Dabbling in the stock market involves taking on a considerable amount of risk. Even the most diligent investor can lose money at one point or another. Whether you succeed as a stock investor depends on how well you can handle these losses. Here are some tips for doing that:
Own the Loss
The first step towards dealing with an investment loss is to own it. Don’t try to make excuses for yourself. Accept responsibility and move forward.
Make Your Loss a Learning Experience
If you lose money day trading, don’t get paralyzed and demoralized. Make your loss a learning experience. The best investors are those who have learned valuable lessons from each loss. Instead of panicking or becoming emotionally overwhelmed, analyze the situation that leads to the loss. What led you to arrive at this bad decision? Did you not read the news, did you base your decision on bad data, or simply on impulse? Introspection and contemplation may show some hard truths. And it will prevent you from making a similarly loss-making decision in the future.
Come up with a Plan to Earn Back the Money
If you are a regular stock investor, you might not have endless reservoirs of cash you can lose on the stock market. Therefore, instead of wallowing in guilt, come up with a plan to earn back the money you lost. You can reinvest your remaining funds with better returns. Or you can try taking on a second job to earn the loss back. Having a plan would prevent you from making a rash decision based on the negative experience that may result in even more loss.
Consider Taking a Break
Losing money on the stock market can be devastating. If you are an emotional mess, you are less likely to make rational decisions. Therefore, take a break. Prevent your other investment decisions from suffering because of a single negative experience. Stop trading briefly and contemplate on what went wrong as explained above.
Become Better Educated
A loss can also be humbling. If you thought you knew the market, a loss will be an indication that you don’t. Now is a great time to spend learning more about financial markets. Read books on economic history, finance, and self-discipline to improve your investing skills. Challenge your own assumptions and mingle with others who know better than you. The idea is to prepare yourself to make better decisions in the future.
Focus on Other Investments
If you are a savvy investor, then stocks will not be your only asset. You can temporarily forget the loss by focusing on your other assets instead. Don’t consider this to be a method to run away from the loss. Face reality, but you can shift your focus if it’s becoming too much.
Talk to Others
As they say, talking can make everything better. Try discussing the loss with other investors, especially people who know better than you. They might have valuable investment advice that you can learn from.
The most important thing to do following a stock market loss is not to obsess over it. What you need to do is to put that loss in perspective so you don’t make the same mistake twice.