Thanks for the comment. I really appreciate your thoughts on this.

Do you have a source for the statement that “most investors who use a buy and hold also have a stop loss percentage”? Anecdotal evidence leads me to believe that most investors don’t use stop losses, but that could definitely be wrong.

I’d be hesitant to call investors that do use stop losses “buy and hold” investors. Generally “buy and hold” means you don’t sell because you think the company is going to be strong forever. (Exactly what I’m arguing against in this post…)

What stop loss percentage should be used in order to still be able to make a gain/profit, and not to be continually getting stopped out, and also not to be losing so much on each trade that you can’t afford to lose again?

How many times should you be able to lose?

And if you do get stopped out, when is it “safe” to get back in the same stock?

These are questions that I could never find satisfactory answers to. I’d be interested in hearing your ideas on these though.

Thanks,
Aleks

I’m not sure that’s true. You may be different, but the standard small investor emotional profile is someone that goes into denial when their stock drops. They just hold on hoping it will come back.

Also, someone does sit and ride a bear market. For one investor to sell, another investor has to be willing to buy.

“…just like in the no-lose you have to check for the expiration of the puts in order to renew”

Just wanted to clarify, the No Lose Stocks strategy does not call for renewing the puts. The investor buys the combination and waits to see if it pops within the time frame of the put. If the put expires before the stock pops, then the investor looks for another No Lose Stocks combination. Often the “No Lose” pricing is not available for more than a day or two for a particular combo.

“Having a return of 0.01-0.20 with no-lose (plus the money being tied up till puts expire) is not worth the time nor the money to invest as it cancels the prospect to capture a greater opportunity.”

Again, just to clarify, with the No Lose Stocks strategy, the intent is not to make a return on the dividends. The intent is only to use the dividends to pay for the put and HOPE that the stock goes up high enough in the mean time to make a profit.

Personally, I’ve started just buying the equivalent call option instead of the put and dividend stock combo. The interest rate in the last column of the spreadsheet is the interest rate that the core capital needs to be earning to make the call a better deal than buying the put and stock combo.

Think of it if this way; In order to use the no-lose strategy, you have to find a stock that pays dividends and use those dividends to pay for the put options toward your stock as an insurance just in case something happens.

Like i mentioned in the beginning, this strategy is very effective but only to short-term stocks. (1-2 years; not 20 years) Why I say that is because no one will sit and ride a bear market especially if the stock is dropping from 65 to 35. Personally as soon as I see a major decline I pull out (mm lets say at least by 10-15$ is my limit decline) Lets take FNM as an example you have above. FNM reached a high of $45 per share, and then dropped dramatically. Now personally I would have pulled out everything when it was $35-30. Why? News, newspapers, research, etc.. are the fundamental things needed to be done for the stock you own. Also since my strategy is buy and hold, my dividend payment could be used as a backup for any additional loss (in your case it would be a put as an insurance)

Getting to the point is that the no-lose strategy works great for short term stocks (1-2 years) because as you always need to check your stocks occasionally (just like in the no-lose you have to check for the expiration of the puts in order to renew)likewise with the buy and hold you have to check occasionally for any major changes. Major changes do not happen overnight. Stocks do not drop from $45 to $10 in one day without the news,newspapers or online research informing you ahead of time. Like I mentioned before, the no-lose strategy would fit better for 1-2 year investment, and as the stock continues to rise, there is no point of spending the dividend for put option as an insurance to protect the investment. (It's a safe idea, but it will not reward you as much)

But a reward is something better than nothing correct? I would totally agree, but a 20 times greater reward to the no-lose strategy is worth a lot more if individuals keep up with research, news,etc for their investment and pull out at a certain time (such as using the dividends as a backup– once the stock drops in price to the accumulating dividends, its a good time to pull out some or all)

The no-lose strategy is a good strategy if you are Warren Buffet or for short term. I did sign up and checked your listings. Since no-lose strategy requires to purchase option put, then stocks need to be purchased by 100. Average stocks are 20-30$ per stock, which makes it expensive would tie your money to this stock until all your dividends are paid in order to not have a loss.

Again, good strategy, but personally I would use buy and hold. Having a return of 0.01-0.20 with no-lose (plus the money being tied up till puts expire) is not worth the time nor the money to invest as it cancels the prospect to capture a greater opportunity.