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๐๐ก๐ ๐๐ฉ๐ฉ๐จ๐ซ๐ญ๐ฎ๐ง๐ข๐ญ๐ฒ ๐๐จ๐ฌ๐ญ ๐จ๐ ๐๐๐ ๐๐จ๐จ๐ค๐ข๐ง๐ ๐ ๐๐จ๐ฌ๐ฌ
You buy a stock
Its price falls You stick with it
The most common reason why you do so is because you either EXPECT or WANT it to come up. Both are illogical.
#WealthWagon
You buy a stock
Its price falls You stick with itThe most common reason why you do so is because you either EXPECT or WANT it to come up. Both are illogical.
#WealthWagon
In such cases our emotions intervene and hurt us in a way we donโt realise. Iโll explain soon.
First letโs understand why we stick to loss-making stocks.
Fear: We donโt want to see a loss booked on our statements
#WealthWagon
First letโs understand why we stick to loss-making stocks.
Fear: We donโt want to see a loss booked on our statements#WealthWagon
Ego: We donโt want to accept that our judgement could go wrongIrrationality: Even if our purchase wasnโt made on the basis of any analysis we continue to hang on to the stockIn essence, we breed and nurture the weeds in our portfolio.
#WealthWagon
Now, one obvious way this is hurtful is that the stock doesnโt come up to our buying price and we eventually book a loss.
However, thereโs another way by which we lose more. Let me explain through an example.
#WealthWagon
However, thereโs another way by which we lose more. Let me explain through an example.
#WealthWagon
โ You buy 10 units of ABC at โน100 each on 1 Jan
โ It falls to โน80 by 30 Jan
โ Neither trend nor prospects are encouraging but you keep the stock
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โ It falls to โน80 by 30 Jan
โ Neither trend nor prospects are encouraging but you keep the stock
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โ After waiting 3 months you sell at โน82, frustrated at having to book a loss
Now the question is how much did you lose? A direct answer would be โน180 or 18%.
But that would be the wrong answer.
#WealthWagon
Now the question is how much did you lose? A direct answer would be โน180 or 18%.
But that would be the wrong answer.
#WealthWagon
Take an alternate scenario:
โ Sold ABC on 30 Jan; loss of โน200 or 20%
โ Bought 8 XYZ at โน100 for the โน800 you received
โ Two months down-the-line, at the time you actually sold ABC, XYZ is at โน140
โ Youโre gaining โน320 and you book profit
#WealthWagon
โ Sold ABC on 30 Jan; loss of โน200 or 20%
โ Bought 8 XYZ at โน100 for the โน800 you received
โ Two months down-the-line, at the time you actually sold ABC, XYZ is at โน140
โ Youโre gaining โน320 and you book profit
#WealthWagon
Situation 1 โ
ABC
Investment: โน1000
Time: 3 months
Net Loss: โน180
Situation 2 โ
ABC
Investment: โน1000
Time: 1 month
Loss: โน200
XYZ
Investment: โน800
Time: 2 months
Profit: โน320
Net profit โน120 in the SAME holding period as before
#WealthWagon
ABCInvestment: โน1000
Time: 3 months
Net Loss: โน180Situation 2 โ
ABCInvestment: โน1000
Time: 1 month
Loss: โน200
XYZInvestment: โน800
Time: 2 months
Profit: โน320
Net profit โน120 in the SAME holding period as before#WealthWagon
By sticking to a loss-making stock that has little prospects youโre not only losing your capital DIRECTLY but also FOREGOING a potential profit you can earn by shifting to a trending stock!
#WealthWagon
#WealthWagon
Do understand that real value is not in stock prices but in TIME. What you do with your money in a certain time-frame is what really matters!
Lesson โ Never be shy of booking a loss and accepting a wrong trade!
#WealthWagon
Lesson โ Never be shy of booking a loss and accepting a wrong trade!
#WealthWagon
