We all wanna boost our investment returns. Especially after the horrible year that was 2022. And is very much stretching into 2023! No surprise then that you’d wanna do all you can to boost your returns, or at least crawl back to a positive (green-not-red) space.
But when it comes to boosting our returns, we often look at what’s done well and how we can best copy it to give us those same great results. Again. It could be that we were well diversified across countries – this would’ve helped this year since China’s stock market is up ~55% and the IMF is already improving its forecasts for the region! In other words: this country is growing while everyone else is shrinking. If your portfolio did not make room for China, you’d have lost out on some juicy gains.
Another reason you may have won is that you held onto your winners. You let them ride their waves. Giving them room to compound and grow some more. You didn’t chop their legs off at the first sign of growth. So you’ll be doing more of the holding on this year. Easier said than done but a good strategy for sure. (Psst: read here the hidden price you must pay to get the rewards from investing).
Yet how many of us look at where we’ve gone wrong and see how we can fix it or at least not make the same mistake twice! Making a mistake, that’s 100% normal, okay and part of the journey but when you make it twice you’re literally throwing your money down the drain. Learn the (probably) painful lesson and don’t repeat!
If there’s one thing we all find hardest it’s cutting our losses!
Totally talking to myself here! I find it near-to impossible to cut my losses. I’m holding onto one fund that I’m down 65%. Wanna know why I’m still holding it? Because I cannot cut my losses. I find it very difficult. I find it difficult in life and in investing and what I find fascinating about investing is that if you look deep enough, it’ll show you things you never knew about yourself.
For ex, how much risk you’re willing to take on (taking age out of the equation because all else equal young people should take more risk than old people) and it tells you whether you’re adventurous ect. How you deal with losses tells you a huge deal about your confidence, your overall attitude to losing and your upbringing. Look and ye shall find!
And if losses could talk they’d yell “YOU FAILED”. Because, yeah, that’s exactly what it looks like. On the surface at least. But you can’t win if you didn’t lose and losses are as much a part of your success as your winners are. They teach you lesson and painful ones, sure – since money’s involved right! But they’re so worth it and don’t make the biggest mistake of them all by ignoring them. Now that would be wasteful.
And that voice saying “you failed” is a hard one to swallow. It’s a confidence-drowner and it makes you feel like you suck at investing. But all the great invetsors fail at some point. You can’t have a perfect portfolio. One that only goes up. Unless of course you’re Madoff and a total fraudster (read about that crazy story here and the timeless lesson it teaches us).
Losses are a total drag. And the longer you cling to them, the more money they’ll haemorrhage. Losses are like unplugging a perfectly steamy bubble bath. Total waste. But before you cut off the tumour, look under the bonnet. Ask yourself a) why has it gone down b) why has it lost so much c) what could lead to its recovery d) how much will the stock need to rise by in % terms for me to make my money back.
The last one is what I find most interesting. If a stock loses you 50% it’s gotta go up by 100% to make up for that loss! And that number gets bigger the more you’ve lost. You can’t argue with the math!
Can you put your money to better use elsewhere?
You’ve gotta ask yourself if it’s really worth holding onto that stock for years and years just to make your money back or could you get some of your money back and get those ££££’s working for you already?
The question is do you want your workers working for your or do you wanna keep paying them while they do nada? Because that’s just what losses are doing. Sucking your money, giving you nothing in return. Except some ugly red stuff on your screen that you’d much rather not see. Trust me. I get miserable just looking at that %.
So instead of clinging to your losses for dear life like they’re some sort of life vest (which they’re not, in fact the total opposite), dare to cut them loose. A losing stock/fund means you can’t invest in other areas. The opportunity cost keeps growing as it keeps on falling. Put your money to better use. Don’t let it sit there, watching it slowly but surely disappear into oblivion.
I’m going to take my own advice and sell the fund that somehow managed to lose me 65% of my money and say good riddance. I will be putting my money to a better place and get it working for me again.
Cutting your losses and moving on with investing as in life in general is no easy task. We like to stick to what we know and the unknown can be scary. Even though we secretly know it’ll be better for us in the long run.
And we don’t like the feeling of losing, of making a mistake that cost us. But why make yourself (and your money) suffer anymore than it has done already?
Dare to remove the things that drag you down. Same is to be said for the things in your life as well as what’s stashed in your portfolio!
Our money, as with our energy, is not infinite.
Make sure you’re directing it to exactly where it needs to go.
You’ll be happier, and richer for it.
So cut those losses of yours. Break free!
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