We play to win, but sometimes we lose. Although investing is not a game, eventually you will have a loss. No matter how many wins you have had, a loss can cause fear, doubt, and anger.
Accepting losses with grace is the mark of an educated investor. Even if you consider yourself well versed in financial matters, it can be hard to stifle negative feelings when it is your investment that has declined. It is common to react with anger directed at a broker, an advisor, or yourself. The anger does nothing but cloud productive thought.
We often fall in love with our investments, and we fail to see when the time is right to move on. We become angry and disappointed. A close look, at not just the numbers, but your emotions, will help you to remove inappropriate reactions from your financial decisions. Do not treat it as a personal relationship.
The term “unrealized” is applied to a loss situation when the underlying investment has not been sold. You will question if you should “take” the loss. The loss has happened, and the value is less than the original investment whether or not you sell. Even if you do not book it, the loss is there. Realize this, and you will be able to exit the position with dignity. There are myriad opportunities out there, and it is time to look forward, not backwards. The loss has given you an opportunity to learn and to reflect. You have accepted the situation, and you have done it without the distraction of emotion.
The potential for loss is everywhere: in our personal lives, our work environment, and in our investments. The risk of loss should not keep us from making gains. The greatest loss is missing an opportunity by not moving forward. Accepting losses with grace is an important key to future gains. It is a realization that you, your advisor, and the financial markets are not perfect. Life and investing bring no guarantees, but the unexpected may actually bring profit. The downturns are what lead to the upturns. The state of mind in which you approach the investment decision may determine how substantial the upturn is.
We cannot control the markets, but we can control our reaction to losses. Accepting losses with grace strengthens your ability to make financial decisions, and in the long run it will enrich your portfolio.