Hi, I’m Bruno. I have been investing in the stock market for a couple of years but my results are disappointing. Should I hold onto my stocks for now and sell it off once they have rebounded or should I just cut my losses?
For most, it feels defeating to see stock prices tumbling some 20%, 30%, or 50% after having purchased them. The disappointment is real especially towards the people who bought them in hope of achieving capital gains from their stocks. In this article, if you are like Bruno, I’ll be sharing 5 things you can do to effectively reconstruct your stock portfolio so that you can turn your losses into profits.
#1: List Down the Stocks that You’ve Purchased
Let’s say, Bruno has purchased himself 10 different stocks. The first thing he can do is to make a list of the stocks he purchased, their exact prices he bought into them, and their actual purchase date.
#2: Reflect the Reasons for Purchasing These Stocks
Next, if you are Bruno, it is helpful to reflect why you want to invest in the stock market and the reasons for purchasing your stocks. If your answer is a quick, ‘to make money, what else?’, I would suggest you to do more soul searching and to go beyond that answer. Let me help you by listing down the following questions to identify your reasons for investing into your stocks:
a. Do you intend to earn capital gains or dividend yields?
b. How long do you intend to hold onto your stocks?
c. What do you think a good stock to invest should look like?
d. Did you do any study or research on the stocks you invested into?
The answers may reveal your beliefs about making money in the stock market. I believe, if you are disappointed with your stock investments due to falling stock prices, you may have adopted wrong thinking about what stock investing is and how real wealth is to be built from investing in the stock market.
#3: Understand What True Stock Investing Is …
Stock investing is an activity of building long-term sustainable wealth via buying and accumulating shares of good businesses at their lowest possible prices. The investing process is very businesslike as the mentality is to invest into a stock as if you intend to be a co-owner of its business, which has tangible assets, a team running the business, and paying customers for their products and services.
It is not a legalised casino for you to try your luck.
A true investor would study a stock’s business model, financial track record and its future plans to assess the quality of its business. If it is good, he will proceed by calculating valuation ratios to evaluate its stock price to ascertain if the price is cheap or expensive. The investor will only invest if the stock is of good quality and is trading at its lowest possible price.
#4: Would You Buy Into the Same Stocks at Today’s Prices?
Let’s say, Bruno has bought shares of ABC Ltd at $5.00 a share. Now, the price is trading at $3.50 a share. Will Bruno be happy to buy more of its shares at $3.50 today?
If you are Bruno and your answer is No, there is a good chance that you are not investing in the stock market, but betting and speculating, which is a root cause for the disappointment in your stock investing.
Why? This is because a real investor would love to see his stocks invested to fall in prices, especially in the short run. A decline in stock price is a great thing as it offers investors an opportunity to buy and accumulate more shares in the same stock at discounted prices, thus, boosting dividend yields and capital gains from investing in the stock.
#5: Should I Hold Onto the Stock Despite It Being a Mistake?
What you do with your stock is entirely your decision. As for myself, I did have a Bruno moment or two so let me share what I did personally for my portfolio.
If I made an investment mistake, which means I have bought into a stock where its business model is weak and financial results are bad, I will choose to dispose of the stock and cut my loss. There is no point in waiting for its price to recover in the future as I discovered a generic pattern in stock investing where prices of stocks would behave in the following manner:
a. If stock earnings rise consistently, its stock price would rise sustainably.
b. If stock earnings decline consistently, its stock price would fall prolongingly.
c. If stock earnings fluctuate wildly, its stock price would also fluctuate wildly.
I would reallocate my capital from bad stocks and invest my proceeds into good stocks to recover my loss of capital via dividends and capital appreciation in the long run.
It is possible to reconstruct your stock portfolio so that you can turn your losses into recurring profits. But, you have to start with having the right mindset when it comes to stock investing. As such, I’ll like to invite you to a webinar session to learn how real investors invest in the stock market. Click the link below to join: