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My definition of "catastrophic loss" is different from yours. A loss
of -15% on a single position in a diversified portfolio isn't
serious, IMO. If it was a -15% loss across the board for my whole
portfolio, that would be significant. (And, somewhat ironically,
during the conditions under which this might occur, good money-
management wouldn't protect my portfolio from a major loss.)
But to answer your questions:
1) I rarely have a large loss on a single position.
2) Good stock selection and understanding of market conditions
(favorable or unfavorable) is better protection than puts, position-
sizing, stop-losses, etc.
3) Large one-position losses don't have a major long-term impact.
4) When it happens it typically it happens to one position. I try
to be out of the market during times when my entire portfolio can
take a hit.
5) The psychological effects (I assume you mean "negative") are very
intense in the short-term, but quickly fade.
Luck,
Sebastian
--- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser"
<andysmith_999@xxxx> wrote:
> I understand from time to time, a position will take a huge loss.
>
> Perhaps something happens after-hours and the stock opens 15% lower,
> well below the stop. One way to avoid this is to not hold over
> earnings. But a plunge can still happen for reasons unrelated to
> earnings.
>
> I have found very little in the money management literature on this
> subject, so can a few of the experienced traders please provide some
> guidance:
>
> 1) How often has this kind of catastrophic loss happened to you?
>
> 2) Are there cost-effective and practical ways to protect against
it?
> (eg. buying put protection for long stock that is held for a few
days
> is not practical).
>
> 3) How have such losses affected the long term return of your
portfolio?
>
> 4) When these catastrophic losses happen, is it isolated to one
> position or does it affect all your open positions?
>
> 5) What were the psychological effects?
>
> Thanks!
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