“No matter how low my stock goes, I don’t need to sell because it will go up one day again”, has killed potential profits for thousands of investors. This is called Loss Aversion Bias. By holding on to a stock in decline when our investment thesis has gone wrong, we incur unrealized losses.
You can avert loss by selling now and buying it back at a lower rate, provided that the stock is fundamenally strong and rumours may have driven it down. But we do the opposite by holding on to loss making investments and hoping for recovery. STOP MAKING THIS MISTAKE!
TIP: According to Warren Buffet, “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” If you hold 10,000 stocks of a company, and the stock has declined 20%. Ask yourself this question, “Keeping in view that I have 10,000 stocks already, will I buy another 10,000 stocks of the same company now?” If your answer is ‘No’ because the stock may decline further, then you must sell the existing holding as well so that you can buy it later at lower price.
Don’t be emotionally attached to it.