Turning bad odds in your favour

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Livewire Markets

Drawdowns are an inevitable part of investing; even Berkshire Hathaway fell by more than 50% during the GFC. As growth investors, Nick Griffin from Munro Partners, says that it’s important to protect yourself both against stock specific risks, and market risks. Here, he explains their approach. 

“Most equities don’t outperform cash. It’s a very small number, less than 5% over the long run. It’s the true structural winners outperform.” 

So, how do you make sure you don’t get stock with one of the underperformers? Stop-loss orders are standing sell orders that are automatically triggered when a stock falls below a set point. Not only can these protect again individual falls, but when a major dislocation occurs, they can protect your entire portfolio. In today’s video, Griffin shares a personal story of stop-losses in action. 


Key points:

  • Picking stocks and picking the markets requires separate approaches
  • Most stocks underperform cash in the long run
  • Stop-loss orders can be used to protect against stock specific risks
  • Buying put-options* on the NASDAQ or S&P 500 indices can help to protect against market falls
  • Short selling allows you to profit from falls in a company’s stock price
  • In some situations, moving to cash may be the right approach 

To read further insights from Nick Griffin and Munro Partners, please visit their website

* Purchasing a “put-option” gives you the right, but not the obligation, to sell the underlying stock or index at a pre-determined level. The value of a put-option goes up when the price of the underlying asset goes down. By purchasing put options on an index, you’re insuring against a falling stock market. This comes as a price, known as the option premium.

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