Financial losses are the part and parcel of stock market trading. Some investors who lose a substantial amount of money, at times, even contemplate exiting the market – instead of trying to salvage the situation, and waiting for the right opportunity to make money in the near future.
Socrates rightly said, “Falling down is not a failure. Failure comes when you stay where you have fallen.” If you happen to incur stock market losses, there is barely anything you can do immediately to recoup the losses. So, it is advised to hold yourself together and wait for the right opportunity. It will come.
Following are some of the key steps you can take to deal with stock market losses:
Assess your mistake: When you have lost your money, there is nothing you can do to recover it barring the fact that it will give you some learning. If you are an early investor, then there would be far more learning in comparison to an ace investor. For instance, if you were too optimistic about a risky investment, then the next time, you should exercise more caution and at least – hedge your investment to cut down on losses.
Evaluate your choices: If the loss happened because of some structural problem with your choices of stocks, sector, commodities or the wrong allocation, then you should be flexible enough to relook your choices. Making a mistake is okay, so long as you do not repeat it. And this can be avoided only when you do an objective assessment of the choices you made about investments.
Make a concrete plan: After you have been through a market fall, it is perhaps the time to make a stronger investment plan that not only incorporates the learning from your mistakes, but also factors in new strategies that are more realistic and designed to minimise the losses.
View it in the long term: Over a long term, investors can make a lot of money from the stock market. So, small losses over a short period of time would appear to be setbacks, but in the larger scheme of things — these may not be substantial. So, viewing losses in the right perspective and from the long-term vision can certainly help you view things clearly.
As we saw, it is extremely important to consider stock market loss as a work-in-progress instead of an end in itself. The key to making money in the stock market is to be persistent, cautious and patient. And remember that hanging on to one investment with a hope that the loss can be recouped may not be a good strategy. This way, you might suffer a bigger loss, instead of cutting it down.