written by reader Trailing stop on TSLA?

By forrest74, February 9, 2021

I bought $1000 of TSLA at $85 for my kids college fund – he starts college 2029. Just put a trailing stop on it at 15%. Smart or dumb? I appreciate your thoughts.

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Matt J
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Matt J
February 15, 2021 7:50 pm

It’s not like an answer of “smart” or “dumb” will actually be meaningful. My comments below are based on the premise that all you have for your kid’s college fund it $1000.

The prevailing view is that Tesla, a first mover in the EV market, will do very, very well. But what if on a given day, that 15% trailing stop gets triggered? Are you going to get right back in? Also, trailing stops are not the end all, on any given market day, the set trailing stop can be “leaped over” by an opening market price — in other words, if the price opens at say, 16% or greater, your stop will not have an opportunity to be triggered. This has happened to me a few times and it is quite aggravating. And the market could close well below your 15% target.

Now, I’m not saying stop losses are useless, they certainly are not, but I guess my point is, you are going to have to watch the stock regardless, with whatever frequency your risk tolerance can allow.

Final comments: going all in on Tesla is not a terrible idea, but is it the best idea for your kid’s college fund? I don’t care what the stock is, putting 100% in is still an outsized risk. Why not pick an EV index fund (e.g. EKAR, LIT) that includes not only Tesla’s stock (~5-6%) but also other companies in the EV sector? This way, you have protection from volatility that comes with diversification, the benefit of value gain from dividends (typically quarterly in an EFT), and the benefit of the growth (price gain) stock companies. Or put a % of the $1000 in Tesla and a % in an EV ETF?

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Last edited 19 days ago by cockfield

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