As we close in on the end of the year, with the market still rallying so fiercely, I’ve begun to think about risk management a little bit more — I’ve been using the stellar performance of many of my options speculations this year to take profits and “let out the steam.” As I see it, profiting around the edges lets me lower the “pressure to sell” building in my head, and helps me avoid selling a lot of great stocks just because the valuation is stressing me out. That has surely been helpful, but I’m going a little bit beyond that now by increasing my stop loss limits on some more speculative names.
My temptation, as I’ve noted a few times in recent months, has long been to shave off some profits from some of my best and fastest-growing positions, like Par Technology (PAR), Roku (ROKU) or The Trade Desk (TTD)… but I’m also trying to resist that, since investors still seem delighted to press these shares higher still, and am instead just putting in place some tighter stop loss trigger prices — and in those few cases, actually entering small stop loss orders into my brokerage accounts to take those kinds of partial profits with some of my larger positions if they begin to lose their momentum. Why just put in a little stop loss order instead of trying to pick the top and just selling a little here? Mostly because, I remind myself, I had very similar feelings about some of these kinds of stocks a year ago, when they were also at all-time high valuations, and in some cases those stocks have risen 200-300% or more since.
I’m not worried about big losses with my smaller speculative positions — Unity Software (U) is a nutty one, for example, but it’s a long-term “platform” idea and a small amount of the portfolio, even after it doubled in a couple months, so I’m not tightening up the stop on that. If it falls 50%, it won’t have a big impact on the portfolio — I’ll still re-evaluate those smaller positions if they hit my stop loss levels, and will continue to watch to see if I expect their future to be as rosy as I was hoping when I first bought the shares, but I won’t keep them on a short leash.