(Ed note: First published June 2016) The ASX 200 is down a massive 3.6% today following the Leave vote in the UK. Now is a good time to ask yourself: buy more, continue holding, or cut your losses and sell? Livewire reached out to a selection of fund managers to understand the process they follow if a stock in their portfolio suffers a significant fall. As discussed in some of our contributors’ responses, the decisions you make after a stock has dropped are essential to your long-term performance. While the processes followed vary significantly between managers, what stands out is that the processes are pre-defined and prepared well in advance. This demonstrates that investors need to be proactive rather than reactive. Click the link below to access the full responses from Peters Macgregor, Forager Funds, Morphic Asset Management, Ausbil, and Cadence Capital.



Hurst

This is a really valuable article that reminds me of the basics I'm still trying to follow. (Especially after Brexit!!)

Robert John Brooke

Can someone please explain to me the significance of the distribution of max draw downs for S&P 500 chart? What is series 2 (red bars). Thanks

Chad Slater

Hi Robert - the guys at Livewire asked me to explain our chart, which I have just realized didn't pick up the label correctly in Excel. Firstly, the (admittedly poorly labelled) red bars are the first difference between each of the losses in the blue bar of the max drawdown. The significance of this is to show that not all losses are equal - i.e if all losses were about the same that line would be near zero. It shows how the tail accelerates to what I referred to as "non-linear" in the article. The conclusion for investors is that a process that involves cutting out the very end tail saves you most of your losses as the distribution is skewed. Hope that makes some sense.