Stop Loss · Admit and Correct
Admit Mistakes and Correct Them
The Hardest Yet Most Important Thing in Investing
Duan Yongping's stop-loss philosophy isn't technical analysis — it's a continuous question: "Am I still doing the right thing?"
"If you shouldn't be doing something, you shouldn't have started.
Once you find you're wrong, stop.
Hold a stock because you still believe in it — not because you're already down."
The Core Logic of Stop-Loss, Not Stop-Gain
Most people's instinct is "hold the winners, wait for the losers to recover." Duan believes this is completely backwards. His logic: holding a stock is equivalent to buying it at today's price. If you wouldn't buy it at today's price, you should sell — regardless of what you originally paid.
A loss is not a reason to sell, nor a reason to keep holding. The only standard for whether to hold is whether your judgment about the company has changed.
"Holding = Buying. Every buy and sell is independent — don't let your purchase price cloud your judgment."
A Framework for Deciding Whether to Sell
①
What was your original reason for buying this stock? Does that reason still hold?
②
If this stock weren't in your portfolio today, would you buy it? If not, why are you still holding it?
③
Has your judgment about this company actually changed — or are you just uncomfortable because the price fell? The former is a reason; the latter is not.
④
Is there a better investment opportunity? If so, why leave your capital here?
⑤
If you discover your judgment was wrong, admit it immediately and correct course. Time is the friend of great companies — and the enemy of mediocre ones.
Why Is Stop-Loss So Hard?
Duan believes stop-loss is hard because of human nature. Admitting you're wrong is painful, especially while you're sitting on a loss. "I'll just wait until I break even and then sell" — this psychological trap keeps people locked in bad stocks, missing other opportunities.
Another common problem is "loss aversion" — people feel the pain of a loss roughly twice as intensely as the pleasure of an equivalent gain. This leads most people to avoid acknowledging losses and keep holding, while locking in profits on winning stocks. This is exactly the opposite of what works.
"I make mistakes too, but when I do, I admit and correct them. You can't keep holding just because you've already lost. This principle is simple — but doing it is hard."
Common Questions Q&A
A stock is down 30% — should I cut my losses?
How much it's fallen is not the standard. Ask yourself: has your judgment about this company changed? If your original buy thesis still holds, a 30% drop might be an opportunity to buy more. If your judgment has changed, you should sell — regardless of whether it's up or down.
What if the stock rallies after I sell?
Duan says he's tried "sell and buy back at a lower price," but "doing that basically means spinning your wheels and ending up with less." If your judgment was right, just hold. If it was wrong, selling was correct — don't regret it if the stock goes up later.
How do I know if I'm wrong or the market is wrong?
Duan believes markets are smart most of the time, except when you've genuinely found a specific reason why the market is wrong. If you just feel that "the market doesn't understand this company," be very careful — that's likely your own judgment bias speaking.
When should I take profits (sell a winning stock)?
Duan's principle is "stop-loss, not stop-gain" — don't sell a stock just because it's gone up. There are only two reasons to sell: first, the valuation has far exceeded your assessment of the company's intrinsic value; second, there's a better opportunity that requires reallocating capital.
How do I avoid averaging down and getting stuck?
Before every additional purchase, ask yourself: if I were seeing this company for the very first time today, would I buy it? If yes, adding more may be reasonable. If no, don't use "lowering my average cost" as a self-deception strategy.