The Problem with Stop Losses

A stop loss is designed to protect against further losses, typically set 10-20% below a purchase price. But in my experience, most stock-picking approaches are only about 60% accurate. That means 40% of the time, you’re just trying to claw back losses—making it even harder to beat the S&P.

Another issue? Stop losses often trigger at a stock’s low point, just before it starts to rebound. By the time you decide to re-enter, you’ve either missed the move or bought back in at a higher price. The same challenge applies to market timing, which often leads to underperformance.

🌟 Why Stars Doesn’t Use Stop Losses 🌟
Stars is a buy and hold strategy—there are drawdowns but not realized losses because we don’t sell. Instead of stop losses, I apply two techniques in the Seedlings breakout stock-picking model:
✅ Sell the worst-performing stock
✅ Sell any stock making a new yearly low
Rather than selling on minor weakness, this approach cuts extreme underperformance while allowing strong stocks to recover.

What’s your take on stop losses? Do you use them, or do you take a different approach? Let’s discuss.