Why tight stop-losses often hurt investors
The practice can unintentionally undermine investments’ long-term performance by truncating exposure and amplifying behavioural frictions
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ASK investors how they manage risk, and many will give the same answer: tight stop-losses.
Tight stop-losses are widely viewed as a cornerstone of disciplined risk management, but they can sometimes work against investors’ long-term objectives.
A stop-loss is a predefined rule that forces the exit of an investment position when its price moves against the investor by a specified amount. Its primary purpose is to limit downside losses on an individual position without requiring continuous monitoring.
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