When You Are Losing Money in The Stock Market


Today, I had Jim Cramer’s Mad Money on in the background as I was working. Apparently, today was Mea Culpa day for Cramer’s bad stock picks. Having made rotten picks myself-I’m not here to criticize the stock picking but rather to give some tips on when to cut your losses. It’s not just stocks, it could be mutual funds, ETFs, options etc…

Here are my suggestions to cut your losses so you don’t end up in the house of pain!

1. If any position moves against you more than 8-10% sell it immediately. Do not dollar cost average. You should set your downside limit before you invest.
2. Has the position dropped below its 50 day moving average and is in the 8% loss range? Sell it.
3. What if the position was $100,000 dollars instead of $5,000 or $10,000 dollars-would you still be willing to see 10% of your portfolio get whittled away? If $100,000 dollars doesn’t get your attention try $1,000,000. Don’t let a smaller dollar amount cloud your thinking.

Lastly, here is a great link to a chart showing the Percentage Loss and the Percent Rise to Breakeven. The statistic that catches my eye is for a 50% loss you have to have a 100% rise just to breakeven!

Steve Mertz
Have a Sell Discipline!

3 Responses to “When You Are Losing Money in The Stock Market”

  1. 2million says:

    Steve, are you saying don’t DCA at all or just don’t DCA when your investment drop significantly?

  2. Steve Mertz says:

    Hi 2million-When a position has dropped below your exit point-I would not rationalize it and start DCAing. But when you are doing a monthly contribution say to a 401k DCA makes perfect sense! Thanks for stopping By!

  3. Jersey Jen says:

    Right on! I guess if people have done that during the dot-com bubble, they wouldn’t have lost so much money. Many people saw their stocks drop and hoped it would go back up.

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