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Cutting your losses is liberating

Discussion in 'Beginner's Lounge' started by Trav., Nov 3, 2019.

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  1. Trav.

    Trav.

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    I came across the following today via twitter and it sums up one of the issues (I have a few) that have plagued me along this journey.

    I thought sharing this will help a few to clear out those losers and start looking forward instead of hoping for a miracle to occur with those bottom draw specials.

    https://www.thespecinvestor.com.au/blog/cutting-your-losses/

     
  2. barney

    barney

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    Good points Trav, and I hope any newcomers to ASF/the market take heed to the advice.

    I agree wholeheartedly on the premise of cutting the "woofers" from the portfolio (Still own the odd puppy myself:panda: (Panda imitating a dog! lol)

    I think Spec traders are more likely to end up with the odd bottom drawer Stock simply due to the lack of liquidity and potential gaps in the market depth etc. By the time you realise you have stuffed up, you have stuffed up even better than you realised:wacky: but the advice stands no matter what you trade.

    I agree with the sentiment that ...

    "The sense of relief when you release dog stocks from their kennels and cut your losses shouldn’t be underestimated. You will feel a huge sense of relief as well a weight being lifted off your chest."


    However, there is (or has been in my case) a follow on sense of depression once you cut them loose … simply because you waited so long and lost way more than you should have etc etc (multitude of reasons to be down on yourself)

    I suspect I may be close to holding the record on ASF of major stuff-ups as a novice trader (which is the reason I joined so many years ago) … so I truly understand how bad you can actually stuff up if you do something dumb. (Happy to divulge to anyone wanting "good" advice on what not to do;))

    With all the above in mind …. a couple of simple suggestions for any new or otherwise trader who may be unaware of the perils …

    1) Research/practice/get a mentor etc BEFORE you start putting down your hard earned on any trade

    2) Don't put too much cash on any one trade until you know how to actually trade

    3) Don't borrow money to trade ESPECIALLY before you complete 1) and 2)

    Anyone guess what I did wrong many years ago lol:D

    With the Index pumping higher, and unaware punters perhaps seeing nothing but market blue sky, your post may well be very timely Trav.;):)
     
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  3. Trav.

    Trav.

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    Excellent post @barney :xyxthumbs
    I started out chasing the speccies expecting big profits but ended up with huge losses and in one recent circumstance holding and unable to sell ( realise loss ) due to company being in administration :devilish:... but have recently decided to change my stock hunting universe to the XAO with some liquidity filters in the hope that I wont be trapped again.

    I was just looking at my trading spreadsheet and noted that my largest win was from a stock purchased at $0.89 and not from my previous favourites in the sub $0.10 range so that is some confirmation that I can be a profitable system trader and not a gambler getting sucked in on ramping from forums or hot tips from co-workers.

    Guilty on fronts 2 & 3 as well and to some extent I required the lesson as I am pretty slow on the uptake sometimes but I am lucky enough to live another day and learn from my mistakes. Others might not be so lucky and be wiped out in one go and unable to right the ship.
     
  4. barney

    barney

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    Thanks Trav …

    I suspect that we may have had similar yet still possibly totally different "learning curves" :eek::D

    Such is the nature of the market that lessons can be dealt precipitously at either regular or irregular intervals … yet the lesson delivered is invariably similar:(:)
     
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  5. So_Cynical

    So_Cynical The Contrarian Averager

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    I have found its a lot easier to sell losers when you have some big winners and are looking to reduce your tax bill, back in May/June i was selling
    heaps of losers that i normally wouldn't sell just because i "needed" losers, cost me a few dollars with the current rally but made cents at the time.
     
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  6. barney

    barney

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    Agree S_C ……. (now days)

    The difficulty in many punter's situations (mine included originally) is biting off more than you are capable of chewing (for whatever reason) …

    The psychological duress of screwing up and losing a shirt (or two:eek:) can be/was very hard to come to terms with.

    This thread will hopefully be a reminder that precautions/appropriate risk assessment needs to be understood before stepping out to sing with "Elvis":D ... prior to getting singing lessons!
     
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  7. sptrawler

    sptrawler

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    One of my early mistakes Barney, was selling my winners, to make me feel good about hanging on to my losers.
    Then I realised what a dick I was, as my winners kept going up and my losers either went nowhere or down.
    Now I actually do feel good, cutting away my losers.
     
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  8. barney

    barney

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    Indeed Homer;) ...... I agree, but I guess the 'point of the point' to anyone with less experience than those like yourself, is recognising the importance of that fact early in their trading journey.

    Interestingly, I have had a bad last few weeks or so account wise …. but as part of those losses I was happy to eliminate a couple of "nasties" from the port folio ……

    I have not regretted those decisions one bit because whether they go up or down afterwards, you have to 'own' the decision to cut them loose and simply carry on.

    Even more telling and hopefully poignant …….. The recent major $$ losses on my account have come from a couple of Stocks I probably should have at least reduced, but instead held onto.

    I still ballz up regularly … all part of the journey:yuck: lol ….
     
  9. galumay

    galumay learner

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    Like most things in investing, there are no simple rules that always apply, 2 of my biggest winners, a 5 bagger & a 10 bagger, both looked like dogs for a long time, they fell a long way from my initial postion, but I caught the falling knives and averaged down into them. Losers can be your biggest winners in the long term and selling too soon a terrible mistake.

