User 283977

Jet Blue: Value Buy and Oil Hedge

HJ - Basic investment tools like stop loses have their uses. You say:

Why would you buy a stock if you believed it was overvalued? And if you thought it was a good buy at $15, why would you suddenly think it's a good sell at $10?

That is a straw man argument - an argument set up to be easily refuted. The most common use of a stop loss is to protect capital gains. You purchased at $4.60 and your investment goal is $7. So you would apparently set a limit order at $7. Of course the chance that the stock is going to peek at exactly $7 is small. That means there is a good chance of leaving money on the table. Another way is to set a stop loss, or a trailing stop at $7. Now you have protected your $7 position, but if the stock is still climbing, you can re-evaluate and sell at a higher position. The cost for this opportunity is zero.

The fact of the matter is you are already using the logic of a stop loss because in your example you identified your selling price. Something most investors would be wise to emulate. So in effect, you are using the logic of a stop loss but you are doing it manually. A lot of investors can't spend all of their time watching a stock, so they use automated stop loss / trailing stops.

In the case of the airline industry, it would probably be tempting fate to not have automatic stop losses in place due to the chance of the airline loosing a plane. In that situation, things will happen very fast, and you would be prudent to have an automated stop loss in place.

Stop loses / trailing stops and hedges are investment tools that have their uses under different circumstances.

Jet Blue: Value Buy and Oil Hedge

It plunged because May traffic shrunk by 3.3% relative to last year, and they are making a secondary offering of 20M shares and $150M in convertible debentures. So they diluted their share value and they are taking on yet more debt. They must need cash... not a good sign in these times.

Jet Blue: Value Buy and Oil Hedge

I would rather use a stop loss on my oil stocks than use an airline as a hedge. I don't think its necessary to be 100% invested at all times.

First-Ever Airlines ETF Set for Takeoff

So the industry thinks losses in 2009 are going to be much lower than this years performance... Yes fuel costs are down, but the Economy has hit a major downburst... that should translate into a lot less business travel, and that is where the Airlines make most of their money... as for personal travel, I don't think all the people that are going to end up unemployed are going to be buying airline tickets. I suspect some consolidation is going to occur along with significant layoffs. I wish things looked better...