• Investment decision must be re-examined
• Decide how to proceed with a cool head
Investors who experience price losses on the stock markets are often unsettled as a result. Basically, there are the options of selling, holding or buying. The decision is not easy, because hasty selling can be wrong – on the other hand, losses should not be piled up.
To sell
The most important thing in the event of a loss is to conduct a self-critical analysis of the original purchase decision. It is important to examine whether the fundamentals have deteriorated or whether the losses are more a whim of the stock market.
If, on sober consideration, you come to the conclusion that the purchase was a wrong decision, then it is right to correct it. A disadvantage of this, however, is that in addition to the realized price losses, there are also transaction costs for the sale at the broker or bank.
repurchase
For investors who are absolutely convinced of their investment, price losses can be a good opportunity to buy shares cheaply. As a result, the purchase price is reduced because shares were bought at a lower average price.
However, this approach requires a good deal of courage, after all, many investors react with uncertainty when they lose. In addition, in this case one acts contrary to the wisdom of the stock market: allow profits to run and limit losses.
Keep
Anyone who invests in the stock market should do so with a long investment horizon of at least three years, because short-term fluctuations are normal. A look at the past shows that the stock market has compensated for almost every setback over a ten-year period, often earlier. That is why the middle way, namely simply leaving the cheap shares in the portfolio and waiting for the price to rise again, is often the right decision for share investors.
In any case, panicking when prices are falling would be a big mistake. Rather, it is important to keep a cool head. After all, price losses do not really mean that you lose real money, but initially they are “only” book losses. The losses are only actually realized when the property is sold. In addition, it is difficult to draw conclusions about future price developments from today’s poor mood on the stock exchange.
However, it is also clear that recovering losses can be tedious, which has to do with the fact that the base effect and the percentage calculation have an impact on an investment. After a setback, stocks have to work their way up again from a lower level. For example, a stock that has fallen 50 percent would then have to gain 100 percent from its reduced level to regain its original value. This usually takes time. Therefore, you should only decide on the “Hold” alternative if you do not need the money in the next six to eighteen months. Otherwise it can happen that you have to sell when prices have fallen even further.
However, if you have staying power and remain convinced of your investment, you will probably do best if you sit out the interim losses. In this way, one can not only benefit from a possible price recovery, but may even benefit from dividend payments. In addition, this alternative is associated with only low costs.
It may also help investors who have made losses to remember one of stock guru André Kostolany’s most famous stock market wisdom: “Buy stocks, take sleeping pills and stop looking at the papers. After many years you will see: You are rich.”
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