Putting in sell stops below your stock ETFs

Discussion of the Stock portion of the Permanent Portfolio

Moderator: Global Moderator

Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Putting in sell stops below your stock ETFs

Post by Kbg » Wed May 06, 2015 11:51 am

With regard to stop losses...they pretty much do nothing but decrease performance in any system and MAY reduce DD depending on how they are done. In applying them I believe you are nuts if you don't do some backtesting as to what rules are you going to use for exit and entry. "I think I will get out here and get back in there" is a 99% guaranteed recipe for poorer performance. And they really don't make a lot of sense to me when using a PP for a host of reasons.
User avatar
Tyler
Executive Member
Executive Member
Posts: 2066
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: Putting in sell stops below your stock ETFs

Post by Tyler » Wed May 06, 2015 12:18 pm

ochotona wrote: But what if the losses on the stock side of the PP during the 2007-2009 crisis had been limited by a firebrake The results would have been even better. That was a pretty easy case, a -20% sell stop would've worked like a champ, it would've triggered in the last few days of September 2008, after the Lehman debacle.
Panic selling your entire stock allocation near a market bottom with no real plan for getting back in pretty much guarantees that while the short term loss will have been less, your long-term gains will have been irreparably harmed. Further, assuming it's a taxable account and you've been invested a while, you're also stuck with a massive tax bill.  So when you do eventually buy back in, you have significantly less purchasing power.

If it helps you sleep at night, by all means put whatever protections in place that you like. But a good rule of thumb is that you lose money every time you touch your investments. Humans are just not particularly efficient.
Last edited by Tyler on Wed May 06, 2015 1:08 pm, edited 1 time in total.
LC475
Executive Member
Executive Member
Posts: 427
Joined: Tue Oct 08, 2013 4:23 pm

Re: Putting in sell stops below your stock ETFs

Post by LC475 » Wed May 06, 2015 3:29 pm

I agree with the naysayers about the exit plan also needing a re-entry plan.  I also agree with not messing with the orthodox PP with stops at all, but for the sake of discussion:

What about re-entering after six months?  This would have "worked like a champ" in 2008-9, right?

Automatically sell all stocks upon a 20% decline from top.
Automatically buy back into stocks exactly 182 days later.

Would backtesting show this to be effective?
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Wed May 06, 2015 5:18 pm

LC475 wrote: I agree with the naysayers about the exit plan also needing a re-entry plan.  I also agree with not messing with the orthodox PP with stops at all, but for the sake of discussion:

What about re-entering after six months?  This would have "worked like a champ" in 2008-9, right?

Automatically sell all stocks upon a 20% decline from top.
Automatically buy back into stocks exactly 182 days later.

Would backtesting show this to be effective?
Sorry I don't recall the name of the author of this momentum strategy, but it was posted here somewhere. You choose one day a month to examine the 300 day SMA, and if it's above you buy, if it's below you sell. That resulted in about monthly trades, and someone showed it theoretically improved on the PP.

However... trading every month is nutty. Too much for me. But a -20% stop would only be hit every few years. Then you only have to answer the question, "how to get back in?", then once in you'd probably stay in for years again.

Maybe the 300 SMA technique PLUS waiting a period of time, because the 2000-2002 event was very jagged, and it would've caught the 300 SMA in a bear trap. But, if you use "sell at -20%, then rebuy at 300 day SMA cross but no sooner than 10 months" then you'd be OK. That would've saved the user a lot of loss.

Have to run. No time to work on this one right now. Interesting ideas.My sell stop orders remain!
Last edited by ochotona on Sat May 16, 2015 4:52 pm, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Wed May 06, 2015 8:43 pm

Looking at nine -20% or greater S&P500 bears, 1957 to 2009. Sometimes sell stop at -20% followed by buy at 300 day SMA cross works, sometimes it doesn't. More benefits during bad bears, doesn't react fast enough during mild ones. Will tabulate results later. Cool looking at data from way you were born.

