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I notice one thing I always tell traders is the hardest thing for them to do but reaps the most rewards overall is..
If you have lost money on a share three times, do not get involved with it again for at least 3 months, preferably six. And…stop watching shares that you lost money on.
There’s nothing worse for any of us than that flipping annoying share that we always lose money on. Time and time again.
You end up holding and holding, buying more, convincing yourself it will come back and eventually you bite the bullet and sell and take that loss.
While it is good to take the loss, I feel it’s also important to cut ties with it.. at least for a while. This is a strategy that may not only save you money, but also saves your soul! That’s because all the time you would have spent watching it, agonising about when to buy it back – well, you could have done something more interesting with that time.
It is similar perhaps to ending a relationship. Much as you loved the other person, there is no point in seeing her or him again for a long time. Or else it’s back to heartbreak.
Let’s take the example of a share, Boo Hoo. Thousands of traders kept buying this at it tanked from 400p to 40p.
Some did decide to take losses on it before it really hit rock bottom.
So, let’s say you bought some at 400p, eventually you decided you couldn’t take the pain any longer and sold at 250p.
But then you bought some more at 240p! You couldn’t resist! They looked so cheap and that bulletin board guru was telling you it was a great time to buy.
Oh no. It went down to 200p and you sold out again.
Then it went to 180p! So cheap! Must buy, must buy.
Oh no. Again. Down to 150p. That is IT, I am out forever!!
But you’re not. You want revenge, you’re going to keep watching Boo Hoo, every day, every hour for another chance. The money you lost was money lent.
No.
At this point you operate the three strikes and you’re out strategy.
That is it, you made your final loss. Now you take Boo Hoo off your monitor for 3-6 months. Do not let temptation get the better of you.
6 months later, you take a look. It’s 40p. Well, that saved you a bundle!
An example from me. I bought a share called Ince thinking it looked cheap. I paid 76p for it, and set a stop of 68p. But, whoops, there was a profits warning and I was stopped out at 52p taking a stinging and unexpected loss.
But hang on, it looked cheap, I bought more at 48p. Stopped at 44p.
Right. One last go (stupidly). Bought at 42p, stopped at 38p.
I’d lost nearly £2,000 overall on these three buys. Time for three strikes and you are out!
I immediately took the share off my screen. Never looked at it, never read any of its statements.
6 months later, I had a look. Hell’s bells. It was 5p !! Three strikes and you’re out saved me.
