How is the above client’s stop losses working out for him? Part of the impossibility of making stop losses work is that one must not only be correct about a decline, but also know when to get back into the market. Our approach instead is to be an owner of durable companies we are comfortable owning forlong periods of time and to be able to be paid to patiently wait receiving above average and growing dividends until the company achieves full value.
This of course isn’t the first time I’ve seen these 10%+ moves as they have been a very common occurrence during the last two decades in which I’ve been managing our clients’ assets. Options and excessive trading generally only helps custodians, but as Professor Odean of Cal Berkeley so noted in his April 2000 Journal of Finance research paper: “Trading is Hazardous to Your Wealth”! Warren Buffett’s $1 million bet against Protégé’s hand-picked “best” hedge funds also shows the futility of investment managers believing they can add value utilizing such “alternative” strategies including long/short, market neutral, et al.
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