Tuesday, August 26, 2008

Don't Lose your pants! Look at the percentage loss not the absolute loss

The rich, as Voltaire said, require an abundan...Image by Renegade98 via Flickr During this hard times in the market, people feel compelled to sell out their investment.

They panicked when they see losses of $3~4k in their individual stock and maybe a loss of $30k in their portfolio.

However, you should only sell if you feel the investment has served its purpose or the price is right or the business behind the investment does not have a compelling future.

One way to mitigate the desire to sell is to look at the percentage loss instead... so the $30k loss could only be a blip in your portfolio as it is only a 3% loss. If you believe the market returns an average of 6-10% per annum, then a 3% loss is not really a cause for alarm.

My investment portfolio is currently down 2.6% and that translates to a loss in the region of $200k, but I'm holding tight.. Are you?

1 comment:

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