Portfolio: When to cut your losses?

I think this topic is the most difficult for ordinary investor whom are holding to losing position and thinking that the stock will come back to your original buying price, and then you will cut your stock to break even. I have learnt this issue the hard way. Holding to losing position for years! You're right that you need years to break even while other stocks are zooming away. Shown below is a table that estimate the percentage you need to recoup:

Drawndown                     Gain to recovery
5%                                        5.3%
10%                                     11.1%
15%                                      17.6%
20%                                      25%
25%                                      33%
30%                                     42.9%
40%                                      66.7%
50%                                     100%
60%                                      150%
75%                                       300%
90%                                      900%

Source: http://www.youtube.com/watch?v=2srWG3L5z9I

Thus with the table shown above, we can use 5-15% drawndown as a base guide to stop our stock form bleeding.

As an active investor, a weekly monitor of stocks performance is required. This will let us have a peace of mind in managing our stocks.



DISCLAIMER The ideas expressed in this blog should not be used to buy or sell the securities, commodities or assets mentioned. The accuracy or completeness of the information provided cannot be guaranteed. Readers should carry out independent verification of information provided. No warranty whatsoever is given and no liability whatsoever is accepted for any loss howsoever arising whether directly or indirectly as a result of actions taken based on ideas and information found in this blog.