Thinking about Losses?

With huge volatility in shares markets in the last few months, many investors are sitting on large notional losses on their investments made over the past few years. In many cases, these losses led investors to sell out at the wrong time and lose out on sharp rally seen since March 2020. How investors should look at the losses during their investing careers. We turn to some of the respected investors to get clarity.

“Even the most conservative investors can be paralysed by large losses, whether due to mistakes, premature judgements, or the effects of leverage. If losses impair your future decision making, then the cost of a mistake is not just the loss from that investment alone, but the impact that loss may have on the future chain of events. If a loss freezes you from taking full advantage of a great opportunity, or pressures you to make it a smaller position than it should or would otherwise be, then the cost may be far greater than the initialloss itself” Seth Klarman

“It is easy to underestimate what a 30% decline does to your psyche. Your confidence may become shot at the very moment opportunity is at its highest. You – or your spouse – may decide it’s time for a new plan, or new career. I know several investors who quit after losses because they were exhausted. Physically exhausted. Spreadsheets can model the historic frequency of big declines. But they cannot model the feeling of coming home, looking at your kids, and wondering if you’ve made a huge mistake that will impact their lives.” Morgan Housel

“I learned early in my career to be sceptical and flexible, not stubborn about a stock. I also learned to take quick, small losses rather than get emotionally involved in a stock that was dragging me down. When I am wrong about security, I try to take my loss at the 10% level” Roy Neuberger

“There is no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or, worse, to buy more of it, when the fundamentals are deteriorating. That’s what I tried to avoid doing.” Peter Lynch

“A person who has not made peace with his losses is likely to accept gambles that would be unacceptable to him otherwise.” Daniel Kahneman

“Profits always take care of themselves, but losses never do. The speculator has to insure himself against considerable loss by taking the first small loss.” Jesse Livermore

“I like to repeat to myself a rule of Philip Carret, written some 86 years ago: ‘Be quick to take losses and reluctant to take profits‘.” Francois Rochon