profit warning and if a steady decline goes through a pre-determined level. My main mistake of 2016 was ignoring this rule with Trakm8 because I believed the chairman when he described what appeared to be a profit warning as definitely NOT a profit warning!

Hi Bushranger

The tool is under the 'Folios' tab, at the bottom called 'Set Stock Alerts'.

It is a simple to use tool. Quite manual but I think better for this as it forces you to stop and think about what you are designing it to assess and importantly what is occurring when alerts are triggered (and not triggered).

You can set alerts for any holding (equities, ETFs, Investment Trusts, and even indices, but not Unit Trusts or Trackers).

Use the drop down to decide what criteria you want to be alerted on. Obviously I have used share prices, but you can use any of the Stockopedia entities from Stock Ranks to PE ratio. I am using it to spot price drops but you can do the reverse to look for price rises or any permutation of any criteria.

Choose your trigger boolean event (greater than, less than, equal to and others) and set the value you want the trigger to ping off a (alerts come to my inbox).

I have all my holdings listed in my alerts list irrespective of what portfolio I hold them in. Thus an automatic eyes across the piste.

I have devised a little procedure to operate this from setup, to monitoring to decision making (which is quite manual, but worth the work).

Embarking on using the Alert tool has catalysed and enhanced my use of other Stockopedia tools. Through using the triggers I have dug more deeply into several other Stockopedia tools and stats like momentums, ranks, graphs, Stockrank movements tool, and so on. With deeper insights than I held previously.

I'm happy to elaborate if some of this is of interest to you. Just ask.

Happy New Year


Regards
Howard

I would say under normal circumstances (e.g., a couple of stops being triggered in a year rather than general market drop and many stops triggered), I would buy shares when stopped out rather than sit in cash but I was concerned about getting straight back in following Brexit and I think in hindsight that was wrong. I should have bought some shares and maybe sat in say 60/70% shares. I also try and top up my winners. Back in Dec 2015, sensing headwinds I made a decision to try and focus on 'not losing money' in 2016.

Hi Howard, I like the sound of your method. I may give that a try. The only difficulty for me is trying to manage my 25 stock portfolio in this way and tricky for me to do in the week. Also, agree with you RE: dividends. Those have reduced for me.

Good question. I think my 10-13% was too close. Maybe a good method is to turn off stops during general quick market downturn (e.g., Brexit), don't sell and then switch them back on when the storm has passed. Just need that crystal ball to help with that! I think at 40% stop is too low as I see stops as a way of limiting my loss and 40% would be a big hit. But, maybe they would not get triggered? You then have to ask why you have them in place in the first place. I was always interested to hear David Kuo of the motley fool say in answer to the question - when do you sell a share, his response: never.

Hi Bushranger, I need to read Robbie Burns latest on quick exit approach. I can't see it working but he's a millionaire and I'm not! RE: holding cash for many months - this has been a new one on me, I guess I was a little fearful so have kept a large part of my toe out of the water (silly human reaction?). Also, I think I recall a top investor (Lord Lee?) saying something like - if you are getting a little concerned with global markets then sit with cash but don't fully exit shares...leave 40% in shares. The million dollar question for me is when to start buying back? I'm thinking maybe soon as you can't time the market.

Hi JollyBiologist, that's my concern now...I've basically sold on a dip (what is easy to see now as). Do I buy back now? Is this the rise? I think I need to stick to my rules (analyse stock ranks, my criteria) and start buying back but maybe keep some cash on the side.

Hi Andrewchat

25 stocks is very manageable. My guess 60 mins to set up first list. 60 mins per week to administer. A longer chunk of time deciding on actions if multiple triggers have gone off. Below is a brief intro.

Just go to your first stock calculate -2% off its current price. For example Air Partner (LON:AIR) is currently 502.25p thus -2% is 10.045, take this off = 492.205p. This number is too fiddly so I would round it up and set the Air Partner (LON:AIR) alert at 'Last price' < 493 (this adds in a little bit more caution).

Just plod through and do each stock you hold at a time (I guess you could do it in no more than 45 mins. This weekend is an ideal time as no new data is flowing through.