Another idea occurs to me... the sell stops don't have to sell 100% of your holdings.
Last edited by ochotona on Thu May 07, 2015 8:28 am, edited 1 time in total.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Sat May 09, 2015 8:11 am

S&P500 study

sell signal: -20% from peak
buy signal:  price crosses 300 day SMA, evaluate first of the month only

Year                  sell        buy      gain/loss
1957              38.98    43.69    -11%
1962              57.27    66.31    -14%
1966              75.10    86.43    -13%
69-70            85.88    87.47    -2%
73-74            93.90      83.03    +13%
80-82          111.59    118.25    -6%
1987            224.84    272.59  -18%
00-02        1180.16    946.11  +25%
07-09        1436.27  1002.63  +43%

+2% gain over the past 58 years. CAGR 0.03%.

The teaser though... it has worked on the biggest bear markets. But you don't know what kind of bear market you have by the time the sell signal pops up.  :-\
Kbg
Executive Member
Executive Member
Posts: 2815
Joined: Fri May 23, 2014 4:18 pm

Re: Putting in sell stops below your stock ETFs

Post by Kbg » Sat May 09, 2015 2:17 pm

ochotona wrote: S&P500 study

sell signal: -20% from peak
buy signal:  price crosses 300 day SMA, evaluate first of the month only

Year                  sell        buy      gain/loss
1957              38.98    43.69    -11%
1962              57.27    66.31    -14%
1966              75.10    86.43    -13%
69-70            85.88    87.47    -2%
73-74            93.90      83.03    +13%
80-82          111.59    118.25    -6%
1987            224.84    272.59  -18%
00-02        1180.16    946.11  +25%
07-09        1436.27  1002.63  +43%

+2% gain over the past 58 years. CAGR 0.03%.

The teaser though... it has worked on the biggest bear markets. But you don't know what kind of bear market you have by the time the sell signal pops up.  :-\
O,

Good post. You just identified the main issue. If you are looking to time the S&P go over to The Motley Fool Mechanical Investing Board and look up "Bear Catchers." There are better methods but for John Q Public Bear Catchers is a good and reasonably easy method to track and follow...and extensively back tested.

Oh, and don't forget to subtract tax effects.
Last edited by Kbg on Sat May 09, 2015 2:20 pm, edited 1 time in total.
barrett
Executive Member
Executive Member
Posts: 1982
Joined: Sat Jan 04, 2014 2:54 pm

Re: Putting in sell stops below your stock ETFs

Post by barrett » Sat May 09, 2015 7:31 pm

I'm with Tyler on this one. If stocks dropped 20%, I think I'd be buying, not selling. That worked great for me in 2011 and then I waited around for three years for another damn correction. Finally found the PP and I don't think much about stocks at this point. I think the only way buying the dips really kills you is if we get into a Great Depression scenario and you just keep rebalancing into an asset until it has lost most of its value and you've chased the dips all the way to the bottom.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Putting in sell stops below your stock ETFs

Post by MachineGhost » Sat May 16, 2015 4:32 pm

20% is a huge move for an index.  I wouldn't use a trailing stock that huge on one.  Trendfollowing works much better.

20% not so much on an individual stock.

Use a 25% close only trailing stop.  It is remarkably robust.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Sat May 16, 2015 4:51 pm

I took my stops off.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Putting in sell stops below your stock ETFs

Post by mathjak107 » Sat Jun 27, 2015 5:15 pm

here is the problem when trying to dodge the bullet.

you have to be a nervous nellie type to bail before things deteriorate ,especially while new highs are stuill being hit.

but to buy back in when it looks like we are headed to hell takes nerves of steel .

rarely does one person have both properties.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

Re: Putting in sell stops below your stock ETFs

Post by buddtholomew » Sat Jun 27, 2015 5:59 pm

mathjak107 wrote: here is the problem when trying to dodge the bullet.

you have to be a nervous nellie type to bail before things deteriorate ,especially while new highs are stuill being hit.

but to buy back in when it looks like we are headed to hell takes nerves of steel .

rarely does one person have both properties.
In other words, you have to be lucky twice. Once when you sell and again when you buy to circumvent any losses.
"The first principle is that you must not fool yourself and you are the easiest person to fool" --Feynman.
User avatar
Matthew19
Senior Member
Senior Member
Posts: 115
Joined: Fri May 29, 2015 9:50 pm

Re: Putting in sell stops below your stock ETFs

Post by Matthew19 » Tue Aug 04, 2015 10:36 pm

Sounds like speculation to me. Do this in the VP. When your 20% stop hits, short the index as a full or partial hedge inside the VP and cover when your ready.
User avatar
blackomen
Executive Member
Executive Member
Posts: 211
Joined: Wed Nov 23, 2011 5:41 pm
Location: Dallas
Contact:

Re: Putting in sell stops below your stock ETFs

Post by blackomen » Mon Aug 24, 2015 9:01 pm

For your variable portfolio, stop losses make sense.

