Investments are made with the good intention of making positive returns. But it is quiet common that the stock prices go down after we make the investment and many of the investors hold on to such loss making positions, unable to decide what to do.
For instance, if you buy a stock at Rs.100 and its price falls down to Rs.80, then it is a Rs.20 fall. Investors normally wait for the stock price to go up by Rs.20 so that their invested capital comes back. But the Rs.20 FALL and Rs.20 RISE is not the same. While falling it is a 20% fall but while rising it has to be a 25% rise.
And it is worse if the fall in stock price is more. If this stock has falls down by Rs.90, it is a 90% fall to Rs.10. For Rs.10 to rise back to Rs.100, it needs to rally by 900% – which is almost impossible. But the reality is many investors do hold on to such positions.
Hence investors need to be realistic while holding on to their loss making positions. They need to recheck if it is worth holding to this company. If there is compelling reason to hold on to such investments, then it is better to make incremental investment at lower levels to lower the average cost of purchase. But averaging blindly is like quick sand. It can sink you completely. Hence if you are not sure of the prospect of the company, better to cut losses – before it is too late.
In the current market rally, when mid and small cap stocks have run up beyond imagination, investors should book profits, atleast partially. A bird in hand is better than two in the air. And those who are struck up with loss making investments, think twice before you continue to hold on.
No comments:
Post a Comment