No investor will purposely buy a stock when they believe it will go down in price and will be worth less than what they have paid for it. On the other hand, buying stocks that drop in value is inherent to the nature of investing. Hence, the objective is to minimize the losses but not to avoid losses. If you have realized a capital loss before it gets out of hand separates successful investors from the rest. Therefore, in this post, you will get to learn how to minimize the risk of losses by standing out from the crowd. You will know how to identify when you should make your move in the stock market with accurate share market tips.
Buying at right time
Though you have the logic for cutting losses short, many of you are still left holding the common stocks. Whether you want or not, you unavoidably end up with a number of stock positions with large unrealized capital losses. It is believed that the reason you have so many large, unrealized losses is that you bought the stock at the wrong time or it was a matter of bad luck. But you may not even think that it is because of your own behavioral biases.
Avoid doing mistake of assuming that your stocks will bounce back
A glance at a long-term chart of any major stock index will see a line that moves from the lower-left corner to the upper right. You know that the stock market, over any long time period, will always make new highs. Investors have the idea that the stock market will go higher, even then they might mistakenly assume that their stocks will eventually bounce back. However, a stock index is made up of successful companies. It is an index of winners. At one time, you will notice that these less successful stocks may have been part of an index. However, if they have dropped significantly in value, they will eventually be replaced by more successful companies.