For the permanent portfolio assets, stop losses basically defeat the purpose.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Thu Aug 27, 2015 6:36 pm

My stops went off on Black Monday... it was not pretty. I got a lower price than I wanted, but I've been in since 2009 and have had such a huge gain, so... I'm not overly concerned. It was a big win; I turned all of those gains into cash. I'm down from 60% to a 30% stock allocation now, the Desert allocation.

Still not ready to buy gold. Not cheap enough. I think it could take the ill winds of deflation a while to whirl through the world economy. Gold could water-board it's owners at -10% for the next several years. C'mon $500.

Desert taught me to not worry about a 10-year Treasury bullet or cash-long Term barbell. I like a ladder, personally. It works out about the same.

One of these years, I'll be in the PP. Maybe as I slide into retirement. In the next 5-10 years.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Putting in sell stops below your stock ETFs

Post by dualstow » Thu Aug 27, 2015 9:35 pm

ochotona wrote: My stops went off on Black Monday... it was not pretty.
Sorry to hear that.
Sam Bankman-Fried sentenced to 25 years
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Thu Aug 27, 2015 10:00 pm

dualstow wrote:
ochotona wrote: My stops went off on Black Monday... it was not pretty.
Sorry to hear that.
No really, it was OK in the grand scheme of things. It's not good to get overly greedy.

Now it will be emotionally ugly if stock quickly pop back above the 200 day MA and I have to wonder about buying in again.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14232
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Putting in sell stops below your stock ETFs

Post by dualstow » Fri Aug 28, 2015 2:59 pm

ochotona wrote: Now it will be emotionally ugly if stock quickly pop back above the 200 day MA and I have to wonder about buying in again.
Precisely why I shy away from stop losses.
One of the many things on which Bogleheads and pp'ers agree upon is that allocation is key. Of course, the temptation to time is always there.
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Putting in sell stops below your stock ETFs

Post by mathjak107 » Mon Sep 14, 2015 6:40 am

My buddy had stop losses in place when the mini crash hit. They got executed not at his levels he set but the next price at the open when executed.

He got sold out down 900 points lower . He could be the poster child on why stop losses can hurt you very badley.

He said had he not used stop losses he would be 50k higher just leaving things alone.

Now he is hoping stocks tank thursday after the fed meeting so he can get back in and not be so far behind.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Mon Sep 14, 2015 1:04 pm

I did manage to sell more of my stock this week, so my average sales price over the last few weeks is fine. But yes, life lessons. "sell stop LIMIT", not just "sell stop" !!!
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Putting in sell stops below your stock ETFs

Post by mathjak107 » Fri Sep 25, 2015 7:43 pm

They both have their place. A stop limit does not protect you as much.

You could have a stock set with a limit of 15 dollars and in a fast market hit 14.50 and then fall to 12 and never sell you out. The stop loss at 15 becomes a market order once 15 or less is hit.
You would have gotten out at 14.50 in the above scenario .the stop limit would never have triggered and you had no protection in the end.

The flash crash was the exception where a stop limit and not stop loss would have been better but only because we came right back up.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Putting in sell stops below your stock ETFs

Post by ochotona » Sat Sep 26, 2015 11:12 am

Math, when I'm a retired dude like you I'll be able to put eyeballs on the screen and place the trade I really want! I actually caught what could have been the dead cat bounce, so over both trades I did OK, especially since I have been in the market since forever. I am using trendfollowing now, ten month moving average. Look at it once a month.

Trendfollowing applied to the PP works out great, over time. Trendfollowing has you 100% in cash now. But when I get back in, it will be Mebane Faber's 10 ETF Ivy portfolio (which I have stretched to 14 with some extra bond categories). Maybe when I'm a retired dude I will be in the PP, with a vault somewhere full of gold bought at $500 $250 per ounce.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: Putting in sell stops below your stock ETFs

Post by MachineGhost » Tue Sep 29, 2015 4:33 pm

Gold is a useless barbarous relic; it isn't money anymore and never will be again.

Stop losses are great; online stop losses at the broker where the market maker can see them is not.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
Post Reply