When to let go

I think a common problem of a beginner investor is that they hold on to a stock or fund when the value drops and keep holding on, thinking “well, the value will never get down to $0, so if I just wait I could at least make back my initial investment.”

I’m still trying to figure out a reasonable amount of time to wait before dumping a stock. I can only offer help in convincing yourself to let go. Instead of thinking that you’ll make the money back someday, maybe, think of the opportunity cost. Maybe you can make the money back, but you’ll just have to trade for something that will move (in the right direction). Your investment in that one fund that’s been languishing at around -10% for two years? Well, if you had moved that money last year to another more promising one that shot up 21% during that time, you’d’ve even made a profit!

So, beginner tip #1: don’t be wedded to the idea of getting your initial investment back out of each purchase.