Contrarian Viewpoint vs. Rationalizing

C

c_323_h

hi, i have questions about having a contrarian viewpoint. yesterday, a stock i owned plummented 50% leaving me with a $1000 paper loss. now i find myself deciding whether to sell the stock and take a loss or hold the stock. luckily, i didn't have my whole account tied to this stock and other stocks i own are up alleviating the loss on my account.

I tell myself that all the people that would've sold, probably already did so. if they didn't sell yesterday, then they sold today,
Since the stock dropped another 20% today. I also tell myself that if I sold, that I would be part of the crowd.

Here's my belief: If the majority of people are sellers (say 90%) then the buyers will have to be 10 times as large to accomodate all of this selling. By the time the majority of people have already sold, this leaves nothing but buyers to bid the stock up.

But on the other hand I find myself hoping and rationalizing that this stock is coming back because my contrarian viewpoint tells me everybody has sold already. But I've learned from past experiences that stocks that do bad, usually keep doing bad. Sometimes they'll come back, but it takes awhile to.

So, can anyone tell me how I can find a balance between the two? Enlighten me with some wisdom? Any advice would be appreciated. I'm always indecisive like this and this is taking a major impact on my portfolio. Thanks a lot.
 
The thing about rationalization/contrarian reasoning for any position is the fact that one can continue holding on to these opinions to put off closing out the position until the stock goes to 0. I do not think it is a viable attitude to make a habit of, as eventually the bullet will catch you in the back of the head.

If the only reason you bought/held onto X is because X is cheap/getting cheaper, I'd say you need to raise your standards for entry/exit, or in the very least examine what conditions or prospects may have changed since you first decided to enter.
 
Quote from c_323_h:

Here's my belief: If the majority of people are sellers (say 90%) then the buyers will have to be 10 times as large to accomodate all of this selling.
More...

A very common fallacy (God, how I wish I had a nickel everytime someone said something like this!). There will always be as many shares being bought as sold because you need both a buyer and a seller to consumate each transaction.

Why don't you give us the specific stock and why you went long in the first place?

The real question is, is the thesis that got you in still valid?
 
Close/Lighten up the position, let it fall, you can get back in.

Quote from Babak:

A very common fallacy (God, how I wish I had a nickel everytime someone said something like this!). There will always be as many shares being bought as sold because you need both a buyer and a seller to consumate each transaction.

Why don't you give us the specific stock and why you went long in the first place?

The real question is, is the thesis that got you in still valid?
More...
 
The most telling two words in your post are "paper loss". Ain't no such thing. The money is gone. It's a real loss.

Did you have a stop loss? I suspect not. I"d ask the same question KTM asked. If you're "investing" based on emotion or illusion (in the illusion category I include company fundamentals and most technical analysis) then get out of EVERYTHING until you codify a logical, rational methodology.
 
Quote from Babak:

The real question is, is the thesis that got you in still valid?
More...
I agree with Man Babak. That's the question I always have in mind EVEN when the price is going my way.
 
Quote from bundlemaker:

The most telling two words in your post are "paper loss". Ain't no such thing. The money is gone. It's a real loss.

Did you have a stop loss? I suspect not. I"d ask the same question KTM asked. If you're "investing" based on emotion or illusion (in the illusion category I include company fundamentals and most technical analysis) then get out of EVERYTHING until you codify a logical, rational methodology.
More...

Right. That's what everyone is telling the original poster. If you bought it on technicals and it broke below whatever line, sell it. If you bought it because they are going to earn $X a share next year and you value them at $Y dollars, then you need to evaluate if that's still true. If not, sell it.
 
Quote from bundlemaker:

The most telling two words in your post are "paper loss". Ain't no such thing. The money is gone. It's a real loss.

Did you have a stop loss? I suspect not. I"d ask the same question KTM asked. If you're "investing" based on emotion or illusion (in the illusion category I include company fundamentals and most technical analysis) then get out of EVERYTHING until you codify a logical, rational methodology.
More...

Paper loss is not a real loss. It's nothing.
 
You must log in or register to reply here.
Back
Top