When Does a Loss Become a Loss?

9-88. Chapter 9, Page 88. How To Make Money In Stocks

When Does a Loss Become a Loss?

When you say, "I can't sell my stock because I don't want to take a loss," you assume that what you want has some bearing on the situation. But the stock doesn't know who you are, and it couldn't care less what you hope or want.

Besides, selling doesn't give you the loss; you already have the loss.

If you think a loss isn't incurred until you sell the stock, you're kidding yourself.

The larger the paper loss, the more real it will become.

For eg, if you had paid $40 per share for 100 shares of Buggers United, and it's now worth $28 per share, you have $2800 of that lousy good for nothing Buggers United that cost you $4000. You have a $1200 loss. Whether you convert the stock into cash or hold it, it's still worth only $2800.

Even though you didn't sell, you took your looss as the stock dropped in price. You'd be better off selling and going back to a cash position where you can think far more objectively.

When you're holding on to a big loss, you are rarely able to think straight; you rationalize and say, "It can't go any lower."

However, keep in mind that there are many other stocks to choose from where your chance of recouping your loss could be greater.

Here's another suggestion that may help you decide whether to sell:

Pretend you don't own the stock and you have $2800 in the bank.

Then ask yourself, "Do I really want to buy this Buggers United stock now?"

If your answer is no... then why are you holding on to the stock?


How true isn't it?

A loss is a loss is a loss.

In the share market, folks who hang on to their losses is an a self-denial state. They are simply wishing and hoping and praying that a market bull will occur and help them recover their losses.

Is this really rational thinking?

I know personally folks who are holding on the stocks that they bought at rm10.00 but trades at a miserable 1.00 or so. "Why aren't you selling?", I asked. "It's alright since its paid for, so I will wait for the next bull run!" was the answer I got. Well, it's probably about a good 10 years ago!

Rational thinking or plain silly thinking.

Now I wonder, if a dire emergency really happened, would she be willing to finally accept the loss and cash out on her mistake?