During the recent market turmoil, mom’n pop investors sold about $1 billion worth of their stock.

At the same time, what did institutional investors do? They bought $14 billion.

If that doesn’t raise an eyebrow, consider this… For retail investors, their recent selling clocked in as a -2.5 standard deviation move below the 12-month average for stock market orders.

But for institutional investors, their buying registered as a +2.9 standard deviation move above the 12-month average. What’s behind this enormous differential?

Analyst Adam Khoo has a theory:

Short term price movement is largely manipulated by market makers and algos (and later justified by ANAL-lyst using bullshit reasons) … e.g. driving prices down to scare and force weak holders to sell… it’s like a game of poker… bluff the weak hands to fold their cards so the pros can grab their money and their shares more cheaply.

Whether Khoo is right or not, preventing a shakeout in your portfolio requires you to remember the most important truth of investing… You don’t own a “stock.” You’re a partial owner in a business.

This distinction is critical.

In the short-term, prices can wildly decouple from the value of an underlying business. So, if price is your central focus, it’s entirely reasonable that violent selloffs would shake you out of your position.

But if your focus is on the underlying business itself – and assuming the business remains healthy – then the stock price is just an indicator suggesting one of three things:

Buy more of the business if you want (when prices are abnormally low)

Skim profits from your stake in the business if you want (when prices are abnormally high)

Do nothing (when prices are somewhere in the wide middle, i.e., the majority of the time).

But what about stop-losses?

Stop-losses are another critical part of investing. They prevent small, acceptable losses from snowballing into massive, portfolio-busting losses.

But stop-losses must be tailormade to each unique stock you hold. For example, a 35% stop loss might be appropriate for a volatile biotech that moves 10% a day, but it would be far too high for a low-volatility utility company that rarely moves 2% in a day.

Source: InvestorPlace Digest

None of this is actually applicable to CFD’s trading where you neither own a “stock” nor you’re a partial owner in a business, but a pure price speculator.