Every investor wants to buy a stock at the minimum price and sell at the maximum price. But it is almost impossible to perform consistently. You can’t just purchase a stock and have it growing continuously. There are many risks involved with investing. Investing decisions can’t be perfect every time. An investor may take certain crucial investment decisions under the influence of emotions which may, eventually, result into loss. Avoiding Investment losses isn’t totally impossible. There are some minutiae, by taking care of which, you can control these situations.
How to Control Investment Losses?
At first you need to have a Profit/Loss Plan. This plan is a set of limits which regulates the maximum gain or losses, an investor can have, on a specific stock. Identifying exposure to losses is a crucial part of investment, so having a Profit/Loss Plan is an important element of investment strategy. To control your investment losses, you need to consider three facts. These facts are:
Your risk tolerance ability:
As an investor, the first thing you need to know about you is, how much risk can you tolerate? The effects of losses depend on your risk tolerance capacity. If you have a lower ability of risk tolerance then you will have to suffer more, in case of losses. But if you have a higher risk tolerance capacity then the effects of losses will be lesser.
A Stop-Loss Order is an order which is set to sell a stock when it reaches at a certain price. For example, if you have set a stop-loss order to sell for 5% below the price at which you have purchased the stock, then it will limit your loss to 5% only.
Invest in the Right Stock:
Just holding a stock for long isn’t all you need to do for making money. You need to check other facts and figures also. If you are prone to high risk, invest in a stock which is less risky. It is important to note, here, that you cannot make a giant leap with a low risk company because it grows with a small and steady rate. You should always consider investing in the stocks which are fundamentally sound. Fundamental Analysis of stocks of your choice will help you to identify the right stocks.
Detailed research of stocks, fundamental and technical analysis, self-assessment and a realistic approach are very much important when investing in stocks. A comprehensive and sound knowledge about investing is one important tool which can help you in controlling investment losses.
Points to Remember:
• A buy and hold strategy only works if you pick the right stocks.
• A Profit/Loss Plan is the most important part of an investment strategy.
• Stop-Loss Order is an effective tool for limiting your losses.
• Consider investing in the stocks which are fundamentally sound.
Ms. Ebele Kemery is a Commodities Leader with a track record of consistently profitable trading efforts, and expanded business through understanding of client needs and developing customized solutions that leverage a wide variety of techniques and market intricacies. Ebele Kemery satisfies all risk management requirements. Consistently promoted; recognized for development and leadership strengths. She has strong analytical approach; full-tuition scholar from top-tier university possessing a Bachelors in Engineering in Electrical Engineering.