One possibility is to average down - But TBH Iāve been Selling Heavy Losses instead
To quote a Paul Tudor Jones mantra:
Averaging down is a dangerous gameā¦ not as dangerous if the stock and general market is in an overall uptrend, but averaging down in a bear market, wooooo boyā¦
Oh, and averaging down in an index ETF isnāt as risky with a long enough time horizon either. Itās just individual equities that can blow you up.
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What time scale do you give yourself?
Make a number of badly timed picks that you end up baling out of quickly dropping 10% (plus a bit of stamp duty on each purchase ) of your capital each time and you are not going to be in a better position. If you are investing for the long term to sell because of short term issues seems short sighted.
It only takes a couple of times (and a glance at the index) to know when the market isnāt responding favourablyā¦ plus, weāre talking one position, not an entire account.
My preference aside, the fact still remains, anyone taking a -75% loss, will need a 300% gainā¦ thatās a simple fact.
No, I invested Ā£800+ in ABF two years ago. At one point I was down 34%, currently down about 13%.
Iāll be holding for a long time yet.
One of my first investments, bought in 2015, still down by over 60%!
Am aware of the sunk cost, but as itās not a large amount, I hang onto it to remind me that this is what can happen when I think I can pick winning shares! 
(Also, itās with HL so would cost Ā£11.95 to sellā¦)
The good news is that itās started to pay dividends again!
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This is true but it also kind of doesnāt matterā¦ if you start off with Ā£100 and lose 60% you have Ā£40.
Say you decide to sell and make 10% from there you have Ā£44 of a shiny new stock and a number that nominally looks in the green.
If instead you decide to hold and the stock rises 10% then you still have Ā£44 but a little red number next to the stock instead. The only difference is psychological, which sure can make a difference.
Iāve sold some heavy losers when itās become clear to me that Iāve made a mistake and averaged into others when I still think itās a solid stock and I got my entry price wrong. Classic example for me is invinity energy. I brought in at well over Ā£1 but was happy to buy a ton more in the 20p range. Great company, I believe it has good long term growth potential, I just got the entry price wrong.
Others like e.g. bushveld minerals the stock dropped due to info that changed my view of the companies future so I got outā¦
The psychological aspect is the main thing I think, People donāt want to sell at a loss because they somehow think they havenāt lost anything if they donāt sell. This is a complete fallacy but I see people saying it all the time. So they can end up stuck in something that is quite likely to go to zero.
If someone needs 900% gain to see green again so they can get out without losing, It is extremely unlikely that is going to happen. So they hold and hold and it carries on down and before you know it they need a 9000% gain to break even.
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Thatās true, but if you sell and buy something else, you still need to have the same % growth to get back to where you started. Yes, if you stick you could lose everything, but some stocks are inherently volatile and rise quickly as well as fall quickly. The worst possible situation is you sell something at an 80% or whatever loss, invest it in something slow and steady, then the dog takes off again. When Iām massively down, I kinda write it off and then itās a bonus if it shoots up again.
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Yes. but you need to consider whether your reasons for holding on are rational ( and you need to be honest with yourself!)
If you main reason for holding is āwhat if it shoots back up after I sell?ā is that really rational? To me thatās that same as someone playing the lottery every week and not being able to stop in case their numbers come up the next week
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Totally agree, but much human decision-making is not rational. If it were, life would be pretty boring, and the study of economics very dull.
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Perhaps going forwards you should not tolerate heavy loses to begin with.
When investing, set a low price (manual stop loss) and sell no matter what excuses you have at the time.
If you have diversified and one stock hits your 10-20% MAX pre determined loss limit, you sell and invest elsewhere.
No heavy loss to the overall portfolio.
Investing is about buying and selling smart.
Or according to Warren Buffett - "āWell, the best thing to do is buy a stock that you donāt ever want to sellā
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Selling smart includes not selling your winners.
But you have to be prepared to sell losersā¦dont forget rule 1.
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I do agree that its better to buy long hold stocks than try to be a ātraderā.
I think thatās actually very rational behaviour as it would be devastating if it happened.
I occasionally do the lottery but I get a random set of numbers.
I have been lucky as I have 2 real losers.
Both down 80%.
Both small purchases. (Ā£1,000 and Ā£1,600)
Both profitable companies.
I will let them run as selling and reinvesting wonāt be of much benefit.
Generally the less I invest in a company the lower the percentage returns I get.
Clearly I need to reduce the amount of holdings and stick to the ones I have more faith in.
As an aside there is nothing wrong with buying the dip if nothing has changed at the holding.
Legal and general being a obvious example of buying the dip.
And for me HGT where I am very confident of a big rise in the share price.
You are more likely to get struck by lightning that win the lottery jackpot. by that logic itās rational to never go outsideā¦
Not really. One has nothing to do with the other.
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