Just as a song goes - what a painful realization! You were my everything.
When one day I had a profound understanding of the paper losses on my account, that's how I felt. Before learning to fight, one must learn to take a hit. Only after we have a deep understanding of the paper losses in stock investment can we truly learn to make money in the stock market.
The depth of understanding of paper losses on the account can be divided into the following four levels:
1. Firmly refuse to accept any paper losses.
This is the shallowest level of understanding, where most retail investors gather. The main manifestations are stubborn holding and continuous replenishment.
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Stubborn holding:
My friend's father bought a retail department store stock and was trapped at 10%, so he firmly held on and did not move to wait for the recovery. During the holding process, the paper loss on this stock reached more than 70% at most, and his father held on for 10 years! After 10 years, he finally recovered the original cost, and his father sold it.
Unfortunately, not all stubborn holding can recover the original cost. I have a colleague who bought a stock with a serious paper loss, so he simply lay flat and held on for five years, and later found that he could not find this stock. Finally, I learned that this stock had been delisted.Continuously Replenishing Positions:
Faced with unrealized losses and unwilling to admit defeat, one might continuously replenish their positions. I have a friend who bought Sichuan Changhong at a high price of over 60 yuan. After getting trapped, he refused to admit his loss and kept replenishing his positions. Eventually, when the stock price dropped to 8 yuan, he had no more money to replenish. The stock price eventually seemed to fall to around 3 yuan. I have mentioned this example many times.
2. Forced to Accept Huge Unrealized Losses
Some people initially refuse to accept losses, but as the unrealized losses grow larger, they gradually start to accept losses of 30% or even 50%, and ultimately choose to cut their positions and exit. Note: This level may seem a bit higher than the previous one, but its essence is still the unwillingness to accept unrealized losses. The reason they can finally accept unrealized losses is also a helpless move made under compulsion.
3. Willing to Actively Accept a Small Amount of Unrealized Losses
These investors are mostly short-term traders, and they generally can accept unrealized losses of 10-30% for each trade. When the unrealized losses exceed this range, many people will cut their losses. I was in this stage for a long time, constantly cutting losses to prevent myself from incurring huge losses.
However, frequent small cuts can also accumulate into an astonishing amount of unrealized losses, which also plunges oneself into an abyss. Even if one eventually climbs out, there won't be much money left. People who have reached this level of understanding of unrealized losses have already made some progress. They just have one foot on the threshold, and their comprehension of unrealized losses has not yet fully entered the door.4 Actively Accept Any Paper Losses
Note that the active acceptance of any paper losses here does not mean buying stocks indiscriminately and then watching them fall continuously until they vanish. What I mean by actively accepting any paper losses is to have a planned and premeditated acceptance of any paper losses.
For example, if you want to achieve success in a certain business, you must actively invest hundreds of thousands, millions, or even tens of millions, or hundreds of millions. The greater the investment you dare to make, the greater your future achievements may be. If you don't want to lose a penny and are afraid to invest, then of course, you won't have any success. Going back to the factory to screw is your best choice. Such a large investment will naturally lead to a numerical decrease in your personal assets, resulting in actual paper losses before income is obtained. Of course, we need to have plans and budgets before doing business.
Actively accepting paper losses in stocks is based on the premise of a well-planned family asset allocation, using a portion of the funds to buy a basket of excellent companies' stocks at relatively low prices, which is the "active acceptance of any paper losses." This is also the acceptance of any paper losses under the prepared battle.
For example, I currently hold more than a dozen funds, some of which are currently in a state of paper losses, and some funds have even reached a paper loss of 20%. I am not at all anxious, and even if the paper loss reaches more than 40%, I can calmly accept it. To put it in the worst case, even if these funds eventually all return to zero, the impact on my life is limited. Because, before I bought, I had carefully planned everything, considered all the risks, and prepared to accept huge paper losses.
I have never had the idea of "the 15 funds or 20 stocks I bought, none can lose money, and each must make a profit." My real idea is that "it's okay if less than half of the funds make money, as long as the final total account makes money, it is a success." If I really have a lot of bad luck, and the funds I hold for ten or twenty years still have a total loss, I will also calmly accept my fate. Because, no one in the world has a 100% investment success rate. I had already made the worst preparations before buying.
Because my understanding of paper losses has reached this level. Therefore, even if any of the funds in my hand have a paper loss of 70%, and even if they have not risen for ten years, I will firmly hold on. Because this was originally one of the results I actively recognized.
You must realize that paper losses are an indispensable part of the process of making profits in investments. If you do not recognize this level, you will be in the first three levels, either cutting meat or breaking even.
Only people at this level have truly understood the paper losses. As the saying goes, "To give is to gain, to give and to receive, not to give and not to receive; to give a little and gain a little, to give a lot and gain a lot." People who are unwilling to accept paper losses are actually unwilling to give, and naturally, it is difficult to gain. Only by actively accepting paper losses can you ultimately make a big profit.It is quite evident that the painful realization of willingly accepting long-term, substantial paper losses in order to ultimately make a significant profit is a tough lesson to learn. In my youth, I had originally intended to easily and cheerfully make a fortune in the stock market. It was only when I came to this realization that I truly understood how difficult it is to make money in the stock market, and how great the cost is! The dream of devoting all my heart and soul to achieving rapid wealth has been completely shattered.
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