“Cut your losses short and let your profits run.”
One of the most enduring sayings in investing is “Cut your losses short and let your profits run.”
Simple advice, agree? But, why do so many investors still tend to do the opposite? During the panic hours when big market moves go against them, investors tend to capture the profit by liquidating good investments to add funds into trades that are suffering losses.
It’s sad (and almost laughable) to see investors unwind good positions to continue supporting their bad investments. Just last week, when the stock market fell, many investors liquidated gold investments to support their stock positions that got hit by the market rout. In another swift move, stocks fell by another 8% while gold gained 5%. As a result, investors missed the opportunity in gold and ended up suffering more losses in stocks.
The moral of the story?
In our lifetime, we will come across many investment opportunities. It is important that we hold on tight to the good ones, and decisively chop off the bad ones.
Remember… following the herd doesn’t make it safe.
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