Never add to a losing position

Aug 11th, 2010 – Comment

Capital preservation is code for cutting your losses and getting to your next trade. What I have learned in my 43 years as an investor is that most of the time your first loss is your smallest loss.


About the Author

Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


Read the author's full profile.


Further Research

Read more about Personal Finance.


 

cwclogo

Lou,

I have been a share holder for many years of CWC. Entered around the $2 range. The stock is now in the .23 cent range. In order for me to try and recover some of my losses I would have to take a pretty strong position at these levels. Would you go after it aggressively, hold or sell and get the taste out of my mouth.

Thank You

               Ted

 

Hi Ted,

Central Alberta Well Services ( CWC TSXV)  provides a great point of departure for a discussion of capital preservation and developing a wider range of opportunities for your investment dollar.

 

 

cwc5

The first thing to realize is that  we have all taken a haircut on investments so don’t feel like you’re alone.In fact I could run for President of the Bad Haircut Club and win handily! The best we can hope for from our losses is to learn not to make the same mistakes again. That will help reduce the risk we take in an effort to generate gains and give us confidence when we have a winner.

The first chart is the ten year chart for CWC which doesn’t have a lot of details but I think you get the point. The stock has been generally in a sell off except for one opportunity to make some cash on a huge spike in August of 2005. When we see a chart like this we should ask ourselves what  exactly would make us want to buy into this company. No matter what the story is the chart is asking  ” is that a good enough reason?”.

cwc

 

The five year chart, at right, doesn’t give us a better outlook. It does show support at $2.00 that then became resistance and then the total collapse to where it is today.

What is clear is that there were many opportunities to preserve capital by heading to the exits sooner.

 

Capital preservation is code for cutting your losses and getting to your next trade. What I have learned in my 43 years as an investor is that most of the time your first loss is your smallest loss. Its never easy to admit when we are wrong but some of the pain will ease when we have say 70% of our original investment to use for a new opportunity instead of only 10%.

As far as plowing more capital into CWC please ask this yourself this simple question. Has CWC been a good investment so far? I think you know the answer.  Take the time to find a better opportunity for your hard earned capital. It will require some work to find a new stock to invest in but I think you would be better served. In general it is rarely recommended to chase your losses with new capital.

Happy Capitalism!

Categories: Personal Finance
Content © Relentless Economics - Charts courtesy Stockcharts.com - Employees Entrance - Optimization Media