On the Aug. 17, 2026, episode of The Morning Filter podcast, hosts Susan Dziubinski and Morningstar Chief US Market Strategist Dave Sekera discuss an audience question on stop-loss orders. Here is an excerpt from the show.
When Stop-Loss Orders Can Work Against Investors
Susan Dziubinski: Well, it’s time for our question of the week. As a reminder to our audience, if you have a question for Dave, you can send it to us at themorningfilter@morningstar.com.
Now this week’s question comes to us from Max. Max wants to know about stop-loss orders. Now, as a reminder, a stop-loss order is an instruction to sell a security once it reaches a particular price, which is the stop price. Dave, the first question is: Do you provide stop price recommendations?
David Sekera: No, we don’t really provide those stop-loss recommendations. There are a number of different reasons why. First of all, in my opinion, when I think about when you use stop-losses, it’s really much more used in trading strategies than being a long-term investor. For example, there are a lot of different momentum strategies. You might be looking at technical indicators. In that case, you want to use a stop-loss just because if that stock is running out of momentum or maybe it breaks a short-term downward trend, you want to get out of that stock as fast as possible. But again, that’s really much more thinking about it from a trading perspective as opposed to really that long-term fundamental point of view where you’re really trying to find dislocations between price and valuation in the marketplace.
As I’ve talked about before, I think when you enter a new buy position, you need to set yourself a target price both to the upside and the downside. That way, if it hits one of those targets, it really gives you that impetus to reevaluate what’s going on and see if there’s anything different going on than what your original investment thesis was when you bought the stock.
For example, to the upside, maybe business prospects are better than when you first bought the stock. Maybe the value of the company now is higher than what it was before. In that case, you don’t want to sell the stock. There’s really no change in the outlook and valuation. Again, think about, to the downside, if there’s anything different now, if that stock is selling off, and really reevaluate that investment thesis as opposed to when you bought the stock. Of course, if the fundamental outlook is deteriorating, valuation is dropping, then yes, in that case, you should probably sell and move on. If not, if your investment thesis still holds, the market’s overreacting to the downside, that’s not when you want to get stopped out of it. That’s actually an opportunity to dollar-cost average into the downside.
Stop-Loss Orders Are a Tool, Not a Portfolio Strategy
Dziubinski: Now again, as you pointed out, this is much more of a trading strategy. Do you have any practical suggestions or best practices for investors interested in pursuing this approach?
Sekera: I mean, a number of things to consider would be, first of all, for really volatile stocks, you don’t want to set that stop price too close to what the market price is. In that case, you might just have some short-term movement in the marketplace. You get stopped out, and then you’re going to miss the recovery when the market turns back up. I’d also note, too, that a stop-loss order, if it’s a true stop-loss, turns into a market order. I’ve seen in the past, sometimes if a stock is just gapping down, those stop-losses turn into that market order. There might be a big gap in between what your stop-loss price was and where that stock is trading. It might be a long way down from where that stop was. In that case, I’d consider using maybe what’s called a stop-limit order. In that case, you put in that stop price, but then you can also put in a limit such that you have to have a minimum price that you’re willing to sell at if that stop gets triggered.
Overall, I think from Morningstar’s point of view, one of the biggest mistakes that investors can make is using that stop-loss order as a substitute for correct position sizing within your portfolio or just kind of broader portfolio construction. A stop-loss can be a good tool, but it really should be a tool that’s used as really much more a part of the broader investment portfolio process rather than really just a sole defense against losses.
Subscribe to The Morning Filter on Apple Podcasts, or wherever you get your podcasts, and keep up with the latest research from hosts Susan Dziubinski and David Sekera on Morningstar.com.
