About Exit Strategies
It’s all about the exit. The sell point actually determines the final outcome of
an investment. However, even savvy investors have a difficult time deciding when
to sell. They may get nervous and sell a winner too soon — or hold losers far too
long. Some set “mental” stops and then fail to execute them. Others use trailing
stops only to find themselves “whipsawed” out of a stock just before it takes off
for a big gain. A good exit strategy applied consistently lets profits run while
providing downside protection to minimize losses.
Why Is SmartStops Better?
Traditional exit strategies however
can be difficult to deploy and time consuming to maintain. As a result, most conventional
exit strategies fall dismally short of their intended goals. Not SmartStops. Using
SmartStops couldn't be easier. SmartStops automatically determine the optimal exit
for each stock in your portfolio and maintains those exit triggers, adjusting them
each market day based on current market conditions. SmartStops are calculated and
published daily and are optimized for each equity and for each day. They are designed
to allow for normal price movement while alerting you quickly when abnormal weakness
is detected. During periods of strength, SmartStops intelligently back away to provide
more room to run and avoid whipsaw. During periods of weakness, SmartStops intelligently
tighten to get you out early in a down trend. Once a risk alert is issued, SmartStops
continues to monitor the equity and alert you when subsequent signs of elevated
risk are detected.
With SmartStops, you’ll save time and effort and enjoy peace of mind knowing you
have an exit strategy in place every day. While most days you may not have to be
looking at your stocks, if you receive a risk alert, today is a good day to look
at that one. Review the position, reassess the risks and prospects, make an informed
decision and take timely protective action.
SmartStops enable you to:
- Easily maintain downside protection that positions you to quickly react to changing
market conditions on a daily basis.
- Align your exit strategies to short or long term investment goals.
- Respond quickly to unusual negative price action.
- Achieve higher rates of return.
- Drastically reduce the probability of catastrophic losses in bad markets.
- Better utilize broker capabilities to always be prepared to automatically sell
stock before a market correction erodes profits or results in a loss.
Buy and hold is really not an exit strategy. It is a philosophy that believes
will even out over the long term in a diversified portfolio
of high-quality stocks. In other words, hold a good stock long enough and you will
make a profit, including the recovery of any losses accrued over the short and
Concerns with buy-and-hold
- Investment funds are continually tied up.
- You may not have a long enough investment horizon to ride out down markets.
- Losing stocks in a buy-and-hold portfolio can offset winners.
- There are clearly times when a stock should be sold, but if investors are not
paying attention opportunities to mitigate risk will be missed.
- Sell decisions are often influenced by emotion and other factors that lead investors
to make irrational decisions.
- Buy and hold is often the default consequence of not having an effective exit
Many investors simply become dependent on buy-and-hold because they lack the time,
experience, and resources to establish an effective strategy. SmartStops are a superior
alternative to buy-and-hold because it allows quick, accurate response to market
fluctuations that erode profits or result in unexpected losses. Selling instead
of holding through downtrends allows you repurpose funds and achieve greater returns.
Trailing Percentage Stops
Concerns with trailing percentage stops
- Trailing stops do not adjust to changes in market direction and volatility. They
only adjust in one direction—up. This often results in premature exits or the whipsaw
- As stock prices climb, stops based on percentages move too far away from the price
and fail to protect profits. In other words, a 10% exit on a $10 stock is not the
same as a 10% exit on $100 stock or a $200 stock.
- Once a percentage exit point is reached, new stops are not automatically calculated.
Brokers are often better at suggesting when to buy than when to sell. Moreover,
the brokerage business faces natural hurdles to the sell evaluation and execution
Concerns with brokers
- Successful brokers may have 500 or more active clients with large portfolios.
This means monitoring thousands of stocks to maintain exit strategies—a very time
consuming task even with automated tools.
- Brokers often lack training on exit strategies and seldom have the tools needed
to closely follow trends and take decisive action when it counts. Unfortunately,
it is not uncommon for brokers to suggest selling a stock only after bad news or
when they want you to buy something else.
- Even if brokers had the time, knowledge, and tools to closely monitor stocks,
it would be impossible for them to respond with timely exit signals for every
client. Do you know where you are on the priority list when your broker decides
its time to sell?
SmartStops provides an objective, analytical perspective that can augment broker
recommendations. Your broker can use SmartStops to achieve more consistent results
and a higher total return on your investments. Have your broker
contact us to learn more about programs designed for them.
Concerns with technical analysis
- For the average investor, TA is simply too complicated to master and apply.
- Technical analysis is more suited for traders who are willing to commit the time
required to use it properly.
- There are a variety of components such as moving averages, moving average convergence/divergence
(MACD), trend lines, support/resistance points, and Fibonacci retracements that
need to be considered when using TA to create exit points.
SmartStops incorporate TA, proprietary analytical models, and years of market experience
into a tool that is easy to use for any investor regardless of knowledge or skill
level. It can serve as a guide to the casual investor as well as complement the
efforts of a seasoned technical analyst.