$$$MR. MARKET$$$ opinion on the IBD 8% stop loss sell rule

[mrmarket]

While I don't argue that the blind 8% stop loss is a reasonable rule to preserve capital, one has to look at it in the entire context. A lot of these IBD stocks are purchased at extremely high PE valuations and their earnings history have not yet been proven.

The stocks I select almost always have a 3 year track record of growing revenues and earnings AND the earnings are profitable. In addition, I use trailing and forward PE as a ranking criteria. As a result, the stocks I pick are inherently safer than those advocated by CANSLIM.

CANSLIM needs the 8% rule....I do not.

The other issue I have with blindly selling a stock is that I need to know why it dropped in price before I sell it. If there is no reason to be convinced that the stock's fundamentals have changed and that it will now underperform the market, I see no reason to sell. I put a great deal of research into the picks I buy and I see no reason to blindly discard them for no apparent reason.

[Dave]

I agree that the only reason I would bail on a stock is if the fundamentals had changed in a such a way as to alter the future value of the stock. Personally, with a blind 8% stop-loss, I would have been stopped out of at least 2 $$$MR. MARKET$$$ winners.

The only thing I am toying with is dumping a stock right before earnings, a time at which we find out about fundamental changes. If I dump before earnings and they miss or announce some other thing that sends the stock lower, I have preserved my capital. If they have a good earnings report, and the momentum is going to continue, I can always re-buy. I may have to adjust my target up a bit, though.

Another option might be to use a stop-loss only at earnings time, but withdraw it immediately on a good report? Just tossing some thoughts out there....

-Dave