No-Cost Transactions & Risk Management

 In News, Strategy Updates

Recently Chuck Schwab’s 1980’s dream of zero commission stock trades became a reality as Schwab announced commission free trading. TD Ameritrade soon followed suit, as did Fidelity and most other competitors. This is a big win for investors big or small. Less transaction costs (no matter how small) add to long term performance.

For those of us at Main Street Research this is a positive change on many levels

– No cost transactions 

-Adding the same security across a number of your accounts alleviates multiple trade commissions

– Selling or buying securities in tranches is no longer costly – sometimes it makes sense to sell or buy securities in portions, over time as opposed to all at once

Zero commission security trading is a great step for all investors. It also has a positive effect on our risk management strategies.

Risk management & stop loss order update
As you know our Active Risk Management process has three “prongs” – active asset allocation, sector management and the use of carefully placed stop loss orders. Together these tools can mitigate the risk of a catastrophic decline in one security, a market sector, or the market as a whole. No-cost trading enhances our risk management strategies.

Selling our shares over time as opposed to right away
Given no-cost transactions, we can now choose to sell a stock over an entire trading day or even days by selling in tranches – at no additional cost. This can enhance your long term performance as we decide to either exit the whole position or to keep a portion.

Order flow from traders and market makers
Selling our shares over a whole trading day or days allows us to prevent other investors from knowing how many shares we intend to sell or when.  This allows us to get better pricing on each block of stock we are attempting to sell to market makers and other investors.

New stop-loss  technology
As we continue to refine our stop loss strategy, we will now be applying additional quantitative analysis to our process of setting and adjusting your stop loss orders. We are doing this by adding in house “trailing stop loss” technology. Trailing stop losses should add value to our stop loss management by ensuring  that your stop loss orders are continually adjusted alongside rising stock prices.

If you see that we have placed multiple trades for the same stock in your account, keep in mind that this strategy has benefits – but no additional cost.

We hope this short update about the benefits of no-cost trading is helpful. If you have experienced any changes in your financial situation please let us know.

Your Team at Main Street Research

If you have a friend or family member who may have an interest in investing with an ESG bias, we would be happy to offer a no-cost introductory meeting.