Do you sell your heavy losses?

Say you’re 75-80% down on a stock (e.g., BNGO, AYRO, EXP, PLTR) would you ever consider selling and taking the loss? When I’m in this situation, I tend not to sell. I stubbornly hold on in the hope that the price will recover months or even years later.

However, someone told me I’m falling into the trap of the ‘sunk cost fallacy’.

Think it depends on several things. Did you do your DD do you believe the stock will recover? If not get out reinvest in something better. How much cash is it (always relative to you) if it is pennies is it worth moving if it is a reasonable amount then that may change your thought process.

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How much the stock was when you brought it is irrelevant.

If you brought £500 worth of stock in XYZ Inc but it’s not dropped to £100 the real question you should be asking yourself is.

Is there a better place for me to invest my £100 than where it currently is. Revisit your decision to invest in XYZ Inc and if you think it’s still the best investment (that meets your goals and risk tolerance) then do nothing.

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The fear of them rocketing five minutes after I’ve sold is what stops me selling them. And most stocks recover eventually…

Source? (I know an awful lot of stocks that don’t. But don’t have exact figures. So am keen to know if that statement is generally true. It is not for no reason that the complexion of the top stocks by market value changes over the years)

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Depends on what you believe about the business, the industry, etc. Some questions you can ask yourself. Are you willing to buy more? If so, why? If not, why not? If you were to sell then what would you do with the funds? Why?

By the way. If you buy a share for £100 and it drops 80% then it’ll be £20 a share, so it needs to 5x for you to break even, which is +400%. It’s long shot unless, although you can average down.

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I sold Helium One last year. I bought £3000 for in around 19p and it went up to 28p. I should have sold then but there was going to be an announcement about a new well but that did not materialise. So it dropped to around 8p and I sold. Yes, holding on, it might recover, but you might be better off using that money in other stocks that will grow in the meantime. Otherwise you will be waiting a long time without making any gains at all.

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I know a lot also that haven’t, so I wrote most, not all.

It depends. A broad theory of ‘always sell’ or ‘always top up’ is likely not the right answer.

If you think they are dog shit then sell (I sold Zoom at a small loss, and luckily broke even on Peloton - albeit down from peak). Others I’ve held and sitting on a bigger loss - almost sold Chewy at a big loss at around $50 per share. Not selling was probably a mistake, their path to profit looks sketchy but holding as a bit of a punt - their decrease is partly fundamentals, partly market-wide emotion. I’ll ride out the latter while I decide on the fundamentals.

Roku/Docu I’m also sitting on massive losses, but I believe they can come back (particularly DOCU, ROKU is a bit more of a gamble) so don’t plan to sell.

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My instinct is that ‘most’ probably don’t. Most S&P500 stocks perhaps, but generally I suspect more businesses fail than succeed.

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Yep most stocks underperform the market and only a small proportion drive the market higher. The maximum downside is 100% but upside is unlimited. The chance of hitting either extreme is higher for early stage companies.

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I would tend not to sell when stocks are down as, if you have done research beforehand and are confident about the company, there is no reason why it shouldn’t recover. Depending on the company/stock, I will hold and not buy more, but if it is a company/stock I think has great potential in the future, I will take the opportunity of it being down to buy top up my holding and decrease my average purchase.

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If the only reason you are holding is stubborn hope you should probably look for a better place to put that money. there is an opportunity cost to hanging onto a loser. That money could be invested in something that is growing.

It’s difficult to realise a loss because the psychological effect of losing is often stronger than the effect of a win. It’s difficult to admit to yourself that you were wrong. This is called Loss Aversion.

I don’t have any strict rule about selling losers, except that I never “buy the dip” in an effort to lower the average. This just increases the amount of money you have at risk in a potentially poor investment. (I did used to buy the dip, but I’ve found it often doesn’t work and I get better results by putting more money into winners)

I did offload a lot of SPACS at a loss after foolishly getting dragged into the hype.

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Yup. Some people mistake buying the dip for the principle and ideas around pound cost averaging.

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yes agreed and - hence my question. I was keen to understand where that “most” came from.

As @J4ipod94 correctly states

and there is a plethora of evidence for this.

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Yeah just to evidence that:

While the overall US stock market has handily outperformed Treasury bills in the long run, most individual common stocks have not. Of the nearly 26,000 common stocks that have appeared on CRSP from 1926 to 2016, less than half generated a positive lifetime buy-and-hold return (inclusive of reinvested dividends) and only 42.6% have a lifetime buy-and-hold return greater than the one-month Treasury bill over the same time interval.

The best performing 306 firms (0.5% of total) accounted for 73.03% of global net wealth creation and 49.08% of global gross wealth creation. The best performing 811 firms (1.33% of total) accounted for all net global wealth creation, and 67.20% of gross global wealth creation.

Bessembinder, H., 2018. Do stocks outperform treasury bills?. Journal of financial economics , 129 (3), pp.440-457.

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Good to point that out and get me to think about it thanks Dave. I think some investments are probably still worth buying the dip but with experience will come even better knowledge to distinguish a bargin from a turkey.

There’s your problem, my friend. Empirical studies have shown that there is no correlation between hope and stock price performance.

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Thanks for the references. Yep, I accept that most stocks don’t outperform the market (otherwise they’d all be above average) and that a lot of the time a safe bet is, errr, a safe bet. But the thing is that you don’t know in advance what will succeed and what won’t. If you did, there’d be no risk. Most - not vast majority or anything, but most - will “go up”, and so I’m inclined to stick with the ones I thought well of to begin with, even if they’re massively down. Also, the ones that fall quickly also tend to rise quickly.

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In most cases no. My only large exception was £POLY.

Generally I prefer mature stocks and ETFs and investment trusts and don’t really go for growth stocks, so I don’t have a big looser often.

My biggest looser has been £ULVR but despite them partaking in “woke capitalism” which I’m minorly unhappy with. Of course not unhappy enough that I’d consider selling.

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