I asked why does the TV tell you not to sell your stocks and take a small loss but people agree with the news?

Question

If you read the question bellow it was my previous and most people said buy low sell high BUT if you read a lot of experts books they say CUT LOSSES SMALL like William J O'Neil because you don't want to be wiped out of the game. What do you think? The more money you lose the harder it is to get it back you know? I asked a question a while ago on here who are the small percent of people who actually make money in the market. Someone replied the people the sell and cut a small loss. Most people play games with themselves like I am going to buy more of the stock or I won't look at it for a week. However selling WHICH I DO and taking a small loss seems like the correct way to do things you know? Why are people intent on watching a stock fall. The longer it's in there the more money you lose and time wasted when it could have been in one going up you know? EVEN IF IT GOES UP later by holding

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Answer 1

Most people buy a stock, and when it goes down a little, say 5%, they don't sell it, but when it continues to go down, after they have lost a lot, about 40% or more, they panic, sell it at a big loss, and put the money in a bank or bonds for the safety. This is a hugh error, if the stock goes back they will not make it back, and the low percentage the bank or bond pays them will never recoup the loss. If however they wait, and lets say a 40 stock goes down to 20 in 6 months, many times, a year or two later the stock is 60. By not selling in  a panic, they actually made money, 50% on a 40 dollar stock, and even if it took 2 years, that is 25% a year, which is a heck of a lot better than selling at a loss, or getting 4% a year on CD's or Bonds. Now if you have a strategy of putting stop loss limits of 5% on a stock, that might work if you buy the company later when it really is near the bottom and then enjoy the ride back up. However the other thing to consider is the commissions, if you buy a stock you pay, you sell it at a small loss, again you pay a commission. Then you buy it back when you think it hit bottom, but it falls another 5% and you sell it again and pay a commission. Now it takes off but you don't own it, because you sold when it went down, so you try to jump in and pay a commission, it goes down 5% again,,,,,Well you get the idea,you are chasing the stock and trying to get in at the bottom and sell at the top. Very difficult to do, you need to sit and watch your position all day. History has taught investors that most stocks do come back and eventually make you money. You say a small percent of people actually make money and that is not true, maybe the people answering your question are not making money but the richest people in the country do invest and do make a lot of money, how come? They use professionals, called stockbrokers, or fincancial advisors, or financial consultants, or the managers of mutual funds. Check out the returns the Dow Jones, and the Nasdaq have over time, and you will see a much better return than puttting your money into bonds or saving accounts. In fact the banks that are public have to list what they do with there money and you will see most invest in bonds and stocks. They take your money, give you a small percentage of interest and invest it, making a lot more money than what they give you, that is why big buildings are owned by them. Do more reading, study Modern Portfolio Theory, and you will see why people are being told not to panic and to hold thier positions in stocks.

I hope this helped you, and good luck.

By the way if you look for professional help, get a referral from your friends or relatives that use a broker they trust and have made good money with.

PS I have made very good money in the stock market, I diversify, and I hold for long term.

Answer 2

Trends. Making money in stocks is all about trends and recognizing them. Say the stock starts going down in the morning. You sell and take a small loss. The stock continues going down. You buy at the lower price, and now have MORE shares. When the stock goes up, you actually made money.  Problem is IF it doesn't go up, but either way, you now have more shares than before, without a penny of new investment, so your final loss will be smaller than if you had just sat there.

Answer 3

Because you don't sell when low. Hold onto the stock and hope the economy improves. Buying stock (in my opinion) should be for the long term and only cash out if you've made gains (and you're satisfied with them and no longer want risks). Basically you should a lot of research BEFORE investing in a company. Stock prices fluctuate but if you have faith in the company future don't be phased by these fluctuations.

Answer 4

The answer to that is because you never know where it will go the next few days.  You can't necessarily look at a stock price to determine if you should sell and take some losses.  When you buy a stock, you never get the absolute bottom!  

Selling at small losses will just slowly kill you.  I have had numerous times where I sold out of fear only for the stock to pop over the next few months.

I buy stocks of great companies at a discount.  I bought the financials because they are great companies (BAC, WFC, USB) who have been beat down hard.  My financials eventually had me at a 40%+ loss.  Did I sell when my dumb head tells me to?  NO!  If I did, then I would have 40% less cash and would have missed the rally.  Right now I am down a few %.  Since I like the companies, I bought more and more shares as the price dropped.

I only sell when I need the money or if I find a more appealing investment.

Answer 5

My absolute number one rule for trading is to cut my losses immediately if the trade even gives me a hint that it's going to turn against me. You can never eliminate losses entirely, But it is imperative that you try to keep losses to a minimum. Falling stocks are insidious, they constantly give you hope that they are just about to turn around, if only you'll hold on just a little bit longer. So you keep holding, and you keep holding, until finally you think, surely it can't go any lower, so I can't sell now. Small losses become big losses, far more often then they become big gains.

Sometimes you'll come out ahead if you add to your position in a downturn. The problem is, most people, me included, can't tell when downturns are a buying opportunity, or a sign to abandon ship. I wonder if there's anyone out there who bought CROX at $70, and is still adding to their original position. They either sold their position at some point, or they're wondering how they could have let things go so bad.

You can add to your positions in a downturn if you want to, but me, I'll sell, and live to fight another day. If a stock does turn around after I've sold my position, I'll just buy it back. Perhaps I'll miss out on a small bit of potential gains, but it's worth it to avoid big losses.