Why is it necessary to cut your losses early

If the business is not doing good and if we have a share of that company, we should get out of that trade as early as possible. And if it is a new company, then definitely one bad news about the company can make the share go down.

Let's take the example of Paytm Share, the issue price was above Rs 2000 but now the share price is less than 66% of its issue price and thus making it almost impossible for the share holder to receive the losses.

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The PayTM share has never seen the upward movement and always was going down, and the recent news that RBI asked Paytm to stop PayTM Payments Bank is another nail in the coffin. I have not invested in the PayTM IPO as because I did not like their business model i.e. do everything. They have not taken one niche business and strengthened it but they are actually into everything and because of that they have not got any profit till now. And thus the high valuation does not justify everything.

People who have invested in it should cut the losses as soon as possible because now, it's very hard for people to even break even. The share price will not go above Rs 1000, in the near future and thus even if it goes above Rs 1000, the share price will be 50% down making it quite a big loss. People might think of averaging, but the problem is we do not know the floor yet, it can even go down 25% to 50% from its current price and thus people will lose their money further.

The share which has a history of going down should not be bought even if the share is down so much, thinking it will be at discount. There is no discount or premium of the shares, if the share is going up it has more tendency of going up whereas if the share is going down it has more tendency of going down and vice versa. So if the trend reverses, we should book either loss or profit and thus be on profit always.

This is just one example and there are plenty you can find in the market, where people were holding the shares from the top to the bottom only thinking that it will go up one day, but that one day never came and thus they are sitting at huge losses. Even if the market reverses and if the shares give you 50% profit. I have only 3-4 shares which is on a loss and that is also not a huge loss, but most of the shares which I have currently is giving me profits not big profits but again okiesh profit.

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