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Investments - Strategies

Turning a Small Loss into a Bigger Loss

October 29, 2019

by Howard Haykin



“Cutting one’s losses” means getting out of a bad situation before it gets worse - - instead of waiting to see whether it will improve. On Wall Street, that means selling a losing investment.



CASE IN POINT.    An investor mistakenly bought 3,000 shares of a stock in his on-line account at TD Ameritrade. By the time he realized his error and called a customer representative, the price of the stock had fallen - leaving the customer with a modest $700 unrealized loss. While TD Ameritrade would not reverse the trade, the phone rep promised that the firm would make him whole by selling the 3,000 shares and giving him $700 worth of commission-free trades.  


But instead of accepting the offer, the customer chose to hold onto the shares, hoping that the price would return to (or exceed) its original level. Unfortunately, the stock price continued to fall and the customer ended up losing $4,547 and ‘$700 in free trades’.



MORAL OF THE STORY.    It pays to minimize or cut one’s losses in the stock market by divesting (or selling) investments you no longer want to hold. That's especially true when its possible, if not probable, that you can lose more money. In other words, DON’T BE GREEDY!


[For further details on this story, click on BrokerAndBroker.]