Have you ever held onto a losing stock because selling felt too painful, only to watch the loss grow and think, “I should have cut it earlier”?
Recently, I spoke with a couple who invested in two oil companies because they believed war and inflation would push oil prices higher.
When the price fell, they kept averaging down to reduce their cost, until the point where almost half their portfolio was concentrated in those two companies.
They were down around 6%. Mentally, they were stuck because all they could think about was waiting for the stocks to return to breakeven so they could sell.
But the bigger block was that because their attention was trapped by every headline and every possible move in oil prices, they could not bring themselves to deploy their remaining cash into other opportunities because of fear.
Logic Before Emotion
It’s never easy to take a loss. Pressing the sell button can feel like admitting we were wrong.
Hope tells us to wait a little longer. Ego tells us that selling will make the loss real. If we don’t sell, we don’t lose at all, right?
We are all human. Instead of pretending those emotions do not exist, I try to step back and look at it logically.
This is a chart that I share with students when they find it hard to sell a losing position:
Here is how it works. The red area is your current position.
Taking a 10% loss requires an 11% gain on your next investment. A 20% loss requires a 25% gain, and so on.
Notice that when the percentage loss is small, the gain needed to recover is pretty similar. In their case, a 6% loss required only about a 6.4% gain on the next investment.
And since the percentage needed to recover is almost the same, where would you rather make your money back? Two options:
In a company you no longer understand,
Or in one you have much stronger confidence in
This process will turn taking a loss from a purely emotional decision into a logical one.
That is why the art of taking a loss is not simply knowing when to sell. It’s understanding that you do not have to make your money back from the same company.
The couple have since sold the positions. Freeing up half their portfolio also gave them a clear next move: redeploy the capital into companies they understood better and had stronger conviction in.
When the Loss Becomes Too Heavy
In my opinion, the above is easier to recognize when you are sitting at a loss of no more than 20%.
But what happens when the loss becomes much larger?
As the loss % grows, the recovery gap widens quickly. At a 50% loss, you need a 100% gain just to return to breakeven.
Let’s not kid ourselves. At that stage, logic is no longer the hardest part.
A personal story to share - I once held a position until it was down 90%.
I spent months hoping that somehow things would miraculously turn for the better. It did not. The position kept getting worse. Every day I saw it getting redder and redder.
A 90% loss requires a 900% gain to recover. Even if I decided to sell it and re-invest, it’s a practically impossible task to make back the money.
But after enough disappointment and a few honest conversations with people I trusted, I finally bit the bullet and sold.
The moment I sold, it felt as though a weight had been lifted from my shoulders. I expected selling to feel unbearable. And while it did hurt, holding it had been far more painful. For the first time in months, I could finally let go.
But you know what’s funny? Within two or three weeks, I had moved on. What stayed with me was not the pain of selling. It was the relief of finally allowing myself to move on.
If you are sitting on a loss this deep, the hardest part is no longer the math. It is accepting what has happened, being honest about why you are still holding, and making the decision your situation requires today.
I now see it as painful tuition. I cannot change what it cost me, but I can learn from it, move forward, and make sure I do not pay for the same lesson twice.
Knowing why you bought is one thing. Admitting that you are only still holding because you cannot bear to take the loss is something else entirely.
If that feels familiar, take the free Investor Clarity Check. I read every response personally, and if I can help, I’ll point you in the right direction.
So When Should You Actually Cut?
There is no universal percentage that tells every investor to sell.
If it was a short-term trade, follow the exit rules you established before entering. Do not quietly turn a failed trade into a long-term investment because selling hurts.
I went deeper into setting those rules in What Selling Near the Bottom of the COVID Crash Taught Me.
If it was a long-term investment, return to the fundamentals. Is the thesis intact? Is your conviction still supported by research? Is the position size still sensible?
The real question is not simply, “How much am I down”?
It is, “Am I still holding because my original reason remains valid, or because I cannot bear to be wrong”?
The lesson is not to always cut your losses. It is about acknowledging when hope has replaced your original reason for holding.
Sometimes cutting a loss protects your capital. Sometimes it gives you back the mental space to move forward.
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And as always -
Patience builds wealth,
Bjorn