CUTTING LOSS

This past week, I have (finally decided to) cut loss in one of my stocks.

It was painful.

It was the biggest holding, percentage wise, in my portfolio. My small, but slowly growing, portfolio since I started investing a year and a half ago.

It was also my biggest loss to-date, and a decision I should have made months back, but didn’t.

Throughout my short time testing my knack in stock-picking, I have been fortunate enough to have made small gains (because of my small capital) in most of my investment decisions.

I’ve experienced a few minor losses but I was quick to exit and move on. So why not this?

Why didn’t I sell it sooner when I know it was already a dead stock?! (i.e. stocks rise and fall — it’s only healthy, market rebounds… but this stock has been persistently falling each day, over a period of time)

*caveat: this shouldn’t be the only reason you sell, but I am writing this for simplicity purposes

I could have saved XX% if I sold when it rebounded for a bit (in that two rare days)! I could have used that money to re-invest or to cover my holiday! 

Maybe the stock will eventually rise, in time. *alarm: unwarranted hope right here

These thoughts ran through my mind.

I mean, it feels good when you make money from something you discovered, something you thought through, analyzed, and believe in. I have my job and the little knowledge I gained from it thus far to thank for, as this comes with the privilege to meet with and interview listed companies, industry players, other investors.

This loss has sorta ‘stirred’ and woke me up, in a way, to re-evaluate how I make my investment decisions.

While painful as it may have been, surprisingly, it lasted only a short while. Almost, it was as if I knew the pain had to be bad enough for me to move on — if that makes sense?

It was a lesson I am thankful for, and happy, actually (weird feeling, but yes), that it happened. My mom has always told me since I was young that it’s good to make mistakes early on in life, well firstly, because you can (and you’re allowed to!) and you can grow and expand so much quicker after.

And while I could justify the reasons why I didn’t cut loss on this stock, and go on and on about my rationale in deciding to put my money in a company, or how the market is an amusing thing, I wanted this post to be about my reflection…

Of lessons learnt from my journey as an amateur and aspiring investor thus far:

  • Know why you got into the stock in the first place. It doesn’t matter if you came across this gem on your own, or heard it from someone. If you did your research thoroughly, and you are convicted, keep to that conviction — it will remind you of why you invested and help you through potentially volatile times.
  • Don’t chase stocks unknowingly. You know sometimes when you hear of a counter and in that morning or afternoon it surged, and you get in blindly just because you wanted to ‘ride the wave’. Why? Fear of losing out. Herd mentality. Greed.
  • Know when to get in a stock, but also know when to sell. Investing to me is about buying something I like, something that I know will do well, but at the right price. Similarly, I should also have a price on when I would like to exit.
  • To learn to cut your losses and ride your gains. This is a common mistake most make, according to a seasoned investor and who’s also a good friend of mine. I’m guilty of this as per this post, as besides not cutting loss in this stock, there were also other counters of which gains I did not ride enough, to their full potential that I know they would.
  • Be mindful and savvy enough to seep through all these noises. Because you will hear a lot of views and ideas from a lot of people, recommending this, that. You need to have a clear and rationale mind to invest.
  • If you don’t feel convicted enough yet, don’t rush. Similarly, if you missed a boat, don’t sweat too much about it. Hold your cash, wait for the next opportunity. There will always be another opportunity.
  • Sometimes, if a stock doesn’t turn out the way you expect it to, be it due to market forces, changes in company management and direction, industry landscape, etc…it’s alright. Make a decision of what you want to do with the stock and move on.
  • And finally, you can’t always win them all. In other words, you can’t always be just winning, gaining, all the time. Sometimes, you make poorer decisions. Sometimes, you lose, just because. As long as net net you’re still making money, accept it and be happy. Be wiser.

A good friend lent me Peter Lynch’s ‘One up on Wall Street’. I read Part 1 by the River Thames in London.

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“Ultimately it is not the stock market nor even the companies themselves that determine an investor’s fate. It is the investor.” — Peter Lynch

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