If you do that, then you have an Alert list across your 25 stock portfolio to start 2017 with. From the minute the market opens its looking at your portfolio for you. Now you sit and wait.

If a stock/s prices drops you get an email, and the triggered Alert automatically gets moved from the live triggers section of the list and drops into the 'Triggered Alerts' section of the list at the bottom of the list. Thus you can look at it in good time, and decide how you might act.

A couple of tips about how I act when a trigger(s) occur. Quick look see at the stock and immediately set a new -2% trigger on it (the old trigger is still sitting in your triggered list so you know one trigger has gone off, but you now have another new one set in case the stock drops further), thus you are protecting yourself by being prepared if the stock is dropping into the -4% territory).

If I am confident that stock is just a slight dip I remove the first triggered alert, as the second alert is now active.If I am not confident the stock is just slightly dipping I leave the new alert active and also leave the triggered alert in the list, so if the second does go off I will have two triggered alerts in the list and I get a lot more intense about looking at what is occurring.

This is the basics. So I think with say 60 mins to set up your list you get a useful risk reducer. Then you decide how rapidly to react to triggers. I often deal with the no brainers immediately i e. reset a new trigger, then review my triggered list either each week or on an ad-hoc basis if multiple triggers are occurring. On a rising market often no activities for days, on a dropping market it is more busy.

To enforce the rigour I then each week a) calculate new -2% from current prices, and b) reset upwards those stocks which have risen, but importantly leave in the alerts which have not yet triggered (this stops me averaging downwards). This exercise will take less 60 mins.

The time consuming bit is when one/two stocks have had a couple of triggers and you need to decide an acting - Sell, Slice, Hold or top up. That's a different discussion.

So in conclusion I think after a 60 minute set up, maybe a 60 minute weekly admin you will easily be able to cover the 25 stocks.

What I hoped from this method is that I reacted to Ed's 'Profit Warnings' research by building in a forewarning when stocks are dipping pre-profit warning. Ben Graham's point not to sell good stocks simply because price has dropped. Paul Scott's note about running winners. And the general ethos of using rules to support good behaviours.

Happy to elaborate if you want further input.

Regards
Howard

It an interesting idea but some of mine go up and down over 2% in a day, I recently bought Beximco Pharmaceuticals (LON:BXP), that in the last few has been up and down like anything, the first day it was down about 5%, then next day with some good news it was up 11%, then it fell for a few days down about 15% then Thursday it was up 19% at one time to close +14%, yesterday it was up only 3%. 2% may work with some large caps but many smalls and up and down more than 2% everyday. How do you cope if a share falls 8% in a day? I do use alerts I find them quite useful but not 2% usually around 10%, if you have a lot it must be quite alarming if they are all going off.

Hi Herbie (I'll drop the 47 if that is not being too personal :))

The 2% is simply my quite tight setting. You can widen it to your own tolerance, say 4/5%. Also, I concur some more volatile stocks just simply need a wider range. I am sure you would know these and thus you could group your stocks into sensible bands and say have a 2%, 5%, 10% or broader banding. I think this revolves around time you have, size of portfolio, risk tolerance and so on. But what I have found is that by starting with a single simple value I have soon become accustomed to the stocks to really watch and those which are very easily dealt with. That said, it was because I kept on the -2% discipline that I saw to exit Finsbury Food (LON:FIF) when I did, as I could so easily have felt that to be a -10% or -20% type of stock.

Happy New Year.

Regards
Howard

I'm don't think you can change your profile name, I think I tried it without the number when I registered but maybe someone else had used it already. It's not my age unfortunately.

I do still hold Finsbury Food (LON:FIF) and I'm happy to hold I don't have that many defensive stocks, it has drifted down a bit but has been on the way up again. I think with many alerts it may make you trade more often, I try to hold rather than trade all the time and trading costs in small caps are quite high, it did calculate it was around 3% on average each time, if you sell and then re-buy that's 6%. Yes Beximco Pharmaceuticals (LON:BXP) is unusual, I was quite surprised but that's the thing until you buy you don't realise some things about a stock.

