[Variance]

There's as much wealth created when the price rises again as there is destroyed when the price first erroneously falls, all other things equal. What's really being described is turning a profit on prices that are, for whatever reason, set too low and return to previous levels soon after.

[ScottBurson]

Of course, the poor sods who had their stops blown don't get their money back -- the recreated wealth winds up in someone else's pocket.

But then, blowing out people's stops so you can buy up the stock cheaper is a time-honored trick.

[confluence]

Stop losses are stupid - period.

If you're investing for long term - you shouldn't be investing in things that require stop losses.

If you're investing on margin - take a good hard look at yourself before you blow up.

If you're trading options - unless you're pushing liquidity - watch yourself before you blow up.

Sell side liquidity is there - until it ain't. Stop losses don't protect you.

[Variance]

Indeed. No one should be pitied for losing money in the stock market. If you know what you're doing, you'll know that there's risk involved; if you don't know what you're doing, you shouldn't be picking stocks in the first place.

People who lose out by being on the selling-too-low side of arbitrage have nothing to complain about. If you had a stop-loss order, you cede your position to the possibility of being sold too low. Moral being that like you said, if you're investing in something that might warrant a stop-loss order, you should be sophisticated enough to use something better instead.

[runako]

>> If you're investing for long term - you shouldn't be investing in things that require stop losses.

Except that in the long term good companies sometimes go bad quite suddenly. Frequently, the harbinger (e.g. CFO suddenly quits) will erase a lot of wealth quite rapidly. Stops are a good way to not have your portfolio blow up while not also having to obsessively follow the news.

[stouset]

As an individual investor, you're not going to beat the automated algorithms on breaking news anyway. Trading individual stocks is a fool's game. Buy and hold index funds.

[runako]

Just to be clear, I wouldn't counsel racing algorithms (this should be obvious). But you want to be able to exit somewhat rapidly in case of catastrophe at a portfolio company. A stop can turn a big loss into a smaller loss.

>> Buy and hold index funds.

To each his own, but this strategy has been pretty easy to beat over the last 20 years (even easier over the last 10), for those willing to study companies at all.