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10 Mistakes Every Investor Makes and How to Avoid Them

10 Mistakes Every Investor Makes & How to Avoid Them
17
Mistake #7 – Denying Defeat
When an investment doesn’t go the way it was intended to, investors
often make a big mistake of holding on to their losers in hopes that
they will rebound. This should not be the case, as the investor’s rules
should have a clear exit strategy for both winning and losing
positions.
Nobody wins all of the time, and admitting that you were wrong can
be a tough thing to do. If an investment goes south, it’s important to
ask why and re-evaluate the position by asking:
·
Was something overlooked and you inaccurately valued the
stock?
·
Did something change fundamentally, such as a change in
management, decrease in sales because of a new competitor,
or a change in laws?
·
Is this just a short-term reaction that provides an even greater
opportunity?
How you decide when enough is enough is
up to you. There is no perfect answer as to
when to sell a losing stock. Some financial
planners recommend a loss of 10% in
value, others use a dollar amount or a
percentage of total capital. If you use
technical trading system, you will have
certain indicators that alarm you to sell your
position, such as when the stock falls
below a 30 day moving average.
If you decide that this is no longer something that you would like to
invest in, cut your loses. You’re better off taking the funds you are
able to recover and investing back into an equity that will make you
money rather than watching it continue to fall in value. Don’t let your
ego get in the way of your investing decisions.
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