Cut Your Losses

scissors

One axiom that I have heard countless times is ‘Cut your losses’, but does everybody really find this an easy concept to grasp?

I’ve been passionate about investing in stocks for a good handful of years now. Although this isn’t the main point of this article, it’s one of the first areas that I use this daily.

Cutting your losses is a very hard loaf of bread to bite into. Can you see how it would apply to the question: If you were faced with the decision of cutting off your whole arm to save the rest of your body from being infected with a disease that had a chance to kill you, would you?

For me, even cutting off a finger would be a hard decision to make, but in the whole scheme of things, I prefer to live than death; I would cut my losses.

I think of Bob Marley, and how he died of a cancer that started in his big toe that he didn’t want to remove because of his Rasta beliefs, or just because he didn’t want to believe it.. Who really knows? This could just be a rumor, but even if it is for him, no doubt there are countless others out there who have died because of this.

Bob Marley

Maybe it can be better compared to the situation with a smoker today, or for that matter a drug addict. You know that you’re killing yourself slowly by puffing on that cigarette, yet you continue to smoke day after day.

I have not yet met somebody who smokes and wholly embraced the smoking habit and loved every minute of it, guilt free. It’s inevitable and proven that it kills you slowly, it eats away at your insides (brain and lungs).

This, I feel, is an example of not cutting your losses: “I’ve smoked for so long, it won’t hurt to have one more.” Or: “I’ll quit tomorrow.”

To apply this to stocks, I’ve learned that a major problem with investing in stocks is that everybody can read good news about a company, or see that the charts tell them it’s going upwards forever; it is time to buy. But, there is a very fine art of knowing when to cut your losses on a stock. I like to believe at the point in time where you say to yourself: “Oh this doesn’t look good at all, tomorrow I can feel it’s going to turn around though..” it’s already to late. Or: “My god, this has gone down so far now that there is no point in selling it.”

I guess the secret is to, at any one of those times, or before times, take your profits, be happy with what you have left, and move on to the next thing that doesn’t make you think ‘it’s already to late.’

1930-stock-chart-1

I’ve been spending a lot of my energy these days trying to find omens in life, and letting them guide me. A very wise friend of mind was talking with me about this the other night, and she mentioned how most people get mixed up about it, and already have a pre-conceived notion of what they want the omen to tell them, and just look for things that will further their own beliefs, rather than keeping an open mind and accepting them as they come. In a sense, they already know what they want and just want ANY confirmation about what they’ve already decided.

Thinking about this now, I feel that I refer to these types of people as ‘free spirited’. Do you know anybody in your life who represents one of these souls? I know I do, and maybe I do not fully appreciate how they live as a true blessing of the world.

I think it’s the fact that they tend to also lack certain goals that I find are universal in life that makes me think of their ways as rather lazy.. But it would appear they cut their losses immediately and without any worries at all.

free_spirit

I digress.

What I’m getting on about is how it makes sense that they move from place to place, event to event without much else other than a good time, and an eye open for omens of what they should do, and where they should go. Not sticking around to let a situation get to a point where you have to cut your losses, or maybe it’s cutting the losses right away without delay?

I think the point that most people struggle over the most is that they do not want to admit to themselves that

  1. They made a mistake, or
  2. To actually get over this devastatingly emotional event they must move on, which is hard and scary.

But cut your losses! If you start now and condition your mind, you will feel how easy it becomes to recognize a situation you should cut your losses in, and move onto bigger and better things in life. Be it stocks, be it a significant other, or a bad banana (remember about banana cake!), keep it in mind that you can, and will feel much better off when you start to cut your losses, move on and away from things that are dragging you down, allowing you to focus on what allows you to be happy and prosper!

May 25th, 2010 003

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