Here at The Bowser Report, we focus on our Game Plan, which involves a cut-and-dry Selling Plan. The selling plan stipulates: sell half your holdings when the stock price doubles from your original purchase price, and sell the remaining half when the price drops 25% from its most recent high; if the price drops 50% without doubling, we advise selling all holdings. This selling plan is meant to take the emotions out of selling a stock, but it can be difficult to keep up with. A solution: trailing stop orders.
We have talked about this topic a number of times. However, because of how much it simplifies the Selling Plan, we feel that it bears reminding.
Essentially, with your broker (online or in person) you establish certain selling guidelines that facilitate the trailing stop order. For the Bowser Plan, you would set two initial stops:
- Sell all holdings if the price drops 50% from the purchase price;
- Sell half of holdings if the price doubles from the purchase price.
These parameters then become automated with the brokerage service. The price is automatically adjusted as the stock climbs higher, allowing for profits to be realized and losses to be limited. The only further parameter to set is the 25% rule, which can be applied once the stock doubles.
Trailing stops are a simple idea that makes following the Bowser Game Plan even simpler. When constructing your Bowser portfolio, consult your brokerage service to see if they offer a trailing stop service.
For a visual representation, take a look at the image of a trailing stop order that we created above. The black circles represent recent highs where the stop was adjusted, and the red hexagon represents where the stop was activated.
For further questions, contact us (757/877-5979 or firstname.lastname@example.org or your brokerage service. To read more on trailing stop orders, see Investopedia's definition...