From Buffett To O’Neil: How Masters Of The Market View Stop-Losses
Debate rages over stop-loss orders. Are they essential for risk management or do they prematurely exit winning trades? Top investors weigh in.
From Buffett to Atul Suri to Lokhandwala—how top investors and traders think about cutting losses.
Few trading tools spark more debate than the stop‑loss order. At its simplest, it’s a pre‑planned exit price for your existing investment—sometimes entered with your broker ahead of time, other times kept as a mental line you act on the moment it breaks. Fans say it's like a seat belt—you need it when a crash happens. Critics argue it can kick you out of a stock just before it bounces back. With markets swinging hard in 2025, the argument has never mattered more.
Setting a stop loss is straightforward. Buy a share at ₹ 1,000 and decide you’ll sell it if it drops to ₹950. You might place that order immediately, or simply watch the tape and sell the moment it hits ₹950. Either way, that small plan can keep a big loss small. Paul Tudor Jones—billionaire macro trader and founder of Tudor Investment Corp—calls this “playing great defence.” He often reminds traders, “Every day I assume every position I have is wrong,” and draws a clear line where the trade is invalid so he can exit fast.
William O’Neil—founder of Investor’s Business Daily and creator of the CAN‑SLIM system—trims any loss near 7–8 percent for the same reason: money saved today funds the next trade. Three‑time U.S. Investing Championship winner David Ryan—a long‑time protégé of O’Neil—backs those strict rules, insisting that cutting a stock when it drops 7–8 percent below its buy point is what “keeps you in the game.”
Not everyone agrees. Warren Buffett says he buys businesses, not stock quotes, so a quick price dip should not force a sale. Hedge‑fund veteran Bruce Kovner warns that big players look for common stop levels and shake traders out. Value investor Mohnish Pabrai goes further—he never uses stop‑loss orders, arguing that you should only exit when your research is proven wrong, not when a price line breaks.
Meanwhile, veteran fund manager Atul Suri—CEO of Marathon Trends PMS, former chief technical analyst at Jhunjhunwala’s Rare Enterprises, and a long‑time friend—says Jhunjhunwala’s quick exits from losing trades were “ruthless,” praising them as “a masterclass in risk management.”
So, do you need a stop‑loss? It depends on how you trade. Day traders and swing traders treat stops as non‑negotiable and get out quickly. Winner of the 2022 U.S. Investing Championship and runner‑up in 2023, Afzal Lokhandwala says, “I don’t study company fundamentals—I trade only the chart. Before I buy, I mark the price that proves me wrong. If the stock falls to that line, I sell without hesitation. That line is my stop‑loss—price is the only indicator that tells me I’m wrong—and for traders like me it’s non‑negotiable.”
A stop‑loss can help or hurt. Set it carefully—wide enough for normal swings but close enough to stop real damage—and it keeps losses small without killing good trades. Set it carelessly, and it can slice away gains. Whether you need one at all depends on how you invest: short‑term traders live by a hard exit, while long‑term, buy‑and‑forget investors often rely on a change in company fundamentals, not a price line, to know they are wrong. Either way, if you don’t manage risk, the market will—and the market is rarely kind.
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