    Remember the old adage, being too early looks the same as being wrong for a long time!

    I also am wary of the simplistic, first level thinking about opportunity cost, not selling only turns out to be an opportunity cost if the new home you find for the capital is a winner, if its another loser then selling turns out to be the opportunity cost!

    The final bad thinking is the mathmatical nonsense of saying you need to make 100% to recover from a 50% loss. Its nonsense because in maths you cant compare %'s of different amounts, its like comparing apples and oranges. If I lose $1 i have to make $1 to get it back, thats all.

    So i suggest not taking a simplistic approach, assess each investment on it's merits and be wary of people who tell you its easy, just follow these rules!
     
  10. Zaxon

    Zaxon The voice of reason

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    I don't agree with that paragraph. Sure, you lose a dollar, you need to gain a dollar to get back to zero. But it's also true that $100 with a 50% loss = $50. And $50 with a 50% gain doesn't equal $100. In fact, taking percentages of numbers and comparing them is exactly what math does. There's no "apples" and "oranges" here. It's just the way percentages work.

    Perhaps conceptually, you like to think in dollar amounts. That's fine, and useful. It doesn't make the math of percentages untrue though, because you choose not to use it.

    I've responded to this post because we have a lot of readers from different backgrounds, and I wouldn't like to see anyone mislead about how percentages work.
     
  11. sptrawler

    sptrawler

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    I think that is a good point galumay, there is no easy way to make money, or else everyone would have it.
    You either have to learn how to value a company, or learn how to read technical analysis, or a combination of both otherwise you are just gambling.
    Someone will no doubt put that in a better context, but the stab in the dark winners only work in a roaring bull market, not in a toppy market. IMO
     
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  12. galumay

    galumay learner

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    You actually prove my point, you CANNOT compare %'s of different amounts, its meaningless. As you say 50% of $100 is a completely different number to 50% of $50. Percentages are simply not meant to be used to compare things with different amounts like this, it is specifically comparing apples and oranges.

    Maybe it will help you to think about what happens when one investment of $100 goes to $0, then you have lost 100% of the $100 and when you use %'s you would say now I need an infinite % return to get my money back, which is obviously nonsense. You could make a 10% gain on another $1000 investment and you would have got your money back.

    Its much better to think in terms of $ returns and losses rather than %'s IMO.

    Of course I would argue that I posted this in the first instance because I hate seeing people mislead by the misuse of percentages!
     
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  13. barney

    barney

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    You are both correct of course:)

    Personally I look more in dollar terms, but the % observation is a good way of highlighting the difficulty of bringing a solitary losing Stock back to life if it has devalued substantially.

    By trading a basket of Stocks and spreading the capital around, the % "problem" tends to be filtered.
     
  14. Gringotts Bank

    Gringotts Bank

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    If the stock is in a strong uptrend and has good sentiment, it makes sense to average down and attempt to trade your way out of the position for a small loss or break even.
     
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  15. Gringotts Bank

    Gringotts Bank

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    And it is looking toppy. Speccies are not mean-reverting. That lack of reversion in the small end of town is always telling. Of course it can change in a short period of time (days), but that's how it is at the moment. I've taken a few big losses lately.
     
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  16. Jack Aubrey

    Jack Aubrey Very inexperienced trader

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    Prompted by this thread, I dumped my small holding in Pantoro (PNR) today for a near 25% loss. I checked the body for vital signs before pressing the button. I still have a few specs on life support, but those seem to be breathing and have a pulse even though they are looking a bit wasted.

    When I started trading (all of six months ago!), I set my stops religiously via my broker. After being booted out on some intraday lows, I revised that strategy.
     
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  17. barney

    barney

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    Interestingly PNR is still my largest holding … It was previously meant to be my long term/faux superannuation holding so I could comfortably retire to the Maldives … or Possum Brush (whichever I could afford at the time:D)

    Anyway, I understand your sale Jack …. It has been a bit of a let down in the last 12 months.

    In the context of the thread … PNR is one of my top 3 largest ever profitable trades/investments … yet at the same time is probably currently my 2nd largest ever paper loss from its highs to where it now sits. (Yes that is possible:wideyed:)

    There were always reasons not to sell … but in hindsight, I should have sold at least some near the highs, and am now paying the price for my lack of attention to reality:banghead: …..

    Have I learned my lesson ….. I doubt it.

    Am I still smiling …. yeah, I guess so:blackeye::D:rolleyes::(
     
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  18. Skate

    Skate

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    Hi @Trav.

    Great topic..

    Skate.
     
  19. aus_trader

    aus_trader

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    I also used to do this a long time ago. Cost me a fair bit to realise that I'd be better off making decisions end of day when it comes to deciding if the stock has actually reversed to the down side or had an intra-day low and back to normal.

    Only downside is if a stock has a huge down day and if the on-market stop could've taken you out of the position earlier. These tend to be less common and I take these on the chin and generally sell at the end of the day or following day since the damage is already done.

    The other thing is, Even an on-market stop loss cannot protect you if the stock gaps down on that big down day !
     
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  20. Miner

    Miner

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    good one Trav
     
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