My Realized Loss

“Soon after I bought the stock recommended by my broker, its value dropped by half so I decided to cut loss “, sounds familiar right.  While investing in financial markets over the long-term is an excellent path to wealth, it’s not unusual to experience occasional losses as investment values go up and down, depending on market cycles.

Every investors ever incur a loss in our investment during the journey, the point is, do you keep track of your “realized gain/loss” on all your stocks’ transaction? Yes, I know, nobody like to mention or talk about their losses made in stocks as the “Prospect Theory “ suggested in one of the famous behaviours bias i.e  “Loss Aversion”

From Wikipedia :

In cognitive psychology and decision theory, loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5. Some studies have suggested that losses are twice as powerful/ pain, psychologically, as gains.

Yes !! we feel twice pain vs gain, hence very often, we tend to keep our loss-making stocks and sell our winner too early / soon. I try to keep track of all my gain and loss for all my transaction. Yup!! our total Realized loss ( since the start of our investing journey)  = - $249,502 for both accounts (me and Mrs) and our “Unrealized Paper Loss “ (accumulative )= $-110,167.

Out of these -$110K , more than half came from these 3 counters 1) Design Studio (-$33K) , 2) M1 (-$21K) , SembCorp Ind (-$9.2k ).

Should I sell all these stocks to cut loss and move on? or keep looking at the “negative “ figure, twice painful as I look at the “positive “ figure. To be frank, I am not so sure, but as far as I know, at least I will continue to collect some dividend from some of these counters.

The total dividend I received from all these loss-making counter amounting to $36268, which could at least reduce my loss by around 33%. Well, this is the “beauty “ of having stocks which pay a dividend. 

Here, I am not trying to advocate that one should buy stocks just base on dividend yield, it could be a “ value trap”. What I am trying to highlight here is that investing in companies which pay dividend may, to some extent, act as a cushion in case we have to book the loss eventually.

As I mentioned before, getting dividend income to allow me to reduce the overall loss in certain stock or even made some profit after adjusting to the dividend received.

Few examples as below :

Nobody really know what will happen to these loss-making stocks I have it now and how it will perform eventually, some may recover from current low ( reversion to mean ), some may not, depending on their underlying business prospect. I am sure at a certain point of time, I will need to dispose of some of these stocks which turn it into “ Realized gain /loss “ …but at least I will continue to get some dividend while waiting for the story from each stock to unfold regardless of “ gain or loss “ when I finally close the chapter.

Cheers !!

PS: 
Our realized loss = total accumulative lost "booked ", since the start of our investing journey
"Unrealized paper loss " = accumulative loss for a certain counter, not just in 1 year.



Quote Of The Day

“You don't actually make or lose money until you sell your investments.” By The Motley Fool.com