When designing a long-term stock portfolio, many people focus on stocks earning lucrative returns while neglecting the presence of losing stocks in their portfolio. Are you torn between keeping the losing W investments and selling them as soon as possible? Here's what you need to do to make the best of your portfolio in the long run.
Defining Losing Stocks
You may have a few stocks in your portfolio that are down 5 per cent, 7 per cent, 10 per cent, 15 per cent, 30 per cent, 50 per cent, or even more. It does not, however, mean that all of these are losing stocks. So, who are the losers? Losing stocks are ones in which the stock price has dropped significantly and you cannot recoup even 20 per cent to 30 per cent of your initial investment. Such failing stocks continue to perform terribly, and you lose money in the stock market as a result.
Tips to Reduce Losses in Stock Market
■ As part of your investment strategy, maintain your stop loss discipline.
■ Excessive trading does not result in increased profits. So, don't overdo it.
Determine your risk tolerance and invest in stocks accordingly. Avoid investing in small-cap companies if you are a risk-averse investor.
■ Never maintain a losing stock for a prolonged period of time, since this will not only exacerbate the loss but will also prevent you from investing elsewhere.
■ Avoid bottom fishing since it is difficult to foresee market peaks and bottoms.
Types of Losses
Losing money is an unavoidable element of investing in the stock market. However, there are other types of losses that can occur while investing in the stock market. These losses are discussed in the forthcoming paragraphs.
Loss of Capital -
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