Learn to invest with Buffett

Chapter 55

Chapter 8 Section 7 It is necessary to set up a stop loss point

There must be a 50% loss preparation when entering the market.

--Warren Buffett
Many long-term investors may think that once Buffett buys, he will hold it forever and will never sell it, then you are wrong.Buffett's short sentence above shows how much the master attaches importance to stop loss.So, big investors like Buffett will also stop losses, where to stop losses?When the invested company loses its growth potential and its fundamentals deteriorate, stop the loss!The stop loss of investment is different from the stop loss of speculation. The stop loss of speculation is only relative to the change of price; the stop loss of investment is relative to the change of fundamentals.A "stop loss order" is an order to buy or sell stocks to be executed when those stocks reach or exceed a predetermined price. A "buy stop order" is generally executed above the current transaction price, and a "sell stop order" is generally executed at a price lower than the current transaction price.Once the price is triggered, the stop loss order becomes a market order, indicating that the investor will trade at the most favorable price.

For example, if you bought 40 shares of a company at a unit price of $100, and now it is only $28, it is now only worth $4000 for a stock that cost $2800 to hold, and you have lost $1200 .It doesn't matter if you sell the stock and move to cash, or keep the stock, it's only worth $2800.Even if you don't sell, you still lose money when the stock price falls.You'd be better off selling them and going back to holding cash, which will allow you to put things into perspective.If you continue to hold and suffer greater losses, you will not be able to think clearly about the problem, and you will always deceive yourself and say to yourself: "There will be no more price cuts." However, you must know that there are many other stocks to choose from. , the chance of making up for the loss may be greater.

For another example, a certain stock forms two highs at 10 yuan and 11 yuan one after the other. Once the stock price falls below the previous high of 10 yuan, it is an opportunity to sell.This method is more accurate in judging the trend of the broader market. For example, the Shanghai Composite Index hit a rebound high of 2001 points in October 10. It broke through this high point in early December and fell back after hitting a new high. It will be effective on December 1744. It fell below the high point in October, the head was established, and the stock index began to decline continuously, falling from more than 12 points to more than 12 points; on March 11, 10, the Shanghai Composite Index hit a high of 1700 points, and on June 1300 the index It hit a high of 2002 points and then fell back. On July 3, it fell below the high point of March. Then the stock index fell repeatedly. It has also worked repeatedly on individual stocks. For example, Jinbei Bus (21) hit a high of 1693 yuan on April 6 and fell back. point, the adjustment trend is formally formed; the trend of ST Xiali (25) is exactly the same as that of Jinbei. It also hit a high in April, hit a new high in May and then fell back. It fell below the previous high in early June and then began to fall repeatedly.The time interval between the two high points referred to in this method can be long or short, but the two high points with a slightly longer interval are more accurate.

Individual investors must clearly adhere to such a principle: the maximum loss of each stock should be limited to 70% to 80% of its initial investment.Most institutional investors lack the flexibility to quickly execute a stop-loss plan due to the large size of the investment and the reduction of overall risk through investment diversification.It is difficult for institutions to quickly buy and sell stocks, but it is very necessary for them to implement this stop loss principle.So for you as an individual investor, this is a great advantage over institutional investors.So take advantage of that.Remember, 7% or 8% is the absolute stop loss limit.You must sell those stocks without hesitation -- don't wait a few days to see what happens next or hope that the stock price will recover; there is no need to wait until the close of the day to sell stocks.At this time, apart from the fact that your stock is down 7% or 8%, there is nothing to affect the overall market.

Of course, for investors, stop loss is by no means the goal, but a thorough understanding of the stop loss concept and adherence to the stop loss principle are the basic guarantee for investors on the road to success.In actual combat, the continuous implementation of this concept will continuously increase the success rate of investors' shots, and the point of sale will become more precise. Although it may not be possible to achieve "every battle", it will definitely achieve "every battle without danger" and stop losses. The ultimate goal set by the rules must be revealed!
Investment motto:

As an investor, three prices must be determined before each purchase, namely: purchase price, stop profit price and stop loss price.If this work is not done well, any operation is strictly prohibited. Learning to stop loss and being good at stopping loss is the basic prerequisite for survival and development in the stock market!
(End of this chapter)