THEY say that losses have three times the emotional impact of gains, and because of that, most investors find it three times harder to take a loss than they do to take a gain the opposite to the traders' mantra of take your losses quickly and let your profits run.
If the market goes down again, here is a series of arguments designed to persuade you to sell. If ever you are having trouble taking a loss, are caught in the headlights, are getting emotional, and the offending stock is still in your possession, read this list.
If a stock is going down, it is far more likely to keep going down than to turn on a sixpence to suit you.
The further a stock falls, the more intense the selling becomes, as higher losses cause more selling decisions, so sell early. An early loss is the smallest loss.
If you sell 10 falling stocks, as any technical trader will tell you, it will be the right thing to do in nine cases, but you will only remember the other one.
If you sell now, you are no longer exposed, the pressure disappears, all you have to do now is come to terms with the loss.
If you sell now, you can always buy it back, and who knows, you might buy it back lower than you sold it.
If you sell now, you enter the eye of the storm. All becomes calm. You have a moment to think. You can watch from a distance and think. You can always choose to enter the storm again, and if you do, you will be thinking more clearly and be armed with a plan.
If you are making a loss on a stock, think to yourself, if I had cash would I buy this stock now at this price? No? Then why are you holding it? Sell it. (Most people begin to irrationally "hate" the stocks they lose money in, so this argument always works).
Your state of mind has a value. What would your spouse pay (or you pay) to have you carefree at the weekends instead of ripping the heads off the kids. Look after yourself, there are not that many weekends in the year, or your life. Don't ruin too many of them by keeping risky loss-making positions until Monday because you didn't have the guts to sell them on Friday.
Averaging down is a mug's game. If you have money to invest, you should be putting it in the best investment in the whole world. Do you really think that that is going to be the same stock you have bought at a higher price and is falling at the moment? Very unlikely. You already have an exposure, as well. Do you need more of something that has already proved a dog? Do you really want to turn a short-term trade into a long-term loss? Every day you see it in your portfolio. Every day it will be flashing "You idiot".
The quickest way to become a long-term investor is to make a short-term trade and get it wrong.
There is no logic in being emotional about losses. Create an Excel spreadsheet to monitor the total worth of all your shares using live prices. Up $500, down $500. This figure is the only truth. This is what the shares are worth. What you paid for the shares is irrelevant, so why care about whether it is a profit or a loss? It is an amount of money. If it's gone, it's gone. What you paid has no bearing on the next price.
Most clients who have loss-making stocks will tell you that they "hate XYZ". So why hold it? Far better to put the cash in something that you want to wake up to in the morning than something that depresses you. If in doubt . . . sell it . . . it crystallises a capital loss and you can always buy it back.
Hopefully, you'll never make a loss . . . but when you do, read this again and see if you can get to the bottom before you have put the order on to sell.