TRAILING STOP LOSS

A complex stop-loss order in which the stop is set at some fixed percentage below the market price. If the market price rises, the stop loss price rises proportionately, but if the stock price falls, the stop loss price doesn't change.

This technique allows an investor to set a limit on the maximum possible loss without setting a limit on the maximum possible gain. It does this without requiring to pay attention to the investment on an ongoing basis.A trailing stop helps protect profits while providing downside protection.

Mechanism of Trailing loss order:

An investor decides to buy into a bull market with the possibility of losses covered by a stop loss. A prudent investor will exit the market once the perceived price is achieved losing on the chance to make any money out of the gains over and above his target. But the idea of the trailing loss order is to raise the exit barrier in the direction of trade instead of setting an absolute value on the rise. A trader using a trailing stop loss would still be hanging on to trading buy waiting for newer highs to be conquered, while the investor with the target selling would have exit the market rally by then.

When the market rises, the trailing stop loss also rises in proportion with the market, leading to escalated stop loss level. But when the market declines, the trailing stop loss doesn’t decline in line with the market. So the profits are protected under such orders. The losses are limited to the extent of the stop loss value.

Rakesh Jhunjhunwala on market gains-May'2009

What's a Gold Bug?

Gold Bug is an individual who is bullish on gold. Gold bugs believe that gold is still a stable source of wealth like it was during the years of the gold standard international currency system. A gold bug invests in gold for what he or she perceives as financial security in the event of a currency devaluation, and often also believes that the price of gold will continue to rise in the future. The term also refers to analysts who consistently recommend gold buy

Gold bugs view gold as a safe investment that will protect them from currency fluctuations or downturns in the financial markets. The market does continue to view gold as the traditional "safe harbor" during times of economic crisis.

The term was popularized in the 1896 US Presidential Election, when William McKinley supporters took to wearing gold lapel pins, gold neckties, and gold headbands in a demonstration of support for gold against the "silver menace", though the term's original use may have been in Edgar Allan Poe's 1843 story "The Gold-Bug," about a cryptographic treasure map.

How to review MF investments before redeeming the units?

If your mutual fund investment is yielding a lower return than what you anticipated, you may be tempted to redeem your units and invest the money elsewhere. The rate of return of other funds may look enticing, but be careful: there are both pros and cons to the redemption of your MF units. Let's examine the circumstances in which liquidation of your fund units would be most optimal and when it may have negative consequences.

1. Mutual Funds Are Not Stocks

2. When Your Fund Changes

3. Change in Fund Manager

4. Change in Fund Strategy

5. Change in Fund Performance

6. When Your Personal Investment Portfolio Changes

7. The need to rebalance your portfolio

8. Need a tax break

Read here to know in details about the different circumstance..

Value at Risk (VAR or VaR)

Value at Risk  is a widely used measure of the risk of loss on a specific portfolio of financial assets.Value at risk  has been called the "new science of risk management" A technique used to estimate the probability of portfolio losses based on the statistical analysis of historical price trends and volatilities.VaR is able to measure risk while it happens and is an important consideration when firms make trading or hedging decision.

e.g. Let 0 be the current time. With value-at-risk, we summarize a portfolio's market risk by reporting some parameter of this distribution. For example, we might report the 90%-quantile of the portfolio's single-period USD loss. This is called one-day 90% USD VaR. If a portfolio has a one-day 90% USD VaR of, say, USD 5MM, it can be expected to lose more than USD 5MM on one trading day out of ten. This is illustrated in Exhibit 1.

Example: One-Day 90% USD VaR Exhibit 1

VaR has five main uses in finance: risk management, risk measurement, financial control, financial reporting and computing regulatory capital.A risk manager has two jobs: make people take more risk the 99% of the time it is safe to do so, and survive the other 1% of the time. VaR is the border.Common parameters for VaR are 1% and 5% probabilities and one day and two week horizons, although other combinations are in use.Although it virtually always represents a loss, VaR is conventionally reported as a positive number. A negative VaR would imply the portfolio has a high probability of making a profit, for example a one-day 5% VaR of negative $1 million implies the portfolio has a 95% chance of making $1 million or more over the next day.

To sum up,Value-at-Risk (VaR) measures the worst expected loss under normal market conditions over a specific time interval at a given confidence level.It has 3 main components e.g.

• What is the most I can - with a 95% or 99% level of confidence -  expect to lose in dollars over the next month?
• What is the maximum percentage I can - with 95% or 99% confidence - expect to lose over the next year?

"VAR question" has three elements: a relatively high level of confidence (typically either 95% or 99%), a time period (a day, a month or a year) and an estimate of investment loss (expressed either in dollar or percentage terms). 

Dash to Trash

A term relating to when investors flock to a class of securities or other assets, bidding up prices to beyond what can be justified by valuation or other fundamental measures. While the dash-to-trash effect can occur within any type of security, the phrase is typically used to describe low-quality stocks and high-yield bonds, both of which can be subject to periods of overbuying in the markets. 

As the name graphically implies, investors are buying low-quality assets or assets that do not correctly price in the risks associated with them. The dash to trash often occurs near the end of a prolonged bull market, when investors begin to seek higher returns regardless of the risks involved. The longer it has been since a market downturn, the more likely that large pockets of investors feel bulletproof.

 

Source:Investopedia

 

The only thing premanent is "Change"

Willingness to change is a strength, even if it means plunging part of the company into total confusion for a while.

Jack Welch