sorry if i'm misunderstanding, but do you feel that stops would help prevent this? i have no numbers to back this up (and so i ask this out of sincere curiousity - not arguing one side or the other), but its seems highly likely that an event which would cause a stock to move >50% wouldn't cause a trading halt and massive gap. at which point, your stop may cause even more harm. no?
My advice would be to ignore Shortie, at least in this thread. He's just randomly pulling numbers out of thin air, when the reality is, he has no idea what he's talking about with regards to the situation. Complete and utter nonsense.
i don't want to hijack lescor's thread more than i already have . i did not say that stops would have improved his potential drawdown. i personally don't believe much in stops for RTM strats. -150K was an illustration of the kind of losses that are possible from just one trade given his position size.
I can't help but think that if it were this easy to make 9-11% with little principle risk, then one would think the tens of thousands of banks, hedge funds, financial institutions, insurance companies, well-funded investors, financial advisors, sovereign wealth funds, and even state/local/federal governments would have thought of it before an individual saying he lost almost $200,000. In other words, it rarely works that way. When one is so sure that you are seeing light at the end of a tunnel, it might actually turn out to be an oncoming train...
I'm assuming you bet the ranch on these high-yielding corporates because you could layoff the default risk somewhere else?
I'm generally pretty even long / short. I don't make guessing market direction part of my systems. If I want to indulge a hunch I'll put on a position with ES or SPY. But my guesswork isn't much better then anyone else's so I don't bet big.
lescor, i am sorry. earlier i was talking out of my arse. for my earlier calculations to hold the stock had to drop 100%. your position size was ~$150K of SWM or ~3000 shrs
Maybe you read too fast through my details or I was not specific enough. Let me amplify a bit more. For the first six months of 2009, I accumulated nothing but high trench A level company quality bonds, like Prudential, JPMorgan, Goldman Sachs, SunAmerica etc. with various time frames between 15-25 years. I got them all at steep discounts below par because of all the market craziness at that time. So take Prudential for example, I loaded these particular notes between 40 and 50 cents on the dollar with a 5.6% coupon. This gives me an actual annual yield in the mid teens. As long as I do not sell the bonds, I get this double digit return every single year until 2028 and at that time when they are redeemed at par I will also receive double my money back. Now going forward from now I still only accumulate top trench A level bonds as well. But these yields will be in the 5.5%-6.5% range. When I extrapolate this though with what I already have accumulated that I detailed above; over the course of the next decade, it comes out to somewhere around 10% annually.