Co-founder of Affari Miei Independent Financial Advisory Company
3 October 2023
Have you invested but now find yourself helplessly watching your shares lose? Sometimes investors, especially beginners, find themselves faced with negative situations that they hoped not to have to manage.
However, bad moments happen to all investors, although obviously having a strategy helps to avoid discouraging situations as much as possible.
In this guide we focus on loss-making stocks, trying to understand how to deal with investments that are not performing as we would have liked.
This article talks about:
Losing investments: what to do when stocks lose? Is it worth disinvesting?
Let’s start from an assumption: many people come to me in a panic because their investments are not going as they imagined. This often happens, as I told you, due to the lack of strategy.
And even thinking of running away and disinvesting as the first operation is part of a strategy, which can often prove unsuccessful anyway.
Let’s see better how it works.
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Stock markets collapse, what to do?
Stock markets are subject to movements every day: they are never stable and observing fluctuations is perfectly natural.
If you are not going through a traumatic phase linked to some specific event, the movements of the stock market are not necessarily to be interpreted as a catastrophe… Indeed, they often go unnoticed in the eyes of the investor.
So, as always, there is no answer to what is the best move to make when faced with a market movement. Depends!
This is one of my favorite answers: many hate me when I give it, but I certainly don’t want to pretend to have a truth in my pocket that neither I nor anyone else can provide you.
The truth is that there are so many shares, funds, bonds and financial instruments available, just as there are many variables that can affect the investor and his assets… You cannot have an objective answer!
Based on this we can draw a good conclusion: basically, if things go badly and we are in the midst of a serious financial crisis… Even the best investor in the world will find himself at a loss. This means that you are not doing something wrong, but that this is how it is going. To everyone.
From this a negative conclusion can be drawn: you can’t do anything about it. And no one can tell you what to do, if sell your actions is a good idea or not, because no one has a crystal ball.
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Okay, but I’ve bought it now and the crisis scares me!
Yes, if you are here perhaps it is late to talk to you about the preventive strategy, but even in disinvestments and in maintaining investments that are already open it is necessary to have planning: don’t you want to remain at the mercy of the waves forever?
My basic rule, the one I try to teach students, is that if the markets finally collapse, then there is no point worrying about our money, because we will be forced to face a much bigger economic crisis.
If the stock markets collapse and the economy never recovers, what awaits us is the Middle Ages, a dark age where every family will not know how to feed itself… Objectively, your concern (if it is the drastic one of the inevitable disaster) seems to me to be a a bit apocalyptic and I want to reassure you. You don’t have to think about seeing everything and saving yourself!
Average losing stocks
In the financial field, “mediating” means purchasing a security already present in the portfolio at a lower price than the previous purchase, so as to lower the average carrying price. By doing this, the average purchase price is lowered, hoping for an easier recovery of the loss suffered.
In reality this approach is based on the entirely human inability of not being able to admit that we have made a mistake: we are human, and our emotions could lead us, rather than selling a stock and closing the chapter, to blame a market error, leading us to buy similar stocks hoping for a recovery.
This often leads to larger losses so it is a strategy that I do not recommend. The wisest choice, in my opinion, is to evaluate each individual situation and understand if it is worth it sell the stock at a loss and move on, or wait.
It is clear that if we are firmly convinced and think that the company we have purchased can have a future, mediation can be an opportunity to buy “on sale”.
But we must be convinced and, above all, we must have a long-term time horizon.
Sell and buy back shares at a loss
I have often heard stories from clients about stocks being sold at a loss and repurchased.
Allow me: it’s huge bullshit and if you only thought about it you’d agree with me.
If the stock is at a loss, the sale involves the immediate realization of the loss itself: the last thing to do, in my opinion, is to sell assuming that there is no condition in which the company itself may never recover.
Those who sell at a loss and buy it back do so only to experience the super expensive illusion of seeing the position in green if there is a rebound or generally less in the red if it continues to fall.
I believe it is profoundly wrong as a strategy because, in my opinion, it is not a strategy: making a loss permanent so as not to see a significant red is irrational madness, it cannot be a logical option in any way.
How much can you lose with stocks?
Il stock market it is always seen and perceived as the most difficult market, as the most difficult market risky e volatile.
