Investing is an exercise in probabilities and risk management. Even the best ideas can, and will, fail. The key is how to figure out which stocks to cut and when. But keep this process very simple. Have a plan before you invest. Before buying any stock, make sure to consider these 3 things:
1. The reason for investing into the particular stock
2. The points/times when to re-consider, to evaluate and to make sure it still makes sense to keep the stock
3. The maximum pain threshold (determined by a stop loss) at what price to sell, no matter what.
If the reason are not given anymore, or it can no longer be justified to hold on or if the stop loss is reached, cut the loss immediately.
Of course, nobody wants to realise a loss. The loss is then definite and real. But investing in stocks is an exercise in probability. That means we sometimes have to take losses.
It is not possible to invest successfully over a longer time period without employing proper risk management. A big part of that is limiting losses because a dollar won or a dollar lost is still a dollar. Every very dollar you save yourself is worth the exact same amount as every dollar you win and therefore it is just as important to manage a losing position as a winning one.
Sven Franssen