I refer solely to mrmarket's subject title. Indeed, cutting losses is for losers. The winners do not need to be cut.
You can be quite sure that mr. market is hiding something, why all of a sudden no braggery? Are we trading 100 lots?
That's what I suspect.....Its no big deal, but my point is that his attitude about cutting losses and holding a losing position may be result of holding 100 shares of a $25 stock....2500 is not a lot of exposure so even if the company goes the route of Wcom...your out $2500..ho hum.......but if he's doing this with 1000 share lots, i feel it;s actually reckless and irresponsible...WHY? If 600+ are following him Yahoo, he owes it to these people to point out : "hey im holding this losing position, but in reality its only 500 bucks for me".. Just my opinion
What happens if someone's dollar-at-risk-tolerance (let's term that "DART"), which is what you've described, far outweighs (or underweighs) the risk vs reward possibility for any one position? Wouldn't that be a poison DART if it's subjecting the account to unnecessary risk?
You raise a valid question. MrMarket's answer that they typically come back is not the end of the story. The question is would he better off dropping them and moving on or waiting for them to come back? The answer is not really susceptible to backtesting because, as I understand it, he dumps them if they suffer a fundamental breakdown. Still, I think one could get a decent idea of the risk/reward tradeoff by examining the record of his trades and doing an if/then alternative analysis. Also, as I recall he has some value-based criteria in his screens, so typically he is not left holding a horribly overpriced stock with zero earnings.
A few people raised this point previously on what is now, (I think) a deleted thread. The 'Opportunity Lost' factor. If mm's methodology finds more winners than losers, as he claims, than instead of riding a position down 29% (or any such large loss) and waiting for recovery, a stop at a predefined 'Small Loss' would permit reinvesting of the capital repeatedly into other positions during the 'Large Loss' period, that, because of the claimed preponderance of winners to losers, odds would have those new positions become mostly winning positions, thus increasing profits consistently instead of keeping capital tied up at substantially bigger losses. Even ordinary bookkeepers know that. Then, if and when the original position recoups, and mm claims that typically it will recoup, mm could always reinvest again on the way up. Result could be a significant overall performance improvement. On the other hand, if stopping out at a predefined small loss is not suitable to mm because he feels that his methodology proving time and time again that such losers will become winners and so such stops are not needed (and conscientiously does not care for possible portfolio improvement as per the above paragraph), then mm should consider something else he doesn't currently do: invest more capital while the stock is down at its lows, in order to gain even more profit when it recoups, as his analysis dictates it will, and goes on to gain a further profit of 15% on top, as he states. Not that I would do similarly, but you would think someone as confident as mm in the positive outcome of his losing positions would do just that.
MM is very much wedded to the periodicity of his efforts. He uses measures to select stocks on one time basis and he invests on another time basis. He truly does not know what you are asking. He went through some education and did some figuring out of things to draw his conclusions. What you are talking about is unfamiliar to him as a possibility. We all know because of our schooling what he went through at the schools he attended. The stuff you posted was definitely covered, emphasized and he was tested on it at the time he had his exposure. ,, By using 4 to 6 weeks as a 1/2 cycle, he can do the stuff he does in the evening and not during regular working hours where he has a job. you must think of what he does as a hobby craft not subject to refinement nor anything else. He is out of school, working, raising kids, etc. His years of "education" are over. The purpose of his education was to fill goals of those who control him. He did his own thing in a limited manner... His "identity" could get difficult to handle, if it were subject to modification. he has perfected one of the "safest" places to survive that most anyone will ever see. The fortunate thing about all of this is that it is an example that can be used as a reference for a given level of performance. All the iterative refinements, and there are many, can just be chatted about by others. He will not engage in substantive issues. they are there for us to chat about as he watches only.
I officially nominate Jack Hershey for the annual Elite Trader award: " ET member most likely to go to work with an automatic weapon"