Last Updated on January 15, 2019 by Sultan Beardsley
Whenever investing, it’s crucial to remember there is always potential downside. You could have extensive research and ideas that people haven’t even thought of, yet there still is the potential risk that you will lose money. At the end of the day, any form of investment is a gamble; meaning nothing is guaranteed. Part of what makes winning in the markets so sweet is the undeniable fact that you can always lose your money. The best way to deal with losing money is to mitigate that possibility from the get-go. At MS Money Moves, we are determined to helping our users find stocks with relatively low volatility, as well as provide in-depth analysis of volatile biotech equities .
Volatility refers to the frequency of a stock’s fall. Meaning how often the stock has gained, and subsequently lost value. The easiest way to find a stocks volatility is to look at its 52 week high, and 52 week low. For example lets look at Apple ($APPL). Apple’s 52 week high was $233.47 with a 52 week low of $150.24. A titan like Apple gives their shareholders dividends, meaning every time their stock loses value, they pay their shareholders the difference. Even though a company like Apple has the ability to pay dividends, they still try to keep their share price from dropping. Judging by Apples 52 week high and low, they have pretty low volatility making it a strong buy with a low potential downside.
Protecting your downside (the potential to lose money in a stock) is crucial when contemplating a new buy in your portfolio. While understanding and recognizing a stock’s volatility is important, setting a price your happy with to sell at, and following through with that is just as pertinent. The number one way people end up losing money is getting greedy with a stock. I personally had a stock in my portfolio once go from $5 a share (when I got in) up to $20, and then down to $2. Because I did not diligently follow through the price I had set to sell, I got greedy and was convinced it was going to keep running for another day. This was not the case and I ended up losing money. As the saying goes, hindsight is always 20/20, so it’s better to mitigate your risk right when you get into a stock then to have wished you’ve done it after taking a hit.
Once you’ve lost money, there’s no solution to getting it back, all you can do is learn from that experience and not make the same mistake again. A lot of price drops are completely out of the share holders control and most of the time are entirely blind sided. If you set a price you’re happy with, and sell the stock when it reaches that price, the risk of you losing money is nominal. A very beneficial thing to do if have a stock that has a return of over 100% (which is rare), is to sell half of all the shares you own. After you’ve sold half of your shares, you still have some skin in the game only you’re not playing with your own money. Not only does this make any loss in the stock less painful, but it also gives you the opportunity to buy more shares if the stock takes a dip and you speculate it will rise again.
At the end of the day, losing money sucks, so if you have the tools to prevent a loss from the second you get into a stock, why not take full of advantage. Research is key and every investor will tell you, know what you’re getting into before you enter a stock, and have an exit strategy.