I overheard two people speaking at Burger King yesterday talking about their attempts to dive into the stock market a few years back. Recently they’ve been observing their paper losses increase, day over day. And finally, two weeks prior they decided to “cut their losses” and pull out of the market.
Now I don’t know either of these two people, nor what they were investing in. But one thing appeared clear to me from their talk – they didn’t know the difference between a paper loss and a realized loss.
One stock I’ve held for years now is in the Walt Disney Company, and I’ve ridden it up and down from $7/share up to $38/share – all within the last two years. Now, I’m no wall street expert, but I am pretty certain that if I cashed in my stock right now I would realize the loss on the value of these stocks. However, I am certain that the value will go up, infact it has over the last couple of days alone. So, not that I know what tomorrow will bring – but I’m fairly confident that the economic indicators are in place to ensure that this company’s per share value will increase – so why would I want to sell now?
The funny lesson we learned while we were young was buy low, sell high — but somehow our emotions get in the way, and we get this all fuddled. We buy high and sell low.
A nice deep breath of prospective is always a good idea before you take a market move. And also, always have an investment adviser, not just your eTrade electronic, virtual adviser.