BarroMetrics Views: Risk Management VI
Turning to the last post in this series.
Paul’s second question:
2. Fund Managers advise clients to ?Buy and Hold?, with average-costing strategy.
This is investing/trading without stop-loss.
Does it work consistently?
That would depend on market conditions, and the lifetime of the investor has wouldn’t it? For example if I had bought the DJIA in Jan 1931 at 197, I would not have broken even till Oct 1945. Now at my age, that almost 20 year wait would have probably exceeded my lifetime. And this assumes, that the stock I bought had remained solvent.
On the other hand, if you had bought at 14,198 in Oct 2007, with the DJIA now at above 16,000 you would be sitting pretty.
Buy and hold is a viable strategy at the right time and in the right hands. According to me service we did see buy and hold funds post a negative return for 2012 and the first quarter of 2013. And this brings me to the final question.
3. What should be the Money Management to trade without stop-loss?
By that I suppose you mean your position sizing.
The first point would be my admonition that ‘no stop loss’ does not mean ‘no predefined exit conditions’. So, for me, I’d use the average loss for your predefined exit conditions, and vary that up or down depending on whether I was in Ebb or Flow stage.
Happy Easter everyone!