Why I Don't Use Stop Losses — And What I Do Instead

Everyone in trading will tell you the same thing.

Set a stop loss. Protect your capital. Exit at 10-15% down. No exceptions.

I don’t do that. Haven’t in over a decade of investing.

This is not recklessness. It’s a different system entirely.

I use thesis-based exits, not price-based exits. And this approach only works without leverage and with controlled position sizes. Without those two conditions, not using stop losses is just recklessness with extra steps.

The Problem With Price-Based Stop Losses

A stop loss assumes that price is actionable information. It isn’t always.

Price falls for a hundred reasons — FII selling, market panic, sector rotation, global events, operator games. None of these change what a company actually does or how much money it makes.

If you exit every time price drops 10-15%, you will spend your entire investing life being shaken out of good businesses at the wrong moment.

I use a thesis-based exit instead. The question I ask is never “how much has it fallen?” It’s always “has anything actually changed?”

The Lloyd Story

In 2012 I started buying Lloyd Electric around ₹30-40. Good business — third largest AC brand in India, low PE compared to peers like Voltas and Blue Star, solid fundamentals.

I averaged at ₹60. Averaged again at ₹100. Watched it run all the way to ₹300.

Then Porinju Veliyath — one of India’s most respected fund managers — started accumulating heavily. I didn’t see that as validation. I thought he might be an operator driving it higher. Classic skepticism.

Then came a special dividend of nearly ₹100 per share in 2017 after the Havells deal — ₹1,550 crore acquisition of the consumer durables business. The stock looked like a genuine value unlock story.

Then it went back down to ₹100.

A price-based trader would have exited somewhere between ₹300 and ₹200. I didn’t. Because nothing in the fundamentals had changed. The thesis was still intact.

When I Actually Exited

Porinju publicly alleged the promoters were involved in daylight robbery — siphoning the Havells money through fake inventory entries, fictitious land assets and related party manipulation.

I didn’t exit immediately. That’s the critical part.

I waited. Processed it. Asked myself — is this noise or is this real?

When SEBI confirmed the investigation and the financial irregularities became undeniable, I exited at ₹100-110. My average was around ₹70-80. I made money. But more importantly — I exited for the right reason.

Not because the price fell. Because the thesis broke.

LEEL went to insolvency in 2019. It trades at ₹2.50 today. The people who held hoping for a recovery lost everything.

What My System Actually Looks Like

Three questions I ask when a stock falls:

Have the fundamentals changed? Revenue collapsing, margins deteriorating, debt exploding — these are real signals. Price falling is not.

Is there fraud or governance failure? Promoter siphoning, auditor resignations, SEBI investigations, related party irregularities — this is an immediate red flag requiring verification, not panic.

Is the original thesis still valid? If I bought for a specific reason and that reason no longer exists — I exit. If the reason still stands — I hold or average.

The Honest Caveat

This system requires patience most people don’t have.

Watching a stock fall from ₹300 to ₹100 without exiting is not comfortable. It requires genuine conviction in your original analysis — not hope, not denial, actual conviction backed by numbers.

If you don’t have that conviction, a price-based stop loss is probably safer for you. Not because it’s a better system — but because it removes emotion from a decision your emotions will otherwise destroy.

The NoTradeZone Rule

Most people exit because they’re uncomfortable.

I exit when I’m wrong.

Why I Don’t Use Stop Losses — And What I Do Instead

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