It’s OK to Cut Loss in Stocks!

You probably wonder: During bearish markets, should I sell my stocks and realize a capital loss or continue holding on to them and wait for stock prices to recover?

Honestly, we cannot give you a best, 100% correct answer. But we can help you make a decision when to sell your stocks. We wrote a pretty popular article about this previously, and if you’re interested, you can read about it here: When’s the best time to sell stocks?

Basically what we’re saying in that article is, you sell your stocks once the price has hit a Target Price or Target Return you prefer. That makes sense but what if the stock is in a freefall and you’re seeing losses day by day?

Our simple advice: Cut loss!

Mature and intelligent investing

Cutting your losses is normal and is part of a healthy stock investing strategy. It’s also a sign that you are a mature investor who recognizes that investing cannot all be about making profits. That’s ideal, but making money everyday in stocks is just not possible. Sometimes it requires that you make the hard decision to sell and to recognize a capital loss.

Intelligent investors know that cutting loss is better than actually waiting and hoping for the time that the price will return to its previous level. Yes that is a possibility, but it could take years!

Stock prices may not recover

For example, those who participated in the Cebu Air Inc. – Cebu Pacific (CEB) Initial Public Ofering (IPO) in 2010 bought the stock at P125.00 per share.

You probably know that after the IPO, the CEB stock has not reached this price level ever again! If you bought CEB at P125.00 in 2010 and held on to it until now, you haven’t made any money yet! That’s not smart investing.

Do not fall in love with a stock

The key is to not fall in love with a stock. If expectations have changed and the company is expected to underperform, sell and cut loss!

If losses have piled up and there’s no sign that price recovery is about to happen soon, sell and cut loss!

Cutting loss is merely the opposite strategy of having a Target Price higher than the price you initially bought the stock. What you do is set a “stop-loss” level which would tell you it’s time to sell your stock.

How to cut losses

How exactly do you “cut loss”? Several experienced investors set their “stop-loss” percentage at 10%. This means they sell the stock once the price has fallen by 10% compared to their purchase price.

For example, if you bought Cemex Holdings Philippines (CHP) stock at its peak of P12.00 in 2016, you know that you’ve already lost a lot if you’re still holding on to it until now. This 2018, CHP is trading at around P3.00 per share — a huge 75% loss!

Following the 10% stop-loss rule, you should have already sold the stock at a 10% loss, that is, sell it when it was trading at P10.80. If you have a higher appetite for risk, you can set your stop-loss percentage at 15% or 20%. That’s your decision.

The only requirement is that you have the confidence and tenacity to sell the stock at a loss.

Of course, it’s going to be difficult especially when you realize you are actually losing money. But cutting loss is a more proactive strategy in the hopes of putting an end to an otherwise continuous freefall.

What to do after you’ve cut losses?

What do you do then with the cash proceeds from the stocks you sold?

Well, you could opt to switch to other stocks with better prospects. There are still dozens of other companies to choose from! Of course, there is no assurance the new stock will give you sure profits, but “cutting loss and switching” is how successful investors do it.

So if you’re seeing red in your portfolio, assess it and make a decision. If need be, swallow the bitter pill and press that Sell button.

Don’t worry, it is ok to cut loss. Move on and buy the next stock!

About the Author

PSEi support seen at 6,200 and 6,000 amid weaker Peso

In a not-so-surprising move, the U.S. Federal Reserve (Fed) yesterday raised interest rates by 75 basis points (bps) or 0.75% in a bid to tame rising inflation in the United States. This was the third consecutive 0.75% rate hike by the Fed, which brings the federal funds rate, the central bank’s benchmark interest rate, to ... Read more

Official SWIFT Code of BDO, BPI, Metrobank, Philippine banks

When sending cash remittances or wire transfer to a bank account in the Philippines (such as BDO, BPI, Metrobank, Landbank, DBP, etc.), you’ll surely need the SWIFT Code of the bank. Look no further because you can find all the SWIFT Codes you need in this list! Make sure you’re using the right bank code ... Read more

How to Waive your Credit Card Annual Fee (BDO, BPI, Metrobank, RCBC, Citibank, UnionBank)

Without a doubt, one of the most annoying fees that credit cardholders have to pay is the annual fee. Majority of cardholders are familiar with this fee and majority of us likely pay this grudgingly year after year after year. In the case of my credit card with BPI (Bank of the Philippine Islands), I’m ... Read more

Why Filipinos do not become business owners or entrepreneurs

For a majority of Filipinos, entrepreneurship does not seem to be a typical, expected path. This is not surprising, considering that in school, students are primarily taught to become employees after graduation. Students train for years to become staff workers, reporting to a supervisor, and just waiting to receive their wages or salaries every month. ... Read more

My experience investing in Mutual Funds in the Philippines

I started investing in mutual funds when I was 22 years old. As an Overseas Filipino Worker (OFW) then, I was fortunate to be able to save some money at that young age because of my work abroad. One time while I was on vacation in the Philippines, I saw a large billboard in EDSA ... Read more

Income Tax Tables in the Philippines (2022)

The Philippines’ new tax reform bill, known as TRAIN or Tax Reform for Acceleration and Inclusion, was signed into law on December 19, 2017 and its implementation began on January 1, 2018. What are the new income tax rates under the TRAIN law? How will TRAIN affect income taxes of individuals and corporations? How is the ... Read more

PSE Stocks Performance under each Philippine President (1987-2021)

Did you know that Philippine stocks were able to achieve an astounding growth of 800% in a span of 30 years? From 1987 until 2018, the Philippine Stock Exchange index (PSEi) rose from 1,000 points to a peak of 9,000 points — generating a return of 800% over 30 years. (The PSEi is an index ... Read more

SSL 2022: Salary Increases for Teachers, Nurses, Gov’t Employees

Good news to all government employees! There’s a new round of salary increases beginning January 1, 2022! Millions of employees of the Philippine government — including public school teachers, nurses and staff of government hospitals, and workers in local and national government agencies, etc. — will be getting an automatic salary adjustment this 2022 under ... Read more

PSE Trading Hours in 2022: What time open, when closed?

Before you take the plunge into stock trading and investing, make sure you understand what stocks are and how the Philippine Stock Exchange (PSE) operates. Unlike other investments that are relatively safe, stock trading is risky and loss of money is a possibility. So before you deep dive into the exciting world of stock trading, ... Read more

Price Floor and Price Ceiling of PSE Stocks

Trading bands in the PSE come in two forms: Price Ceiling, or the upper price limit, and Price Floor, or the lower price limit.

Leave a Comment