This article is a website version of our weekly FREE Best Ideas Newsletter sent on 21.03.2023. Sign up here to get it in your inbox every Tuesday.

Just like an adventurer navigating through treacherous waters, first Silicon Valley bank and now Credit Suisse have faced challenging times.

While this may not herald the onset of another financial crisis, it underscores the wisdom of behavioral psychologist Daniel Kahneman, who astutely observed that unexpected events are simply reminders that the world is unpredictable.

Therefore, it is crucial to adopt a robust risk management system to cushion against unforeseen market fluctuations.

Constant vigilance is imperative, as trying to discern patterns in the market and reacting impulsively can sometimes lead to missed opportunities or incurring significant losses.

Amidst such uncertainties, employing a stop loss strategy acts as a lifeline, preventing you from falling into the abyss of financial turmoil.

Just like installing a safety net during a high wire act, adhering to a well-defined stop loss strategy provides a safety mechanism for your investments, allowing you to make calibrated moves while mitigating potential risks.

It's analogous to cautiously treading on thin ice; although you are venturing into the market, strategically placing stop losses acts as checkpoints, ensuring that your ventures are calculated and measured, preventing impulsive decisions that could lead to dissipation of valuable resources.

Which stop loss strategy is effective?

In last week's newsletter, I divulged that I had executed selling decisions based on stop loss triggers. A subscriber queried whether I also adhere to a 20% trading stop loss, assessed on a monthly basis.

Resonating with strategies outlined in our newsletter, I predominantly adhere to this approach, although exceptions exist, especially with regard to highly volatile stocks, where a 15% trailing stop loss, evaluated weekly, may be more appropriate.

As with many aspects of investing, there is no one-size-fits-all solution. The ideal strategy is one that aligns with individual comfort levels and ensures peace of mind.

Conducting meticulous back testing and referencing research studies can provide invaluable insights. For instance, our analysis has indicated that 15% and 20% stop loss thresholds have yielded positive outcomes in the past.

Opting for a 20% stop loss serves the dual purpose of containing trading costs while also safeguarding against substantial losses.

Ultimately, the goal is to safeguard your investments and ensure that you make informed choices, without succumbing to knee-jerk reactions in the fluid and unpredictable world of investment.

PS Despite lingering market uncertainties, have you commenced compiling your investment opportunity list? If not, why delay? Commence now and be proactive.

PPS Procrastination is the thief of time. Seize the moment and sign up without further ado.

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