Do Stop-Losses Actually Stop Losses? Fisher Investments’ Founder, Ken Fisher, Debunks the Belief

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer, Ken Fisher, reviews a chapter in his best-selling book, Debunkery, which challenges conventional wisdom surrounding the use of a stop-loss—a standing sell order triggered when an investment reaches a pre-defined price. While stop-losses are often viewed as a protective measure, Ken believes they can hinder long-term gains and come with an opportunity cost.

Ken points out that stop-losses are typically set at arbitrary—and often random—levels. He also says stop-losses ignore the fact that markets are volatile, and many “winning” stocks experience large drawdowns in the short term. According to Ken, stop-losses simply lock in a loss—or a smaller gain—and sideline investors from participating in market growth. Additionally, Ken underscores how the extra trading costs can eat into potential profits. While Ken understands why investors are attracted to stop-losses, he encourages discipline to a long-term investment strategy.

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.