Cut Loss
This is my new investment rule, cut loss whenever encounter 15% of drawback of my buying price. I will sell off my position and look for another rising star. There are thousand of stocks listed in Bursa. Therefore, we shouldn’t eye on the penny stock that we invested.
We should learn to cut loss whenever the stock is not going along with our expectation. Maybe you will say, it is just another opportunity for you to average down your buying price. Sorry, I rather admit that I am wrong in selecting the stock and start over again with new portfolio. We cannot always be 100% correct with our prediction. Even fund manager can be wrong too, needless to say average investor like us.
Actually 15% of drawdown show that I am quite a risk taker. Usually fund manager or trader just take 7-10 percent of setback. The professional investor sell their position automatically when the price hit their stop loss point without much pondering because protect capital is their first priority.
Just mention earlier, every retreat of price might be good opportunity to average down your buying price. Therefore, a doubt usually happen at this junction, whether to sell the position or average down. If you are correct, your profit will be handsome but if you are wrong, you will eventually loss more than you have expected.
It is worth to average down if you still have good reasons to own it. However, if the amount involved will affect your cashflow or you feel uncomfortable with the average down, please just cut the losses and start over again. Never dream that the price will go up again tomorrow and being stubborn in stock market.
So far i have not used this method for the past 3 to 4 years because most of the stocks i invest are all fundamental stocks which are for medium long term.
Use to cut loss during university days where i play contra or buy those lousy stocks. Trust me, cut lost will make you suffer..
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Mrcoolku Reply:
September 9th, 2010 at 3:23 pm
Haha.. sometimes we need to face it, to cut loss. I also invest fundamentally but it goes against my direction. XD
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I invest in fundamental stocks as well but also have cut loss strategy. I have yet to exercise this strategy as I normally buy fundamental stocks when they are really cheap and start to rebounce. As a result, I revise my cut loss price upwards whenever stocks prices move up.
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Mrcoolku Reply:
September 25th, 2010 at 10:22 am
I also invest fundamentally, but this might happen too, just like the black swam.
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I do have stocks that fell below 15% of my buying price (who don’t especially for those counters that were locked in back in 2008
) But I didn’t want to realise my loss of some the selected counters. What I did was applied my favorite method – dollar cost averaging and today, quite a number of them have turned around.
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Mrcoolku Reply:
September 25th, 2010 at 10:36 am
Dollar cost averaging can be done provided you have large pile of money standby there to do it.?I am young investor, so i need to cut lost.
Another thing for me to consider is opportunity cost. 
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Jean Chai Reply:
October 5th, 2010 at 12:25 am
Mrcoolku,
Agreed! Dollar cost averaging do require some $$ to do so
For a young investor, with opportunity cost in mind, I suppose cutting lost is unavoidable sometime. Anyway, GOOD LUCK to your upcoming investment
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