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You’ll like this story. I was catching-up with a client this morning who had been out in Colorado during and after the Brexit vote. He asked what he missed while he was gone. “Well,” I replied, “as it turns out, not much.” My client already knew that, but he knows I despise using stop-losses so we had a good laugh at the expense of the stop-loss crowd.

And a crowd there is in the stop-loss world.

As a refresher, a stop-loss is an order to sell a stock when it falls below a certain price. I will not use them. It’s a strategy the hedge funds love, and one that makes me uneasy.

What ends up happening with stop-losses is a position is stopped out on the way down (see chart) and, more times than not, not repurchased on the way back up.

That’s exactly what happened during Brexit to a lot of so-called experts. The stop orders went crazy: sell, sell, sell. But the buyers disappeared. And the prices plummeted. Because buyers know a stop-loss when they see it and know it does not guarantee a stop sale. It’s a wish, not a confirmation.

So the Brexit stop-loss losers needed to get in the back of the queue, if you will.  And all of the sales made in taxable accounts are now a taxable event with taxes due in April 2017. More costs are generated from the transaction fees (both ways eventually). A much saner way to invest is to own stocks that pay dividends—survival stocks that pay you—while you go to Colorado and forget about Brexit and the stock market for a while.

nasdaq brexit

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E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.
E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.