While 90% of investors lose money on the stock market, it doesn’t mean that many people lose money forever.
The stock market is cyclical and if you buy at the wrong time, you could immediately lose money. Some people take this stock market loss to heart and withdraw their investment.
Others stay in the game and see their investments go up and down over time. While there is some amount of mystery to which direction stocks will go, paying attention to the many factors that affect value can help mitigate risks.
But even people who closely follow consumer and social trends can see their stocks lose value. If you’ve recently suffered a serious stock market loss, you could be overwhelmed with frustration.
Rather than give up, follow these six steps to recovery.
1. Own Up to Your Loss
Many people take bills that come in the mail and put them into a pile thinking, “out of sight, out of mind.” Unfortunately, when it comes to the wealth you’re trying to build, that perspective doesn’t hold up. Ignoring a failing stock won’t make it generate new value.
Look your loss directly in the face. Take ownership of your decision and take control of your trading. While you are completely responsible for your loss, you also have the power to improve your situation.
Being honest about your financial situation is the only way to move forward.
2. Take a Break
While you may have the urge to jump back into trading immediately, you should take some time to diagnose what went wrong. Assess your stock market loss so that you can make changes. A triage period doesn’t mean that you’re giving up, just that you’re not going to make the problem worse.
If you took too much risk, you might want to make your next decision a little more carefully. If you weren’t thinking carefully, consider how your next investment approach can compensate for your failure.
For trades that were too risky, taking the time to learn about elements in an industry you didn’t understand will make your next investment more fruitful.
3. Come up with an Action Plan
After you’ve listed all of your mistakes, it’s time to start figuring out which actions you can take to improve your situation for next time.
Make a plan that has some investment border lines in it. You should be able to have a soft limit where you take caution and a hard limit where you will fully divest. If there are some risky investment strategies that form the basis of your program, it might be time to restructure your approach.
Your trading behavior and attitude form the foundation of how well your investments can perform. Taking the right attitude could make all the difference when it comes to succeeding in the stock market.
Now that you know what kinds of actions you need to take, it’s time to come up with a strategy. Think about the factors from the major stock market loss that could be used to reverse your trade position.
The best traders are active and will take a bad trend and use it as a reason to take action. They’ll take a stop-out and then wait for the next opportunity to jump in.
If the conditions of the market allow you, reverse your trade and then you’ll be able to make up for your loss and then increase profits. Those profits could end up increasing your bottom line and building the foundation for more and better investments.
There are often detectable factors that indicate that a trade is going to go badly. If you can recognize those factors in advance, you can turn a potential loss into a profit. Just about every element of the market is linked to another factor.
When oil prices go too high, often green energy investments go up. Watch complementary elements of the stock market to know where to invest, where to shift money, and when to pull out altogether.
5. Learn from Your Loss
Your trades don’t determine your value as a person. They don’t even determine who you are as an investor. Each loss can be a learning opportunity.
If you’re emotionally affected by your losses, you might be spending too much time worrying about them. Pay attention to the other elements in your life that are important to you. Investing time into the things that bring you joy can easily balance out any negative impact you feel because of a stock market loss.
Talk to friends and colleagues who are also involved in stock trading. Learn how they cope with their losses. You could find a new way to approach your next investment and never see this kind of stock market loss again.
6. Think Like an Athlete
When an athlete loses a big match, they don’t quit the game entirely. They look soberly at their strengths and weaknesses. They look back at tapes and talk to advisors and experts who can help them to analyze where things went wrong.
Losses can kick us out of the game, onto our backs, and leave us feeling rejected. They can also be a catalyst to remind us that we’ve got room to improve. If you flew too close to the sun or took too high of a risk, you’ve now learned where your limits lie.
Get back in the game with the knowledge you’ve gained.
No Stock Market Loss Should Be Permanent
Unless an entire industry has changed or collapsed, a stock market loss is usually part of a greater trend in the market.
Diversify your investments so you can have little canaries in the coal mine to signal when there might be problems with your biggest investments. Get to know some experts in the field you specialize in and don’t be afraid of a little risk in the future.
If you’re interested in learning more about how to manage risk, contact us for tips on how to make sure all of your investments grow to their full potential.