Its not easy to cut losses eiuther loss of capital or loss of profit. It gets tougher when you have to justify it around to people around you. Perhaps on the biggest requisites of an investor is to dump the stock that he holds when he sees the fundamentals moving against him.

Edited by basant - 23/Jan/2009 at 4:45pm

I agree, by the time one decides to sell on earnings news, market had already discounted that fact.

Also, as I mentioned before it is a challenging thing to hold on to a stock after it has fallen 80-90% and with detoriating fundamentals in a bear market.

I found that in 2001 bear market, many midcaps fell 80-90% and their profits were devastated, but then when the tide turned, these midcaps became 100 baggers and with profits zooming.

Selling just because stock has fallen down 80-90% and company is showing bad profits does not mean the company cannot turnaround.

I know this is an overused example, but the thing that avoids me selling companies that have fallen 80-90%, is that Walmart also fell 80% in 1973-1974 recession, but then since has rebounded 500 times. I know all companies are not Walmart and Walmart is just one of case, but still.

"Somehow when markets fall the error of not selling early isn't too big that is because all stocks fall so if one stock is down 65% and a solid bluechip with steady growth is down 50% the incremental loss isn't that big as it appears provided the investor is able to wash his sins off the moment he sees that he has commited one."

Great words Basantjee but mind always imagines what it could have been if he sold out at top and moved to debt or other asset class.

Also, a thing about percentages. Do you always analyze your investments from a percentage angle? I always do from an absolute angle.

For example,
1) If I invest 20,000 and the stock falls 50%, my (notional )loss is 10,000
2) If I invest 500,000 and stock falls 25%, then my (notional) loss is 125000

Obviously, I did better with my second investment but somehow that pains me more than the first ( more absolute damage).

Is there any technique you use to look at things objectively?

The primary question is visibility of earnings and not rate of growth of earnings.