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Mistakes Investors Make: Not knowing when or how to take a loss

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March 02, 2012

      Published March 02, 2012 04:22 PM

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        Key points

        It happens to every trader or investor at some point. You spot what you think is an opportunity, you press buy, your heart and thoughts race a little at the prospect of this purchase bringing you the next big trade; very briefly your brain thinks about all of the things you’re going to do with […]

        It happens to every trader or investor at some point. You spot what you think is an opportunity, you press buy, your heart and thoughts race a little at the prospect of this purchase bringing you the next big trade; very briefly your brain thinks about all of the things you’re going to do with that cash. And then the unthinkable happens. What seemed so promising is starting to lose both its luster and even worse, value.  What do you do when price moves in the wrong direction to your trade? It is a question experts and novices all wrestle with.

        At the 2012 MoneyTalks World Outlook Conference, we spoke to veteran investor Victor Adair, Senior Vice President and Derivatives Portfolio Manager at Union Securities Limited, about the biggest mistakes investors make.

        According to Adair, a lot of investors just don’t understand the importance of taking quick losses.  Even those who understand the importance don’t do it as often as they should.  Hanging on to losing trades too long not only robs you of monetary capital but, as Victor says, it also “decimates your psychological capital”.  By not getting out of a losing trade early, you’re more likely to go down with the ship – a strategy that is absolutely detrimental to surviving in the markets.

        Getting the timing wrong is a reality of speculating. Learning to admit when the market has proven you’re wrong is the mark of experience. As in the real jungle, the faster you learn from your mistakes, the more likely you will be to survive in the financial jungle.

        To find some pretty handy commentaries and resources for people interested in trading, check out Victor’s website at www.victoradair.com .

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        Hi, Impact