Welcome to Investing for Beginners podcast, I’m Dave Ahern, and Andrew Sather is here with us as well. Welcome to episode 41, tonight we’re going to talk to Brad Conway who’s coming all the way from merry old England. Brad is a newer investor, and he’s got some great questions for us tonight.

So without any further ado, I’m going to hand it over to Andrew and Brad. A special note I had some audio difficulties with my speaking tonight, my computer was not working so I had to use my phone. So the audio quality for me will not be so great, so I apologize for that in advance, thank you for your patience, and I hope you guys enjoy the show.

* How trailing stops and the best ways to utilize them

* Lessons we learned from our stock losers

* Margin of safety, emphasis on safety

* Debt to equity, price to book and other important metrics

 

Brad: excellent yeah, thanks, Dave. So the first question and I want to ask is around stopgaps and there are you know listen to all the podcasts and you talk about I believe you said it’s 25% less of the value that you bought it out of stock and we’re on though is when that gets triggered and are you instantly just selling or do you do little bit of digging around what’s the reasons behind that?

Andrew: so this is very personal depending on how people want to utilize trailing stops I’ve talked on the podcast in the past about how I split my portfolio into two.

So I have the part of the portfolio that’s strict with trailing stops and then the part that is more of like what you’re talking about where if something goes wrong I’m going to dig into a deeper look to see if the stock price that’s fallen is really because of bad fundamentals, bad company financials, or if it’s just because the crowds kind of lost their mind.

In a sense where they’ve had pessimism, but you know that from a fundamental standpoint it’s just temporary and that the company will be able to recover over the long-term health. If the company is not compromised when I saw when I do trailing stops I stick very strictly to those and that is because I’m making that portfolio I talk about how sometimes it’s a little bit more risky in the sense that I’ll maybe chase stocks with less of a track record of like growing the dividend for example.

Maybe less stability, I’ll get more of more of the margin part of the margin of safety but always within the context of having a good balance sheet, having low debt. So because that’s the parameters of those stocks that I’m picking, then I’m super strict to the trailing stop.

It’s once the end of day closes at 25% loss or greater then I’m selling that next business day. Other people can kind of look at trailing stops in a different way you can approach trailing stops differently if you’re let’s say like another way that I could see somebody doing it that would work out well.

Would be to do trailing stops and be flexible on the upside and not the downside. So what I mean by that is let’s say a stock just went straight down 25 percent when you bought it don’t you know that you that trailing stop is there to protect your downside. So don’t let that like don’t debate it at all just follow the challenge stop at that point.

But let’s say your stock went up 50% and then lost 25%, maybe at that point you want to say okay well I’m already up on the position I don’t have to be as strict necessarily.

I’m protecting my downside because the stocks already made such a great profit and then kind of dig in from there and see okay do I see this as just a short obstacle that I will eventually overcome and that the company will eventually overcome, and so it turns out I was right with the pic,