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Anonymous

10 Aug 2020

General Investing

Would you sell in the midst of a recession and buy it at at a lower price after the recession?

Hello fellow seedly users, I was wondering, let's say, if the price drops by 50% over a period of 1 week and I were to see the trend and sell it when it was dropping mid- way so at it's at 75% on the 3rd/4th day.

Would it make sense if I bought it back at the lower price of 50%. on the 8th day? Or would you just hold it out? Which one would incur less losses?

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Aidan Neo

09 Aug 2020

Financial Services Consultant at Manulife Financial Advisers

Technically, both are the same; you will be still at a loss if your investments don't recover. But doing the first one is a guaranteed loss since you are realizing it. However, there are also emotional barrier to take note of while executing such move. For instance:

10,000 shares at $1 each

After 50% drop from original price of $1:

Stock Price: $0.50

Current Value: $5000

Realised Loss: -$5000

Leftover: $5000

After 75% drop from original price of $1:

Stock Price: $0.25

Leftover: $5000

Number of Units Bought: $5000 / 0.25 = 20,000

To recoup back your losses and bring you back to initial capital of $10,000, your unit price need to go from $0.25 (assume lowest) back to $0.50, basically a 100% gain.

This may look financially sensible to do so, cause any recover will still do you good and better afterwards. However, i'm not sure if it's so easily possible for someone to catch the lowest cause assumed you bought at -75% drop, it may still fall further. The thought of "maybe it will drop further" may haunt you.

This is the reason why people missed the boat on March 23. I'm pretty sure everyone didn't expect Mar 23 to be the lowest. You are pinning alot on trend analysis (which is not wrong too), but my reason of doing this would be to stop loss for other investment opportunity elsewhere but definitely not a market timing objective. Because once you missed the boat, what would be your next call to action? Not gonna invest at all will be a crazy thing to do.

Alot of psychological factors to be prepared, therefore evaluate your risk appetite so that you are still able to profit from the market. Hope this helps!

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