Eureka Correspondence

Protecting equity losses, LICs, and housing bubble trouble.

Protecting equities losses

After many years of managing my own share portfolio, I am constantly frustrated at the complexities involved in trying to protect an asset I own from significant corrections. It seems so easy for me to pay a premium to insure a $1 million home or car, but not so for another asset such as a share portfolio. Am I missing something or is there some product other than contracts for difference (CFDs) or options that will offer me this insurance? I am truly desperate for a relatively simple solution to this for me. I find that options are complex and very expensive, and CFDs have their own pitfalls apart from the capital they require. Hoping you can shed some light.

Name withheld

Editor’s response: Thanks for your question. One way you can protect your share portfolio from excessive losses is by setting up a stop-loss order with your broker. Under this order, the stock will be sold if it reaches a certain percentage (for example, 10%) below what you bought it at.

Another way is to short-sell the security (see Four short-selling strategies in a volatile market). You’ve mentioned two methods, CFDs and options, but you can also use another derivative called warrants, or directly short-sell the stock through a broker.

Liking LICs

I was just wondering if you could print an article on listed investment companies. Not a lot seems to be written about them, and when there is, it's more about their performance rather than a recommendation as to which is best to buy at the time.

I love your publication by the way, and read it several times a day.

RB

Editor’s response: Thanks for your suggestion. We will look into publishing a story on recommending which listed investment companies to buy, but in the meantime have a read of LICs rise again to get an idea of what LICs are in the market and each of their investment mandates. We also published an in-depth article on Platinum Group in September last year, which offers exposure to Europe.

Housing bubble trouble

I enjoy looking at Kohler's Graphs, but the bubble one is misleading when two such short periods are compared with much longer periods or different markets, such as property versus NASDAQ.

Any property price graph in Australia should have started much earlier, say 1985 I would suggest. Property prices have been surging over three decades of the western economies credit bubble, so the increases since 2009 are just the topping.

John Shearer