I’m a new investor, 4/5 months… I’m holding bags- like most, but have also locked in some profits. I’m a firm believer in the ‘it’s only a loss if you sell’…ethos.
I got involved in a SPAC … in a company I did my DD on and thought was a good investment… as it deSPACed and then plumeted over 20% I still held on hoping the fallen share price would be scooped up by other investors…
It didn’t happen… at 30 odd % loss I closed my FreeTrade app and hid my head in the sand for a while…upon digging it out (my head) and finding I was sitting at a 41% loss … I did it… I pressed the sell button and locked in the loss… For the first time.
I may have made the biggest mistake of my life and the SP may uplift… But the stress of seeing such a quick plummet was unbearable… The selling …albeit, at a loss, was a massive relief.
Lots of investors talk about profits, but not so many talk about losses.
What’s been your biggest loss? How did you cope? What have you learnt from it?
True, not many people talk about losses. That creates a big survivorship bias in the investment community.
Your investment was extremely risky though. SPACs have no value, they make no real sense. You can’t do due diligence or research on them. So you buy a pot of money for more money than is in it. You’re already sitting on a loss the moment you invest.
So by investing in ETFs or funds you take most risk out of investing if your time horizon is long enough. So losing 30% is not that bad because you know it will go up again.
It is definitely a loss even if you don’t sell. That’s a dangerous fallacy.
I’ve lost ~95% once on a single stock, but it was just a small part of my portfolio, so overall it doesn’t affect performance.
I think that’s a fallacy. If you holding goes down you assets have taken a real fall in value. This attitude leads to people holding onto losers as they continue to fall, and can wipe a position out.
I believe the best approach is to start with lower risk positions and build up a diverse portfolio before trying to pick a big winner. It’s far easier to stomach a loss like this if you already have some boring but steady winners.
I just sold a bunch of SPACs that I bought when they were all the rage, most were in the red and either hadn’t found a target or had merged then dropped. But this didn’t bother me to much because the losses were small compared to the profit I’ve built up over the years from big blue chip companies.
It did feel pretty good to cut that crap out of my portfolio even though there was some loss.
This is a learning experience, and even when you’ve been doing it for years you will make the odd mistake. These losses are your tuition fees
Being diversified and not going all in one one particular stock is your best defense against picking a bad loser. keep the higher risk positions relatively small compared to your overall portfolio
You know, the bigger my portfolio gets, the less I worry about individual losses and daily fluctuations. It is no longer “current money”, and has become “retirement funds”, which is something that will be relevant in the future. Of course I check daily, and feel a bit sick on a very red day, but much less so than when the numbers were much smaller. Will be interesting to see how my thoughts change as I get close to the big R (retirement).
Water the flowers, cut the weeds. Don’t do the opposite.
Like @lizmcp, I don’t stress about the daily (or even monthly) fluctuations as I’ve been investing a while, otherwise I would have well and truly panicked after seeing my portfolio tank £25k in March 2020.
I didn’t sell anything, I just stopped checking my portfolio and six/seven months later, had recouped it all and made another £20k on top.
Yes, I was perhaps lucky with the v-shaped recovery but I heard that some others sold out at a loss in panic and then found that they couldn’t time when to get back into the rising market.
Rightly or wrongly, in my mind, I do think that it’s not a loss until I’ve sold - it makes me more comfortable looking at red numbers.
I too wonder how calm I will be however as I get closer to retirement.
I will try to distil this into the simplest way that I think about investing, taken from Peter Lynch (would definitely recommend looking him up and his books).
Invest in a company or stock when there is a story of why it will go up, i.e. it is currently trading at a low price or it has growth potential. Only sell if the story changes, i.e. the value of the company has been realised (the valuation has gone up) or something in the story has changed to make it no longer an attractive investment.
In Peter Lynch’s case, if a price of a stock goes down, as long as the story is still the same, then he likes this as this is a buying opportunity.
In the case of your SPAC, what is the reason that you invested or “story”? Is your analysis of the true value of the stock still true, regardless of the current price?
- Anyway not saying this is correct and not advice, but this is how I think about investing, mostly takye from Peter Lynch and other successful investors.
I’m holding a couple of SPACs. Both are up by a couple of percent but I’m certainly not getting excited. I will stick with them because I feel conditions are favourable for the type of business they are aiming to acquire, but ultimately they’re blind punts and I’m only accepting that level of risk because of the low percentage of my portfolio they comprise.
As for loss more broadly with tangible companies though, ultimately it comes down to a few basic questions. Do I understand why I invested in this company in the first place? Was there due diligence I should have done at the time and didn’t, that can guide me on whether I should now sell? Have the circumstances changed since I first invested? Or, do I believe in my investment to the extent that the only reason I’m not immediately doubling down on the investment by buying the same number of shares again at a lower price, is the need to ensure a well-balanced portfolio?
Biggest lost? Valerie Pattiserrie: 100%
Second biggest: Itaconix: 95%
But actually these are just sums that I invested and didn’t get back. The loss is limited by the amount of the investment.
The upside isn’t limited in the same way. So the true biggest loss is in those shares I sold too early that went on going up … real pain is re-buying a share that you sold 4 years ago for 8 times what you sold it at (because you thought a 40% gain should be banked or whatever).
(picture taken from BG’s Trust magazine)
This isn’t probably applicable to SPAC investors but a long term mindset helps in dealing with loss. You can reap the rewards from holding Good and important companies for long periods of time
As others have said, the main thing to focus on is long term performance, say 5 years or more. My worst loss was 70% down on a small-cap mining company, total beginners mistake.
Now I am having a diversified and fairly defensive portfolio, 25% cash/gold/bonds, 25% property/music rights/infrastructure and the rest 50% in equities, mainly investment trusts, one ETF and some direct holdings. Since 2014 I am keeping good track of the numbers and I am up about 10% per year (compound growth). Nothing to shoots the lights out but perfectly respectable, I hope.
As others have mentioned the covid crash was brutal for both new investors and old.
I had probably a year of investing on Freetrade and was 5 - 8% in profit… within a week I was -30% across the entire portfolio and it showed no sign of stopping. I activated my plan of buy the discounted stocks and poured money into the account in an attempt to keep it afloat. Here is a picture of the accounts max graph now with the covid crash highlighted.
As you can see it’s insignificant on the chart, but at the time it was the end of days… you can’t cross the ocean without hitting some waves, your stocks are your crew. Select those that can weather the storms and leave the unstable mechanic on the dock, he/she might flourish under pressure but they could also buckle and sink your ship. Hire the old reliables, the guy who worked at the dock yard 35 years and is looking to support his family, he wants a smooth journey as much as you… that’s my theory at least lol
Bought Metrobank at around £7 and at one point I was down around 80-90%. I was luckily able to average down but sold it at a loss (around 10%) in the end.