Share on StockTwits
Share

I am adamant about trying to not lose money. One of my basic premises is that if a stock drops then it is probably harder to ride that losing stock back to profitability then it is to find another stock that is already moving in a profitable direction.

One of Jim Cramer's sayings is that there is always a bull market somewhere. This is usually true and if one of your stocks is delivering you a loss, you need to find a company that is increasing in price and move your money there. As Charles Sizemore says below, it is a lot harder to recover your losses than it is to lose the money.

With market volatility picking up this past week, now is as good a time as any to review why it’s important to take your losses early.

Portfolio Loss Gain Required to Break Even
(10%) 11%
(20%) 25%
(30%) 43%
(40%) 67%
(50%) 100%
(60%) 150%
(70%) 233%
(80%) 400%
(90%) 900%
(97%) 3,233%

If you lose 10%-20% in a trade, it’s not that hard to recover. It only takes 11% – 25% to get back to where you started.

But if you lose 50%, you need 100% returns to get back to break even. Or if you lose 97% — as Bill Ackmanrecently did in Valeant Pharmaceuticals — you’d need a ridiculous 3,233% on your next trade just to get back to zero.

For the lion’s share of my portfolio, I take my losses early and buy a stock that is increasing in value.

Source: Take Your Losses Early and Often - Sizemore Insights

Share
Any stock information has been provided for free by IEX or Alphavantage.

Please read the disclaimer before using any information on this site.

To learn how to retire with enough money to live in luxury during your retirement and enjoy the good life, download the free whitepaper Retire In Luxury

Leave a Reply

You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>