A stop-loss order is an order with a broker to sell stock at a certain price. If you own 100 shares of ABC stock that is trading at $10 per share, you might place a stop-loss order to sell if it goes down to $9 per share. This limits how much you can lose on the stock. If the stock never goes down to $9, then the stop-loss order is never triggered. But, if something happens that causes ABC stock to fall very quickly, your stop-loss order may get triggered at a price below $9. But, most of the time the sale occurs at roughly the price level you pick. On the surface, this seems like a good idea. You are limiting your losses to 10%, and there is unlimited upside. Would a competent stock picker use stop-loss orders? I’ll show that the answer is no. A competent stock-picker is someone who is able to evaluate companies and identify one or more businesses whose future prospects indicate the stock is underpriced. Suppose that Carl is a competent stock picker and he has identified ABC C...