Cutting your losses is liberating
I thought I would share a short post on a very important subject. It’s not short because I don’t have time, rather it’s short because the message is simple. The word “bottom drawer”, or the place where stocks go to gather dust, should not exist in your vocabulary. If you purchased a stock that turned against you and you held it all the way down then you should be cutting your losses rather than holding it with the false hope that one day you are going to breakeven. I say this for the following reasons:
Cutting your losses reason 1
It is emotionally exhausting to look at this stock on a daily basis as a reminder that you completely stuffed up. Every day that you look at this stock you have to deal with the fact that you broke all your rules or the realisation that you didn’t have any rules to start with.
The reason you are in this predicament is you bought a dog stock. Apologies for being so blunt but not good stock gets smashed to the point where you have lost the majority of the capital invested. Now what makes you think this stock which we have now confirmed is a dog, is now going to make some miraculous recovery? Let’s take a look at the below table to see what percentage return you would need to make just to break even. So all these stocks in your bottom drawer are going to need to be multi-baggers just for you to breakeven which isn’t realistic 99% of the time.
Cutting your losses reason 2
The reason you are in this predicament is you bought a dog stock. Apologies for being so blunt but not good stock gets smashed to the point where you have lost the majority of the capital invested. Now what makes you think this stock which we have now confirmed is a dog, is now going to make some miraculous recovery? Let’s take a look at the below table to see what percentage return you would need to make just to break even. So all these stocks in your bottom drawer are going to need to be multi-baggers just for you to breakeven which isn’t realistic 99% of the time.
Cutting your losses reason 3
The opportunity cost of holding this stock is huge. The share market churns through new opportunities all the time, it’s a never-ending cycle. So not only are you not making any money by holding these dog stocks but, but you’re also losing potential profits in other stocks.
You will feel better
The sense of relief when you release dog stocks from their kennels and cut your losses shouldn’t be underestimated. You will feel a huge sense of relief as well a weight being lifted off your chest. Now I am no financial adviser so this isn’t financial advice rather it’s investing common sense. Bite the bullet and cut your losses.
Before you purchase any future stocks though ensure you have an
investment strategy and identify the mistakes you made with regards to these particular stocks which put you in this situation, to begin with. If you can do these two things your chances of future success have just gone up exponentially.
To finish off ill share a quote from
@steveburns who sums this up perfectly, “10 small losses plus 1 big gain can create wealth. 10 small gains plus 1 big loss can destroy wealth.”
I really encourage you to leave a comment or question if there is anything specific to this post that requires clarification or further discussion. This site wasn’t created to motivate you, it was created to give new investors practical learnings to improve your investing performance. Also feel free to use the “recent post” section in this article to view some of my other articles!
Finally I encourage you to subscribe below so you can be automatically notified whenever I post a new article or release interesting pieces of information.