Interesting bit of research - thanks for sharing Andrew.

As an aside, but related to your remark about David Kuo's comment, when I was working with a large IM house in London, I asked our corporate broker who, in their impression, had the best performance of all of the institutions that we went out to visit with our results. The identify of the institution is less important than the accompanying remark the broker made: 'In 35 years, I have never, ever seen a sell order from them!' Food for thought!

Hi Andrew,

Thanks for the post and it was interesting to hear of your experience of stops in 2016.

I have also learnt a lot from greater sell discipline in 2016 and from being tougher on stocks that fall.

My methodology uses google sheets which pulls delayed (by 15 mins I think) stock prices into a spreadsheet. For each stock, on purchase, I define a "stop" price and a "target sell" price and use conditional formatting to change the cell red if the price hits the stop or green if the price hits the target price. I set the stop and sell targets based on a mix of technical analysis, broker targets, tip targets and general information available.

I then use discretion to monitor progress. For example after the EU referendum, many stocks fell into the "stop" zone, but I waited for the dust to settle before making buy/sell decisions. In some cases I sell if the "stop" is breached intra-day, other times based on a end of day price (on TRAK I waited for an end of day price breaching the "stop" limit before selling). Lastly, I have given a few stocks the benefit of additional "forbearance" such as ADT & CMS, where I could see support holding and the stocks subsequently benefitted from result announcements or positive news-flow.

Oh, and I should not only focus on the "stops". I have had the pleasant experience of needing to review sell targets as a number have been hit in 2016 and to take the decision to raise the targets, top-slice or exit.

I find using this methodology works for me, but when a "stop" is breached, I always need to be tough-minded on taking action!

Hope this is helpful and of interest!

James

HI Howard,

Do you manually calculate the 2% drop? I can't see a way to enter a percentage drop. Sorry to be a bit dense,

Aggitta

Hi Aggitta

Yes.

But I like the disciple as it raises my consciousness about what my actions mean.

Sometimes its too easy to play with numbers forgetting what they mean at the time.

For example, that -2% might mean -£10k, -£5k depending on the size of your holding obviously. This is why I opted to use -2%, you can use a value which suits you.

Also, this is an Alert ladder model not a stop loss procedure. I would only stop out (or even buy in) after a couple of alerts and an in depth examination of the holding.

Regards
Howard

Thanks Howard.

There is an Australian program (I'm in OZ) that let's you set an alert when the price drops n% from the highest high. I find that quite useful. I was hoping such an alert might have been in Stockopedia, but it seems a manual entry is the go. I really like your idea of an alert ladder, I can see it be very useful to focus the mind.

Cheers, Aggitta

Aggitta

Thanks for the positive response, I'm glad you found the notes useful (see above for several posts in thread).

In addition to these Alerts I am also exploring a US tool called TradeStop.com which is quite an elaborate alerts and stop loss application. It is based on recognising the volatility of a stock and setting alerts and stops in line with those. It is attempting to help you get out when you need to but not excessively in an over-reaction to volatility.

You might want to take a look https://cbe.tradestops.com/

That said, this simple Stockopedia alerts procedure is working quite nicely for me at the moment.

Happy investing 2017.

Regards
Howard

On IG you can set price alerts when a share crosses a certain point. That has been quite useful for me as a buy signal. I am sure you could reverse it and use it as a sell signal. I get an alert on my App.

On stop losses - how about setting an intial stop loss at 10% or so below the prevailing price. you could then widen this as the share price rises. Once you are in profit (say 15%) then maybe convert the hard stop loss into a trailing stop loss 15 -20% below the current price. So initially you would be obeying Buffets #1 rule of investing "dont lose money", then you would be running the winners.

Obviously This wont work for higher beta (volatility) companies eg oil E&P companies, biotech etc

I am experimenting with stop losses at the moment. One example of here I would have seriously lost out is DPP LN. I bought at 23p, watched it go to 7p and its now over 50p. So it wont always work but I like the discipline.

Thanks again Howard!

I've sent Tradestops a few questions to see if it suits.

Cheers,

Aggitta