If you do make a bad choice and didn't set a stop (hold n' hope) and watched it go down and down and down and down hoping it would one day recover all is not lost. Even if this company de-lists (disappears from the stock-exchange) you can get rid of it by doing a tiny bit of paperwork called a "deed of gift" which lets you transfer this worthless holding into the holding account of your brokerage. Not only do you clean up this ugly eye-sore from your account, you can also claim the loss against your investment income. (And if you didn't make much from your investing activities you can defer the loss until you need it) Also, you don't have to do the deed of gift to claim your loss. All this means is that this ugly record will sit in your account forever. But you will have to do the deed of gift to get rid of it if you want to close your brokerage account.
Now rather than riding a company down and down until you've lost all your money, you should set your stop-loss and feel happy if it sells. It means it SAVED you money. (You could have lost it all!) But at least you got out after having only lost 10%. (Give or take depending on where you set your stop)
The important part about stops is to not feel bad if they trigger. Your pride isn't on the line here. Don't beat yourself up about a bad pick. If you choose to run away you can come back another day with another idea, and hopefully a better idea!
Always always always set a stop! There are only a few small exceptions for this, but they are a topic for a later date. Every time (yes EVERY time) I have decided to hold and hope using the keen observations that only hind-sight can provide shows me that yes, I should have set a stop and yes it would have been much better to do so. If you're trading something you want to keep when things slide they generally slide more than you want. Once they settle if you had stopped out, you would have enough cash to buy MORE units than you previously held. This would let you make more money when they recover.
Recommendation of the day: You're finally warming up a bit to this investing thing... You've had your account for a few months now and if you followed my previous recommendation you bought some bank stock. They have fluttered up and down a bit but have generally trended up (modestly) in recent months. (Unless you bought BMO as they made an acquisitions in Asia that the market didn't seem to like right away... It should only take them a couple months though for the stock price to recover fully and then keep charging upward) In addition to any gains you might have, you'll have received a dividend payment or two and the yield will have been at least twice (or more) as much as your "high" interest savings account.
So now you're thinking I like these dividend payments. What else can I buy that will be a good long-term investment and pay me to hold? Easy! What companies send you bills every month? Chances are some of them are publicly traded. They bill you every month. They profit every month. It's time to own some of them and get them to pay you.
Disclaimer: Since I didn't make any specific recommendations this time, if you lose your shirt/house/car/dog/army-rations or anything, it's not my fault! If you're looking to place blame, go find a mirror. By reading my blog you must agree to not sue me for anything. I didn't make you do it. Everything here is my own experience and opinion. It's what I've done and it may not be right for you! (And some of my moves haven't been right for me either!) So quit wasting your time thinking you're going to get rich by suing me. I'm a starving artist dammit! I've got NOTHING! My net-worth is tragically low and home-ownership might be out of my reach my entire life.
Next time: the painful truth - you need a budget! (And stick to it)
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