By the fourth quarter of 2001, stories were regularly appearing in the media about
The gap down made poor Kenny Boy's execution awful; he was stopped out (for the third time), at $22.50 for a 25% loss.
Before we total Kenny Boy's losses, please note that he had the worst possible timing and execution possible. He bought at the top, got stopped out all three times, and even had a gap down which made his final sell much worse than expected.
Total damages: $30,000, or 33% of Kenny Boy's initial capital. That sounds pretty awful -- until you compare it with those people who did not have a stop loss plan in effect. These so-called long-term holders (also known as "deer in the headlights"), lost 99.89% of their capital. Their $90,000 initial purchase is now worth $110!But unlucky Kenny Boy -- with a disciplined stop loss plan in effect -- still had $60,000 of capital left. The "buy and hold" crowd losses were 100% while Kenny Boy's were 30%. That's a huge difference.