Many investors buy stocks for making money and wealth but not all stocks give you good or expected returns. Some fail miserably in their performance. Mr. Raju had many stocks in his portfolio and most of them he realized were bad businesses in spite of bull-run in the market over the last few years.
He did not know the way out. Not only he, but there are also many who do not know what to do with those stocks that are in the portfolio which are not performing well.
Many people can be heard saying that stocks they are holding are in a deep loss and what will they get selling it anyway.
Few other grumble that they have a losing stock and will sell only when they get the capital back, and they do not mind holding to it for a long time. They are ‘forced’ long-term investors, as they think they do not have the option to sell it.
Nobody likes to lose
It is true, many people hang on to their losing investments because they feel selling is worse.
Researchers of investment behavior have found that pain of loss is much bigger than the pleasure from gain. Investors go great length to avoid pain. As a result, our thinking when facing financial loss is to encourage ourselves that the stock will ultimately bounce back and will sell when we reach the break-even point.
To pacify themselves people will say that it is an only paper loss as a real loss will be when the stock is sold.
How to decide whether to hold on or sell?
One of the suggestions to these people is if you think the stocks are good then hold on to them if the stocks are bad to sell them and do not think what price you bought them for in the past.
The cost price at which you bought stock does not matter when you do not know what you should be doing with bad stock in your portfolio. What matter is today’s stock price!!! Assuming that it is a good business and you look to buy those stocks afresh today and your anticipated returns from it in the next 10 years or so. If you think you will not buy it today then sell the stock that you are holding. Do not wait for the breakeven point. There may be even a better way to invest your money.
Are you waiting for the breakeven point before you sell?
You should not keep losers in your investment portfolio, sell them instead and move on just as a well-managed store does not keep obsolete goods as inventory.
If you think how much more the stock price will fall from here think that every 90 percent loss started with 10 percent, 20 percent and so on till 90 percent, so as soon as you realize that you have made mistake purchasing certain stock it is better to take loss sooner than later.
We give recommendation tips as to which shares to buy and which to sell. You can contact/communicate to us which stocks at present you are holding which was a bad business and we will suggest an alternate way to out.