Vinod Kurup

Hospitalist/programmer in search of the meaning of life

Dec 1, 2005 - 2 minute read - Comments - investing quarterly

Investments: Quarterly Update

DUCK lost money both in its most recent quarter and over the past 12 months, so I sold it. I wish I’d been smarter about the way I sold it. I hadn’t decided which new stocks to buy yet, so instead of just selling DUCK and sitting in cash, I thought I’d using a trailing-stop order. With a regular stop, you tell your broker to sell the stock once the price drops below a certain point. If the current price is $23.50 and you set a stop at $23.00, then when the price drops below $23, the broker sends the order to the market and fills it. It’s a way to automatically limit your losses (or protect a certain amount of gains) in a stock. A trailing stop works the same way, except that the stop-price moves up whenever the current-price moves up. You set a trailing-stop at 50 cents below market. If the current price is $23.50, your stop is at $23.00. If the current price goes to $24, then your stop moves up with it to $23.50. I figured this would be perfect for my situation. I knew I wanted to sell DUCK. I didn’t know what I wanted to buy next. If DUCK went up in this period of time, I’d benefit. If DUCK went down, I’d lose very little.

Or so I thought. The stocks that I own are thinly traded - they’re small and unknown. You always want to use limit orders for these type of stocks. But all stop-loss orders are really market orders. The broker holds onto them until the price hits the stop and then sends the order to the market as a market-order. So, in my case, DUCK closed at 23.49 on the day before my order. I placed a trailing-stop at 50 cents. DUCK opened at 21.50. The trailing-stop triggered and my order filled at 21.60. The stock price then jumped back to 23.50 and remained there. I got screwed! The real problem is that I got greedy. Instead of hoping for a few extra pennies per share, I should have just set a limit order at $23.00 and forgotten about it. Live and learn. Either I want a stock in my portfolio or I don’t. Squeezing extra pennies out of it is not the way to get rich.

Here’s how the rest of my portfolio is doing as of 11/30/05

Google Ads only for googlers Hot Chocolate 15K

comments powered by Disqus