This is partly true, but it does not mean that, for example, the bond market is necessarily a safe market.
If you invested in shares you presumably already had to deal with the possibility of making a loss, and perhaps you chose the stock market precisely because you had a certain risk profile.
Understand your own risk tolerance in fact it is a fundamental thing before investing.
We can say, in broad terms, that risk tolerance is low if you can afford a loss of up to around 5% per year, it is moderate if you can bear between 6% and 15% and it is high if you can bear losses that ranging from 16% to 25%.
This means that with stocks you should have a high risk tolerance and, above all, take into account the possibility of having to endure losses losses which can also be substantial.
When is it best to disinvest?
If you really want to understand when it is best to sell them losing investmentsI think it is important to clarify some sales rules that are able to channel your emotions, which could lead you to make wrong decisions.
Selling and divesting, in some cases, could be a defense to avoid having a significant loss in a position. In short, it would mean admitting that you lost without insisting and getting very hurt.
This is the last resort, to be adopted if we really think that the stock we have in our portfolio no longer has any hope.
It seems clear to me that if you are reading this article at a time when the entire market is declining, in all likelihood, we are not faced with a situation of this type.
You don’t have to fear anything if you have a strategy
Sorry, I said it again. But it’s a concept I don’t want to focus too little on. So far we have seen some possible solutions that you could adopt, because you have rules or are in the throes of emotion, but your success depends precisely on the strategy, and it will not be some advice read in an emergency on the web that will save you (not always!).
Investing money is a process that must be repeated over time and requires two basic ingredients:
money: if you have arrived on my blog I think you are not completely without it;
training: if until now you have blindly trusted banks, promoters and independent financial advice (even without understanding anything about finance), then the problem is in your education and information that you exploit;
If one of these two ingredients is not present there is no point in investing, because first you need to make sure that you have the right information to be able to act consciously.
And if you don’t have money you have to save before thinking about stocks. And if you haven’t studied, you have to study if you don’t want to hit your nose.
But now the damage is done and now you’re worried…
In this case I still want to reassure you. If you are a novice investor I can tell you that we have all been there more or less. We are all inexperienced when we start something and we all make mistakes.
Furthermore, in our country there is no financial education and this entails having a what to do with investors who don’t know what they are doing, they are aimless.
But goals aren’t bullet points stuck on the fridge with your shopping list. We’re talking about a plan for what you want to be in 10 years, in 20 years. It’s about knowing how much money you have to invest, how much you can lose if it goes wrong, it’s about understanding why you want to invest in shares or another instrument.
Your shares, your investments are at a loss: but if you don’t know how to answer these questions, it’s your fault, for you didn’t invest knowingly.
Do you want immediate support?
If the situation worries you a lot, and you want to take action, the best thing to do is to rely on professionals. We are an independent financial consultancy company, i.e. not linked to banks or asset management companies, and we can give you support through an analysis of your current investments.
If you would like to get in touch with us and want concrete help, here you will find the details to book a first free session with our staff in order to understand how we can best support you.
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What to do when funds lose?
In this guide I have put on paper what I find myself faced with when many customers or future customers come to me in a panic.
I realize that I have overreached, and if you have reached the bottom of this guide I thank you for putting up with my “lecture”: perhaps, deep down, you already knew all this and now you are opening your eyes.
That said, now, if your investments are losing money. you have to stop and think, you don’t have to act on impulse.
As I told you, without planning you can get hurt a lot… even in an operation that has already started without a strategy. You can only get worse by acting on impulse!
How to disinvest shares at a loss?
It suits sell stocks at a loss, funds or in general losing investments? If, despite everything, divesting seems like the best thing for you, then be cautious. Reckless decisions are one of the reasons why many people lose a lot of money.
You have to evaluate volatility and you have to consider the possibility of a market recovery in the medium term: if you are losing a lot it may be better to wait for a better time.
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Conclusions
I hope I have helped you and encouraged you to take care of your money and investments more consciously.
If you have come this far you have understood that it is an operation that is up to you: if you want to continue following me, you will find a lot of useful content to take control of the situation and return to being the protagonist of your financial choices.
On the blog you will find many resources to consult:
I wish you a good continuation on My business.
See you soon!
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