Many investors use a common way of trading, but not Warren Buffett. The “Oracle of Omaha” says it’s too short-term focused and not based on his favored long-term, buy-and-hold method.
At his 1994 annual meeting, Buffett recalled a time when he was talking to Berkshire Hathaway‘s NYSE specialist, the late James Maguire. Maguire mentioned the company’s stock has some “significant stop-loss orders on the books … involving some hundreds of shares.”
A stop-loss order “is an order placed with a broker to buy or sell once the stock reaches a certain price,” according to Investopedia. “A stop-loss is designed to limit an investor’s loss on a security position.”
For example, if an investor buys Starbucks at $70 a share and sets up a stop-loss order for $63, the stock is automatically sold if it drops to that level.
The chairman and CEO of Berkshire Hathaway doesn’t sell stocks