Seeing how many of us are depressed and feeling the pinch of paper or actual losses. I would like to dedicate this week’s post to those of us who are starting to doubt ourselves even after making rational moves in our investments. It is easy to look at our unrealized losses and think that we should have bought later. This sense of loss does show that you might have bought too early, however it does not mean you have definitely bought at the wrong price. So long as your entry prices are based on rational decisions such as technical supports or indicators, and/or proper budgeting. Then your paper losses are not only justified but actually intelligent decisions in days or months to come. In this post, we will be going back to the basics of investment disciplines and evaluating basic strategies when averaging down or accumulation.

Before we jump into it, I would like to first emphasize that “Buying during a downtime will not feel good.” This inevitable feeling is undesirable but it is necessary.

Accumulation can be “expensive” but more “rewarding”

Most of us are usually excited to buy at a bottom, as it will mean that we will suffer minimal paper losses and maximizing upside. However, with experience, we can only admit that no one will ever know when it hits bottom especially during a “crisis” situation. However, not knowing when it will hit bottom does not make us eager buyers during a dip. In fact, we will usually be better off expecting to make further paper losses after each purchase. Surely such scenarios are undesirable but being an investor requires way more grit than most people think. As for those of us who are more cautious, I dare say that no doubt the average price of your shares might eventually be cheaper but it is almost certain that you will accumulate fewer shares. Look at the table below for an illustration.

Day X	Share price	Shares purchased (Person A)	Accumulated shares (Person A)	Shares Purchased (Person B)	Accumulated Shares (Person B)
Day 0	$3.00	0	0	1000	1000
Day 7	$2.90	1000	1000	1000	2000
Day 14	$2.80	0	1000	1000	3000
Day 21	$2.70	1000	2000	1000	4000

Person A average share price (2000 Shares accumulated)	$2.80
Person B average share price (4000 Shares accumulated)	$2.85

From the above tables, it is observable that no doubt Person A has a lower average price compared to Person B. However, Person B has accumulated double the amounts of “Person’s A shares” in the same number of days in the market. This perspective shows that there is a trade-off when buying more regularly but the benefit is that you would have accumulated a larger number of shares. It is possible for Person A to purchase twice the amount of shares at each interval but in actuality, you are actually exposing more capital to risk if the share price continues to fall. Hence, my recommendation is to follow Person B instead.

Paper Losses are the real cost of investing

When you log into your brokerage accounts and see a negative P/L, many of us would feel that we have lost actual money simply because we could have always bought later to evade those paper losses. True enough, those losses are the consequence of investing, in fact, “it is the cost of investing.” Many people do not realize but all forms of investments incur costs. This is similar to paying premiums on your saving policies or even leasing a store front to sell lemonades. The fact is, these costs are essential in investments and those of us who think that investments is all about the brainiest earning profits for free are wrong.

So once and for all, I would like to address that investing is not cheap and the real cost of investing in legitimate businesses during a downtown is not only intelligent but potentially very expensive. The reward tied to this expenditure in the form of paper losses is potentially much greater upside, which is the point of any investments made during a downturn. Therefore, when seeing paper losses or a big red figure, do see those losses as the cost of making investments rather than a result of a wrong move.

Identifying moments of fear and greed and stay away from it

In moments of sudden loss, not many people are able to retain their composure or react in a calm manner. For example, during a market crash, many people actually sell rather than accumulate to minimize their exposure to losses. The truth is that those people might have made smaller losses. However, it would also become a trap for them because they might be caught in a trend seeking habit. To elaborate, basically, they might have been selling just before a rebound and buying before a further drop. Either way, this method of chasing trends might break them down mentally before they can reap the benefits of ending their positions prematurely. As such, there is no hurry to cut losses unless there is certainty that the company is facing major cash flow problems or their management has committed major crimes. Otherwise, stay put and plan your strategy to maximize your returns when the market resumes its status quo. In other words, do not let paper losses get the better of you.

Concluding thoughts

As the tired cliche goes, “Change is the only constant in the world.” This means that we will never be able to fully predict the outcomes at every moment after new findings are reported. Therefore I would also like to emphasize that investment takes more than just capital and courage. We must also have the humility to admit that we do not know it all. Not knowing is the cause of all sorts of scenarios but bear in mind that good businesses are doing way more than you worrying at the corner of the room. If you have entrusted the company with your capital, then stay put until they have proven you right. Stay vested people.