# Ensuring Capital Preservation



## Gundini (4 January 2009)

I would like an opinion from an experienced Trader/Investor or 2, with regard to the most efficient and cost effective method to preserving my capital over a period of around 2 to 3 weeks. I will try to keep it short:

My personal opinion is, late Janurary, early February, will be a risky time to hold stock. The reason for my concern is two fold:

1. The lifting on the ban on shorting Financials. (Will it happen, or will they extend the ban? Surely bad for Hedge Fund liquidity.)

2. Reporting season in the US. (God only knows what dissappointments may be in stall for us here )

Over the last few weeks I have been accumulating some stock after a long break away from the market.

To my delight, I have picked up 10% gain on the stock. The portfolio of around 15 stock comprises a few Blue Chips, Mids Cap, and Specks. Each only 25% of my desired holding.

I am considering using a CFD short position, to hedge my gain during this period.

My question is: Would it be better to use something like the AUS200 Index: My reasoning here is even if the index falls 10%, the quality of my shares tend to be less affected as they are more recession proof. You could maybe even look at this as a pairs trade, or:

Considering I am only holding 15 stock, would it be more prudent to short the individual stock and forgo the $300 buy/sell cost, but ensure capital preservation? My only problem here is I can't short the Speckies. (About 4)

Either way, I would like to hold all the stock, and purchase my next 25% on the next pullback, meanwhile hold my gain.

I don't think I am getting a bit precious, 10% gain is nice gain!

Much appreciate your help. While I am up to speed with CFD's, I know nothing about put options yet, so CFD's seem quick fix for me.


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## CanOz (4 January 2009)

*Re: Insuring Capital Preservation.*

So why don't you just trail a stop up under them all and follow their trends as long as possible? Then once they hit your stops you'll be out with a profit. If things gets a bad as you say, then you can get them back again cheaper.

As Faber said recently "Now is not a time for investors, traders yes, but not investors"

Cheers,


CanOz


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## Gundini (4 January 2009)

*Re: Insuring Capital Preservation.*



CanOz said:


> So why don't you just trail a stop up under them all and follow their trends as long as possible?
> As Faber said recently "Now is not a time for investors, traders yes, but not investors"
> 
> Cheers,
> ...




Yes excellent suggestion, but can you trail a stop with full shares on Comsec?

How can you do that?


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## CanOz (4 January 2009)

*Re: Insuring Capital Preservation.*



Gundini said:


> Yes excellent suggestion, but can you trail a stop with full shares on Comsec?
> 
> How can you do that?




http://www.investopedia.com/terms/t/trailingstop.asp

A trailing stop is just a normal stop loss order that you move up behind the price (in a long position) as the price rises. There are several ways to do this. You can use an *M*oving *A*verage, or you can go back so many bars (days) and pick a low, or you can pick a spot just below an area where buyers appeared again (support).

You should be able to access charts from your brokers site, and check them everyday and adjust your stop accordingly.

I'll post a chart if i can find a stock in an uptrend.

Cheers,


CanOz


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## CanOz (4 January 2009)

*Re: Insuring Capital Preservation.*

Heres an example of a 15 day moving average, the red line. You see where the average is in terms of price, and a cent or two below that can be your new stop loss level.

OR you could pick an area where there are several lows together, offering some kind of price support.

OR you can count back 8-10 bars and take a price just under the low by a cent or two.

Does this help?

Cheers,


CanOz


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## Gundini (4 January 2009)

*Re: Insuring Capital Preservation.*

Thanks CanOz,

but that's maore a Traders view isn't it? 

I would have thoght Pair trading would have been a better trade (value) for an Investor, bearing in mind I would like to benefit from the growth these stocks have attached.

I realize I can get them at a further discount, and i tend to if it pans out that way, but have only dipped the toe in with 25% and happy to lock in profits without selling, for the moment.

By the same token, it is only my perspective for the moment.

Thank you for your ideas though CanOz


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## CanOz (4 January 2009)

*Re: Insuring Capital Preservation.*



Gundini said:


> Thanks CanOz,
> 
> but that's maore a Traders view isn't it?
> 
> ...




No worries Gundy, stick a 15 MA on those stocks anyway, and let me how you would have went.

Cheers,


CanOz


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## Gundini (4 January 2009)

*Re: Insuring Capital Preservation.*



Gundini said:


> 1. The lifting on the ban on shorting Financials. (Will it happen, or will they extend the ban? Surely bad for Hedge Fund liquidity.)
> 
> 2. Reporting season in the US. (God only knows what dissappointments may be in stall for us here )




If any of these turn pear shaped, that 15MA could save me from plenty of loss's  for sure.

I'm only a bear though for 2-3 weeks....

Cheers...


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