Averaging Down

[Moolah]

Karlmax: Thanks for sharing but just for your info, I am not a trader and just for your information, I realise I could always be wrong and I could always make a mistake in my judgement of what's a good business is. And when I am wrong, I feel it is best I stop being wrong. That's my opinion to share.

And sometimes, even if our investment reasoning is accurate and spot on, the business could change. For example, the business economics of the business industry could change for the worse. Or perhaps new owners with much different mindset could emerge. And in the meantime, stock goes lower. Do we still want to hold and maybe even average down on such an investment? Or should we just sell?

Does such an investment temperment echoes a traders mindset? Well, I am one who cares not too much on how I am being branded. Most important value for me, is always the correct reasoning.

And yeah, I will sell my investment if and when I feel that the fundamental reasoning why I had invested in the stock in the first place, no longer hold true.

Just sharing my simple views. Cheers.

[lonewolf]

I know.. many investors gets all agitated when they hear the word cut loss.

I for one cannot understand why. To cut loss means to sell one investment mistake. Hey, everyone errs right? So what's wrong with correcting one's mistake?

I'm being in the stock market for a long time and it took me about 12 years to learn how to 'cut loss'. If I have learnt this lesson earlier, perhaps my loss would not have been so deep.

cutting loss does not imply a person has a 'trading temperament'. many folks here cut losses after periods ranging from one to three years. and so have i.

I may possibly have the dubious honour for the longest period before 'cutting loss'. How long? 12 years!

Ironically the recent implementation of the 0.1c bid actually allows me to achieve a 60% gain before the implementation. The stock went from 0.005 to 0.008.

[violinist]

I may possibly have the dubious honour for the longest period before 'cutting loss'. How long? 12 years!

Should I feel consoled that I am still in year 3 loss?

[Moolah]

@lonewolf: WOW! 12 years to cut an investment!

---

I may possibly have the dubious honour for the longest period before 'cutting loss'. How long? 12 years!

Should I feel consoled that I am still in year 3 loss?

And why are you still holding?

[Musicwhiz]

I may possibly have the dubious honour for the longest period before 'cutting loss'. How long? 12 years!

Don't think so. My father has been holding on to some "deadwood" stocks for like 20 years without cutting loss. I would think that's a record! And he's still holding on to them.......which is what taught me to cut loss swiftly if necessary.

[flinger]

1. Its not the no. of years that makes you want to "Cut Loss", its the fact you have learned that the fundamentals are gone and will not return.

2. The word "Cut Loss" is more commonly used in trading lingo then in investment lingo. In investment lingo, from what I know they refer to it as "divestment" , although they (the action) are the same, but have different contextual meaning to them.

3. You don't have to "physically cut loss" if you don't want too if you have a believe that the company will spring back, unless there is some other reason like rights issues etc... which will suck more of your money. Instead you can "divest" by writing them off your "books" or "investment portfolio". However, you would also have to look a the opportunity cost of not "cutting loss" or "divesting" these stocks.

More often than not, cutting loss / divesting makes more sense, but you also have to take in consideration the psychological impact that will have on you if you do it at a period when most of yours stocks are up and flying compared to a period when its the opposite.

Just some of my views.

[Jacmar]

2. The word "Cut Loss" is more commonly used in trading lingo then in investment lingo. In investment lingo, from what I know they refer to it as "divestment" , although they (the action) are the same, but have different contextual meaning to them.

Just some of my views.

To me I have a benchmark of 3 years for every investment. If the stocks/management is performing then 3 years is reasonable length of time for it to show and also right out any economic cycles. if the investment do not perform(getting a reasonable return including dividends) i would consider to divest it. Of course if it's a loss, it's definitely thrown out.Keep winners only. As of now all my holdings are less than 3 years and those more than 3 years is giving good returns since investment. oldest is 1995.

[lonewolf]

Just to share a little bit more why I took so long to cut loss or divest.

In the past, when I was just starting investing, I do so without due considerations to the fundamentals of the company; but instead buy on herd instinct, insider tips, rumours and the rest.

With no ideas on the fundamentals, when the bear market set in, I see my share going down and down and did nothing. Indeed, on some occasions, I did an 'average down' - sometimes on the open market, sometimes from subscribing to rights issue. This gone one for many years for some of my stock and I was oblivious or careless that the fundamentals of the company was deteriorating.

Even though I known FA for many years, it was only this year that I took a serious and deliberated approach to do a stock take of all the shares in my portfolio. And I shortlisted many companies for divestment - many deeply out of the pocket (practically a write-off).

It was a painful process but one I view as necessary. I decided it was better to just take a hit, swallow the loss and move on. While the decision is a little late, I suppose it is better late than never. In fact I find the entire process a little liberating even (if that makes any sense)

[corydorus]

I do cutlost with the blink of an eye if i find the FA and/or TA turn bad. Broad market turning may means extra urgency to act quickly.
However i feel instrument like CFD which will skew the market to sharp falls, the strong bounce up may be good time to offload if you miss the head.

There are stocks which deliver relatively good results and strong dividents year after year with Strong moats.
They are really good opportunity to average down. I beg for them.

Cory

[Moolah]

1. Its not the no. of years that makes you want to "Cut Loss", its the fact you have learned that the fundamentals are gone and will not return.

2. The word "Cut Loss" is more commonly used in trading lingo then in investment lingo. In investment lingo, from what I know they refer to it as "divestment" , although they (the action) are the same, but have different contextual meaning to them.

3. You don't have to "physically cut loss" if you don't want too if you have a believe that the company will spring back, unless there is some other reason like rights issues etc... which will suck more of your money. Instead you can "divest" by writing them off your "books" or "investment portfolio". However, you would also have to look a the opportunity cost of not "cutting loss" or "divesting" these stocks.

More often than not, cutting loss / divesting makes more sense, but you also have to take in consideration the psychological impact that will have on you if you do it at a period when most of yours stocks are up and flying compared to a period when its the opposite.

Just some of my views.

Flinger: Agree completely on point 1.

Point 2. Cutting Loss requires the action of one selling the shares.
Divestment also requires the investor to sell their stake/or shares.

Err... why so particular about the lingo used???

Is the word trading such a taboo?

Sometimes we can invest in a good company and suddenly, within one month, an unforseen change of owner happened. A bad reputation owner/group of company bought over the the company. Now since the new owner reputation is bad and we are well aware of past incidents involving them, we might consider selling/divestment as the best logical decision. So we sold off our entire investment within a month.

Would this be the logical thing to do?
Or would one shy from selling due to the extreme short time frame of the investment?

How?

Me would always agree to sell. Cos the fundamental reason to be an investor no longer holds true. And if anyone sniggers at me for making such a short 'trade' on the investment .... lol... so be it. For I care much more of the right reasoning than the lingo or branding.

Point 3. Believing the company could come back. Now that's a very interesting issue. Off hand, I could be wrong but I think holding on to such stocks is rather damaging to one's health. Why? Timing and possibility issue. We could end up waiting a long time for this company to spring back. Yeah, how long? Are we gonna say each year, we will give company X another year to recover? And then, what's the realistic chances of it coming back? How many bad companies really recover? Some do and I have seen that when it happens, the recovery could be really rewarding. But then I have seen many incidents when the so called recovery just does not happen.