It is true that the stock market comprises traders and investors to make money from equity price movements that create money for investors in the short and long-run. They buy into a weak market ( a bearish situation), anticipating a bull transition, to sell in a strong market – at a higher price – for profit.
But many a time, things do not turn out as planned, especially when the stock price you expect would go upturns the opposite direction. It may happen that it falls by 10%, 25%, 50%, or even more, if not checked. You may also lose your capital- your hard-earned money, regardless of the name attached to the market situation – down-market, correction, downtrend or upmarket.
In stock market investments, nobody wants to sell stocks at a loss.
This, however, is a loser’s feeling and an inexperienced way to investing and every investor had the same feeling of “you cannot expect me to sell a stock I bought at N5.00 each for N3.20,” at the beginning.
But after the 2008/2009 market crash, I learnt a lesson that a bird in hand is worth two others in the bush.
Many of us lost our investable funds, believing that the market would recover soon. In the process, we almost lost everything. Before we knew it, stocks that were bought at N120 dropped to N23 per unit, while that of N12 slipped to N1.76; a stock worth N380 went down to N120, just because many of us did not apply the simple rule of cutting our losses, and protecting our capital from further decline. It looks simple but works in any market at all times.
Stopping loss is not only a rule but a stock market principle.
Do you know that there are only two types of investors in the market: The givers and receivers?
Which type are you? Do you want to join the category of receivers? If the answer is ‘yes,’ do not act emotionally. Apply the ‘Stop-Loss’ rule and hold cash, not stocks. It is not easy to be receivers in the stock market, but you can achieve it if you desire to invest without attaching emotional feelings to any stock when a trade does not meet your expectations. Jump out immediately to protect your capital.
Many investors lose money in the stock market because they don’t want to sell their favorite stocks. They think the stock price would bounce back eventually. If you let your stock go down 50%, you will need the stock to gain 100% just for you to breakeven.
Unfortunately, it is not every time that stocks double in price, especially in the Nigerian market where players tend towards trading. Smart traders target 18-25% profit and thereafter they are out of that stock. Yes, sometimes the stock price will come back, but most of the time the stock price never rebounds. Yes, I mean never.
So, why take the risk of allowing your stock to drop, hoping its price would come back? Just take a small loss and move on to other stocks in the market or hold cash to know the direction market first.
Again, the current undervalued state of the market offers investors opportunities to position for the short to long-term, which is why investors should target fundamentally sound and dividend-paying stocks for possible capital appreciation in the New Year. This was noted in the 10 golden stocks and trading ideas for 2020, as discussed extensively during the Investdata 2020 Opportunities & Trade Ideas Summit.
Meanwhile, the home study packs of Invest 2020 Opportunities and Trade Ideas Summit containing the 10 Golden Stocks for 2020 are available with an average return of 13.37% in less than 30 days. To obtain your pack send ‘Yes’ or ‘Stock’ to 08028164085, 08032055467, 08111811223 now.
CRO|Investdata Consulting Ltd
Tel: 08028164085, 08032055467