Many stock market veterans equate investing with gambling. They’ve lost money in the stock market. Stock market investment is a fair game with winners and losers.Sometimes to get something, you must lose something, as the Bollywood saying goes. If you’ve lost money in the stock market or are scared to invest due to fear of losing, this article can help you recover.
Step 1: Assess the problem
We blame the market, large players, fate, and even god when we lose in the stock market. Taking responsibility for our losses will help us be more responsible in the future.These are the most common stock market losses:
Panicking (crash during March 2020 is a great example)
Not cutting losses in a financially or fundamentally failing firm in the expectation it will recover.Instead of doing research, they believe random people on WhatsApp/Telegram or self-proclaimed market gurus on social media.Once we realize our mistake, we can avoid repeating it and stop trusting random market gurus. Avoid herd mentality and panic moves.
If you sold your stocks during the 2020 crisis, you would have lost money. If you had kept them, your investment value would likely be green. When you invest in a fundamentally poor firm in the belief it will recover, I have terrible news.Most fundamentally poor organizations (high debt, big losses) don’t recover and will ruin your investments, so get out as soon as feasible.
Step 2: Avoid overtrading to recoup losses
If your portfolio has suffered a loss, you may be tempted to reinvest your cash to recoup in a week or two. You’re inviting problems. Overtrading is like a newbie wrestler challenging Bajrang Punia or Ravi Dahiya; you may damage yourself. Every stock transaction entails purchasing and selling charges. Regular trading costs eat into returns, reducing rewards.
Wait until the appropriate chance if you’ve booked market losses. Don’t hurry; investors need patience. Peter Lynch said, “If you buy $1,000 in a stock, you can lose $1,000, but you can make $10,000 or $50,000 if you’re patient.” A lifetime of investing needs a few solid stocks.
Step 3: Use stop-loss
First, define stop-loss. If the stock price goes below a certain point, you sell to limit losses. Few people execute halting loss. So a stock that has decreased in value may never recover to the price you got it at, and your loss keeps growing (hello, Vodafone-Idea and Yes Bank).
To recover losses, decrease them first. Your investments might vanish in a flash, and you may regret them forever. When buying a stock, always set a stop loss, so you don’t lose everything.
Step 4: Manage risk
Suppose your whole portfolio consists of one stock or banking stock. You’re making it hard to recover losses. Exposing your entire money to one stock is like waiting for a venomous snake to attack you; one bite and your portfolio value falls (you know the song).One industry exposure increases risk. Stocks may fall on industry news. The semiconductors carcity has caused automakers to decrease manufacturing, reducing revenue and stock price. High NPAs owing to COVID19 make the banking business a dangerous venture. When the market crashes, equities fall, and gold prices increase. Diversifying risk with equities, debt instruments, and gold can help investors recoup or limit losses if one collapses.
Step 5: Accept reality
The stock market is not a get rich quick scheme, and if you are in to get rich quick, you may never recover your losses, especially if you follow WallstreetBets and invest in meme stocks (read about the GameStop and AMC saga) or follow an apparent visionary (the MUSKular man) who plans to establish a Mars colony and advertises crypto that resembles a Snapchat filter.You can’t win all your bets; you’ll lose some. Deploy capital as much as you’re comfortable with and don’t need it immediately. Short-term loss? If it’s a solid firm, you can wait for it to recover. If not, you may depart. Trust your instincts.
You will lose money in the stock market today or tomorrow, but you must know how to recover. Be smart with your capital deployment, conduct your research, and understand why you lost to prevent making the same error again.Diversifying using diverse asset classes helps decrease risk and recover from losses.