The Assassins' Rule 1: Kill Losers
Cut losses quickly
The Assassins' Rule 1 is about cutting losses quickly to minimize the impact of a losing investment. This involves setting a stop-loss and sticking to it, rather than holding on to a losing position in the hopes that it will recover. The rule is designed to help investors avoid large losses and protect their capital.
- Cut losses quickly to minimize the impact of a losing investment
- Set a stop-loss and stick to it
- Avoid holding on to a losing position in the hopes that it will recover
- Set a stop-lossDetermine the maximum amount of loss you are willing to accept and set a stop-loss at that levelPro tipUse a stop-loss that is based on a percentage of the investment, rather than a fixed amountWarningBe careful not to set the stop-loss too low, as this can result in unnecessary losses
- Monitor the investmentRegularly review the performance of the investment and adjust the stop-loss as neededPro tipUse technical analysis to identify trends and adjust the stop-loss accordinglyWarningBe careful not to overreact to short-term market fluctuations
- Cut lossesIf the investment reaches the stop-loss, sell the investment and realize the lossPro tipUse the proceeds from the sale to invest in a new opportunityWarningBe careful not to hold on to a losing position in the hopes that it will recover
An investor bought shares in the Royal Bank of Scotland at £22.29 and sold them at £18.62, realizing a loss of 16%. If the investor had not sold, they would have required a return of 667% to break even, which is highly unlikely.
An investor bought shares in Compass Group at £3.19 and sold them at £3.04, realizing a loss of 5%. The stock went on to return 143% after the sale.
The rule was developed by a group of successful investors known as the Assassins, who believed that cutting losses quickly was essential to achieving long-term success in the markets.