{"id":2104663,"date":"2019-05-02T13:26:22","date_gmt":"2019-05-02T07:56:22","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2104663"},"modified":"2019-05-02T13:26:22","modified_gmt":"2019-05-02T07:56:22","slug":"are-stop-losses-worth-it-part-ii","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2019\/05\/02\/are-stop-losses-worth-it-part-ii\/","title":{"rendered":"Are Stop-Losses Worth It? Part II"},"content":{"rendered":"

We saw how, in aggregate, stop-losses do not add any value to a momentum portfolio after taxes and transaction costs (Are Stop-Losses Worth It?<\/a>) When you dig a little deeper into the actual positions that get stop-lossed and analyze their subsequent returns, we find that, on average, subsequent returns are not negative enough<\/em> to justify trading costs. <\/p>\n

During mid-2016 through April-2019 Bull and Bear phases<\/h3>\n

Here’s how the Momo (Relative) v1.1<\/a> Theme’s stop-lossed positions behaved 20-days after they got booted out, mid-2016 through April-2019:<\/p>\n

\"Momo<\/a><\/p>\n

Summarized statistics across different holding periods:
\n\"Momo<\/a><\/p>\n

Now let’s partition the total period into two. The first part covers the “bullish” market of mid-2016 through Dec-2017 and the second Jan-2018 through April-2019.<\/p>\n

During the mid-2016 through Dec-2017 Bull<\/h3>\n

\"Momo<\/a><\/p>\n

Summarized statistics across different holding periods:
\n\"Momo<\/a><\/p>\n

During the Jan-2018 through April-2019 Bear<\/h3>\n

\"Momo<\/a><\/p>\n

Summarized statistics across different holding periods:
\n\"Momo<\/a><\/p>\n

Conclusion<\/h3>\n

When looked at from the perspective of a single position, a stop-loss removes red ink and is out-of-sight\/out-of-mind. However, it is only when you look at their subsequent returns in the aggregate, that you realize that peace-of-mind comes at a cost.<\/p>\n

During the bull phase, when the whole market was shooting higher, stop-lossed positions recovered from their losses. Note how the skew is slightly positive. Stop-losses here were a definite drag after taking costs into account.<\/p>\n

During the bear phase, it does look like stop-losses helped – the subsequent returns of stop-lossed positions were skewed left. However, as we saw in our previous post, in aggregate, they did not add value after taking costs into account.<\/p>\n","protected":false},"excerpt":{"rendered":"

We saw how, in aggregate, stop-losses do not add any value to a momentum portfolio after taxes and transaction costs (Are Stop-Losses Worth It?) When you dig a little deeper into the actual positions that get stop-lossed and analyze their subsequent returns, we find that, on average, subsequent returns are not negative enough to justify … <\/p>\n","protected":false},"author":2,"featured_media":2091813,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3471],"tags":[3491,960],"class_list":["post-2104663","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-insight","tag-momentum","tag-returns","entry"],"_links":{"self":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2104663","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/comments?post=2104663"}],"version-history":[{"count":0,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/posts\/2104663\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media\/2091813"}],"wp:attachment":[{"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/media?parent=2104663"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/categories?post=2104663"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/stockviz.biz\/index.php\/wp-json\/wp\/v2\/tags?post=2104663"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}