How Cutting Losses Can Be the Best Decision for Investors
Loss aversion is a concept in behavioral finance, in which investors hold on to loss making investments for the fear of locking in losses and/or in the hope of breaking even someday.
I have seen so many people, in my career, who were unable to take advantage of other profitable opportunities just because they wanted to avoid releasing a loss. What investors must understand is that the loss has already occurred.
I had personally invested in Lalpir Power (LPL) in 2019. A couple of months later I realised that some other stocks were offering much better returns than LPL (despite falling). My average selling price was near its all-time low (not something to be proud of). However, it was one of my best investing decisions because the next stocks helped me generate far more returns than I could have earned with LPL.
Unlike relationships, one must not have any emotional connection with stocks 🙂 Keep your biases aside and be completely logical. Assess your universe of investable stocks with an open mind and go after the ones that make most sense.