Enough with the stop losses. They don’t work for the average investor. They sound good on paper, but most investors don’t watch the market all day long. And that’s where part of the trouble begins. A stop loss puts a sell order at a set price for a stock. But here’s the problem. If you’re out golfing, there could be a flash crash stopping you out and not re-buying on the way back up a minute or two later. Had you been watching the market you would have realized it was a technical problem and not a crash. The other problem is when the market does have a major crash and there’s blood in the streets. Your sell order is only filled when it’s filled. And it will be at the price determined by the market. Imagine being stuck in line at Christmas or before a storm. Your desired price is simply the price at the time your sale is made—which may be a whole lot lower than you had anticipated.
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E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at firstname.lastname@example.org.