😊Knowing When to Cut Your Losses in Life and Markets Can Turbocharge Your Wealth and Wellbeing

Ever been to the cinema and you found the movie to be dreadful right from the start? Or go to the theatre and mid-way you realise the show isn’t exactly living up to your expectations? I bet we’ve all had that experience but how many of us would’ve upped and left!

I recently went to the theatre with a friend and I did not like the show. The music wasn’t for me, the general storyline wasn’t as captivating as it had sounded and to be honest, it just felt really bland. It was around 30mins into the show when the couple sitting in front of us got up and left and do you know what? Kudos to them! I was envious.

Why waste more of your precious time sitting through something so miserable. Might as well enjoy what’s left of your evening. But no, I sat there for the full 2.5hrs and to make matters worse, during intermission I spent £3.50 on a teeny tiny Häagen-Dazs that was 60% melted. What a night!!

Why lose more when you’ve already lost some, huh?

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This whole thing is purely psychological. We think that since we’ve spent money on the tickets (and theatre tickets can be priceeeey) we think that gives us the right to torture ourselves for the show’s full duration! WRONG. Just because the money’s gone doesn’t mean your time and enjoyment needs to go down with it. But we find it really hard to cut our losses, accept it and move on gracefully. We can all be more like that couple. Talking to myself here! Because I really am one to talk.

Pre-covid I spent a whack of money on driving lessons, then went to have a test and failed. Fast forward two years I felt a burning desire to continue, in large part because I had already spent that money (and because I hate leaving things unfinished). So I spent another chunk of moola all to fail 2 days before I started my new job. Now I don’t have the time or headspace.

Had I just left my driving, accepted it as money gone, and re-start when I wanted to rather than feeling like I had to, I’d be in a totally different place! But I found it hard to cut my losses in a sense. I felt compelled to take on more lessons and keep trying since I don’t like to give up on things – that’s me in a nutshell for ya!

How and why you should cut your investment losses 

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Our habit of sticking to our losses like glue shows up in our investments too! Especially if we own individual stocks. When we invest in a particular company and its share price goes south, we have 2 choices: buy or sell. Guess which one we like to do? Yup, you guessed it. We buy more! And the reason we do is pretty the same as the theatre ticket. We’ve spent money (in this case it’s the shares) and things don’t quite pan out and the company lost market cap (and probably market share) so we think by adding more to our position, it’ll eventually recover and we’ll make that (lost) money back.

But this is so warped. When investments go pear-shaped, it’s a big flashing warning light for you to lift the bonnet and see what’s going on. It could be a case of the market overestimating the damage or it could be that the company has some serious flaws and you should sell out. See, that capital is wasted if it just sits there. You could put it to better use. So remember just because you’ve lost money on an investment, you’re allowed to cut your losses and put that money elsewhere. Don’t let yourself be held hostage to a rotten apple if you get what I mean. Throw it out and do something better with your money.

Time spent doesn’t equal time lost

We also struggle to walk away from things when we’ve devoted a great deal of time and energy to something that just doesn’t seem to be working anymore. Walking away from this is really, really hard. If not harder than walking away from something you’ve spent money on – even harder than that falling stock! We think that if we give it up we’ll a) have failed and b) have wasted all that time.

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But that time is gone. You can’t bring it back. But you can make sure that no more of your future time gets wasted on something that is no longer worth your time and attention anymore!  

It takes a lot of mental strength to do that. It’s loads easier to keep going with the status quo without taking stock and thinking, well, is this still working for me or not?

It reminds me of the time when I quit my weekly newsletter. During uni I wrote a newsletter that I sent out once a week covering all the interesting bits of financial happenings that week. I really enjoyed it at the beginning but realised I wanted to cover so many more topics that wouldn’t really flow with how it had been set up. So I stopped it and started blogging instead!

One door closes; another opens. But these doors ain’t gonna open by themselves. 

Cutting your losses doesn’t mean you’ve failed.

Cutting your losses is so hard and something I personally struggle with since to me it looks like I’ve failed and that quitting is the easy road but boy am I wrong. Quitting, when you’ve given it your all, is really hard. Harder than sticking with something. And my friend is a champion at this! 

She interned at Goldman Sachs this past summer in their asset management department – massive achievement, I know (which only made her decision harder) and she quit 7 weeks in. 2 weeks before the programme ended. She knew how many people would kill for her spot on the programme which is why leaving early wasn’t a decision that came lightly to her but it was taking a toll on her mental health. She was working crazy hours, stumbling into her apartment at 2am. 

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She told me how she had this big project but she was given no support. She felt like she was drowning so she left. Many think she took the easy route. That she simply isn’t built for it (no one is really built to work 12-14hrs a day!!) but quitting – when you know how much effort you’ve given – is hard. At some point, you have to be real with yourself and know when to let go and channel your efforts elsewhere.

The funny part was she had signed a 9-week lease on an apartment that was literally facing the Goldman building. So for those remaining 2 weeks she had to stare at it all day! Talk about a harsh break-up! 

Speaking of which, relationships are up next. Think about your relationships. The ones that aren’t great for you but who you’ve known for years and years make it so much harder to walk away. We’ve invested so much time into that person. Why leave now? But this mindset will mean you’ll be putting yourself through more discomfort. All because you’ve given of yourself to this person. Being around people who don’t bring out the best in you aren’t worth your energy. 

So have the strength to leave it behind and chase something that’ll be worth. To boost your wealth and wellbeing, sometimes it’s about subtracting things from your life rather than adding to them. It’s just changing how we look at things and realising not all things are meant to (or should) last.

Walking away from something that isn’t working (or an investment that’s draining your money!) is a superpower. 

It’s time we start embracing it.

Just because you’ve lost on it, there’s no need for you to lose more. 

Go after that next thing. It’s waiting for you! 

Disclaimer: This blog is not investment or financial advice. It is my opinion only. This blog is not a personal recommendation to buy/sell any security, or to adopt any such investment strategy. Always do your own research before you commit to any investment.

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