Munger said: "If you plan to participate in this game for a long time, then you'd better be able to cope with a 50% drawdown without making a fuss."
When you are now upset when you look at the stock account that has a floating loss, think about the possible floating loss you thought about at that time? If you have never thought or have never thought that the actual floating loss will be so great, I suggest you refer to Munger's standards and regard a 50% retracement as a normal range.
If you set the 10% retracement to the maximum value you can accept, and now you have a floating loss of 20%, it is not that this 20% is wrong but that 10% is wrong. Modify your own standards and at this stage, accepting floating loss is more rational than selling stocks.
Most people do not correctly understand the "stop loss" skill. Most experts also tell you that if you set a stop loss line, such as 10%. If you exceed this line, you will have to cut your position in . There are two common tragic situations in actual execution:
1. The floating loss exceeds 10%, but you are unwilling to make a comeback and wait for a rebound before selling. As a result, it falls to 20%, and you can't stand it and cut your losses;
2. If you reach 10%, you will execute a stop loss.
The first type is tragedy, I believe it is easy to understand. Many people have experienced this, but why is the second type also tragedy? Obviously, the execution ability is very strong, and this is the person who the first type of person is striving to be. I not only think that the second type is a tragedy, but also think that the second type is more tragic than the first type. What is the reason?
Because setting a 10% stop loss line is wrong, that is, the planning itself is a big mistake, and the more thorough the execution, the more tragic the result.
When you use such a stop loss strategy, the following misunderstandings are likely to occur:
1. I think it is safe as long as the stop loss is strictly controlled;
2. Since it has retreated 10%, it means that the previous buying judgment is wrong. You can get new opportunities to make money by admitting the mistake and re-choosing. There are so many stocks, study the next one.
3. Every time you lose a small loss and make a big profit, you can make money by repeating it constantly.
I can guarantee that if you have the above ideas and you really execute them very seriously, you will most likely lose all the money in the end. In fact, there are at least two other factors to consider in the stop loss strategy above
. It is definitely not as simple as setting a stop loss line and strictly implementing it. These two factors are odds and winning rates.
odds, roughly speaking, it is the value of the stop-loss ratio corresponding to the stop-loss ratio. For example, setting a 10% stop-loss and 20% stop-loss, then the odds are 2. If you invest ten yuan, you can't get it back if you lose these ten yuan, but if you win, you can get 20 yuan.
win rate is the probability of you going to +20% first after you buy stocks (relative to -10% first). As long as you arrive first, even if you arrive 30% later, it will be a failure for you.
After introducing the above two factors, the mathematical connotation of this strategy is actually very obvious. Assuming the winning rate is V, the calculation formula for listing the expected value is as follows:
profit expectation value = 20%*V+(-10%)*(1-V)
requires the expected value > 0, then the winning rate V>1/3
requires the winning rate of 1/3, which seems very easy? There is also a 50% chance of tossing a coin. In fact, it is not the same thing at all. Tossing a coin is an infinite game. Even if you fail continuously, you can still continue to play. Our investment is a limited game. If you fail several times in a row, you will lose the chance of winning later. For an understanding of this, readers are advised to refer to the traversality of the probability mentioned in the book "The Fool of Random Walking".
I don’t have big data support to do detailed probability calculations. Here, the popular simplification of the analysis process:
From a long-term perspective, the stock market is an infinite game, which is not contradictory to our personal "limitation". Assuming that the annualized increase of this infinite game is 10% ( Shanghai Composite Index June 15, 2018 was 3021.90, ten years ago, June 13, 2008 (the 15th is a non-trading day) was 2868.80, a 5.34% increase in ten years, and the annualization is only 0.52%. The Shanghai and Shenzhen 300 is slightly better, which is far from 10%). There are three trends in this game, namely, decline, sideways and up:
from two time scales respectively Degree description:
1. The long-term trend consists of three small trends: decline, horizontal and rising. The probability of each trend appearing is approximately 1/3. In the downward trend, (-10%, +20%) this combination is almost impossible to appear. In the sideways trend, (-10%, +20%) this combination is also approximately impossible to appear. In the upward trend, (-10%, +20%) this combination with a small increase in pullback is approximately certainly possible. Therefore, (-10%, +20%) this combination with a small increase in pullback is exactly 1/3;
2. Considering the long-term trend as a whole, (-10%, +11%) this combination is reasonable. This can illustrate a problem, that is, (-10%, +20%) this combination is a small probability event.
Combining the above two dimensions, you will find that (-10%, +20%) combinations are greatly reduced even in the upward trend. Moreover, A shares short bulls and long bears, which makes the basic probability of the upward trend itself far less than 1/3 (I entered the market at 3400 points in 2009, and now 3088 points). In addition, volatility must be taken into account. The fluctuation will be even greater in the upward trend. Once the -10% breaks through, the subsequent rise has nothing to do with you.
calculating the logic of this set of logic. From a qualitative perspective (-10%, +20%), the event of making a profit is basically a small probability event. The expected value of profit is negative. If you want to increase the probability, for example, using a combination of (-10%, 12%), although the probability of success increases, the profit value becomes very small, and the expected value of the final profit is still negative. Many things are counterintuitive, especially when it comes to probability.
Then don’t we need to stop loss?
of course not.
Even if you are as brave as Munger, you will have a stop loss. For example, the Alibaba bought by Munger last year also suffered a huge loss this year. What is the logic of the reduction? It should be that the fundamentals of the company have undergone fundamental changes, and everyone understands this. Why did Munger not stop loss at -10%, because the fundamental changes in fundamentals were not confirmed at that time.
Munger said: "If we have been doing things well on the right path, I don't think we have to worry about the future."
yes, in the end, it's back to the research and choice of the company. If you choose the right path, it is to turn off the trading software on the right path. In the future, you only need to pay attention to whether the company's fundamentals have changed and whether you have a better path to switch. If you don't do basic skills and just think about using various strategies to shear the stock market, then you are likely to be that sheep.
Finally, there is another situation where you can stop loss, that is, you have no expectations for the stock market and will never play again after exiting. Congratulations, you are likely to make the right decision.
