No-one likes to admit that they’ve made a mistake or that a financial decision didn’t quite pan out how we wanted. And no-one likes to lose… especially financially.
Investors feel comfortable selling a share at a profit, that’s what we invested for, but many hate the idea of unloading shares of a sinking stock. Instead, many cling to the idea that the stock will eventually regain its value, even when all reasonable indicators suggest otherwise.
A lot of us can ride losers too long, hoping for the miraculous turnaround. And sometimes this makes sense. If you have no need for the cash and believe in the long term prospects of the company, you may be justified in holding the position for some time.
But most of us don’t like to close out an account on a negative note. It’s not easy to walk away and know we’re going to lose. We often stay in, thinking that we absolutely must break even at the very least. But on some occasions, overcoming the fear to sell can be the difference between cutting your losses and losing the lot.
Sometimes, we just have to come to terms with the fact that the share is priced at what it is now and not what it used to be. We’ve all seen the examples of companies that have left investors hanging with no prospect of being salvaged.
It’s also good to remind yourself that there are still benefits to selling. Chances are you’ll put a stop to the cash you’re losing, but by realising short-term losses you can also save on tax as it may also help you offset capital gains you’ve made on the sale of your winners.
Aside from shares, this can also apply in the real estate market – especially with our personal homes. We become emotionally attached and can’t bring ourselves to take anything less than what we’ve decided our place is really worth.
And again, sometimes you’re right. If you don’t need to sell, there’s no point taking a bath on the sale price. However, you may also need a reality check. Chat to your local real estate agents, review the sale prices of other homes in the area. It may be time to realise other more effective uses for your money.
I’d love to hear about when you’ve chosen to cut your losses and how it panned out for you.