So we are here. This is indeed a massive sell-down.

In 3 weeks’ time, the massive sell-down managed to wipe out all 2019 gains of the Dow Jones Index. At home, our dear KLCI index has also dropped close to 20% since the start of the year.

To give you a perspective of how strong the magnitude of this sell-down is, picture this:

It just took 16 days of move in our current S&P 500 sell-down to reach what the 2008/09 Global Financial Crisis managed to achieve in 200+ days.

The Key Question Now: To Hold on to Your Investments, or to Cut Your Loss?

Now, this is a tricky question to answer.

First of all, for the whole context of this article, I am assuming that you are facing a paper/unrealized loss from your current positions.

In my opinion, this question needs more than an irresponsible short ‘Hold lah the market will recover’ or ‘Just cut loss lah’ respond like most content and posts you are seeing out there on social media.

It is also extremely irresponsible to sugarcoat the question and be overoptimistic at this moment.

Instead, it deserves a more comprehensive writing that includes multiple perspectives of different investors’ contexts.

This is what this article is all about, and this is the least I can contribute to the investing community as a creator (and a developing investor & trader) at times like this.

A quick disclaimer beforehand: This is by no means an absolute Buy/Sell/Hold advice. This is just an article from a random dude so please seek a professional financial planner’s opinion before making any decision.

With that, let’s start.

Which of these Descriptions Suit You Better?

Context 1: The Legit Long-Term Investor

It has already been part of your plan to hold your investment (single stocks/the whole portfolio) through this market climate from start – way before you enter this trade.

You feel minimal mental pressure and anxiety seeing your investments tumble more than 20-30%, or even 50% as it is in your game plan to hold through times like this.

These people are the group of legit long-term investors that really know what they are doing and have total confidence with their plan. If you are in this group of long-term investors, there is no reason at all for you to cut loss because holding through this market climate is part of the plan.

For the others though, it is common to think that you belong to this small group of legit long-term investors. If that’s the case, I want to challenge you to ask yourself:

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    1. Did you decide to go ‘long-term’ on this investment BEFORE you enter this trade, or AFTER you experience this crash?
    2. If this sell-down is not a sign for you to exit, then WHAT is your exit plan?

You SHOULD have an exit plan, and it should not take longer than a minute for you to figure this out because your exit plan is already been set before you enter a trade.

    1. More importantly, can you sleep peacefully knowing you are down 20-30%, or even 50% on your investments?

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If you felt any sense of doubt or uncertainties in while answering my questions, you are NOT in this group of legit long-term investors.

Context 2: The 99% That Need to Cut Loss

Now, if your ego is not in the way and you are humble enough to admit that you have never really thought about an EXIT PLAN for your current investments, stopping the bleeding and cut loss is the way to go.

Now, let me elaborate a little on this 99% of people that need to cut loss:

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  1. Your Pre-set/Mental Stop Loss level memang Got Triggered Already from this Sell-Down.
  1. You DID NOT have an exit plan in place BEFORE you buy into this particular investment/share.

An exit plan could be something like ‘If the price drops below X, I will cut loss”, or “If fundamental shows a decline in profit for X quarters, I will exit.”.

  1. You got into this investment after watching or reading a video/post from a stock investment Facebook page.

Actually, you are kind of still waiting for these Facebook forums/pages to tell you whether to continue holding or to sell.

  1. You cannot handle the mental stress of a 20-30% move going against you.

Which is absolutely normal because we all are humans, and everyone has a very different risk tolerance.

To be Clear, It Takes (a lot of) Courage to Cut Loss

You have my full respect already if you are still reading till this part as most people would have gone into a full denial mode after experiencing such paper loss – I salute your courage.

Remember, unlike what most content and posts are saying out there, there is nothing wrong at all to cut loss if your Stop Loss is long triggered AND/OR you realized that you have been doing this whole investment thingy wrong from the start.

Better to take in this lesson and start afresh with a more proper mindset, right?

Read: How to Recover from a Slump?

Why Cut Loss/Sell?

Having been through the mental challenge to Cut Loss, I understand that “Just hold on lah the market will recover long term” is the most soothing sentence that one seeks to hear at times of paper/unrealized loss.

However, I feel there is a need for me to break the false hope and tell you why ‘Holding On’ may not be the best action for most everyday investors:

(1) Psychology and Mental Stress

If you never have proper prior experience with the market and never knew what you have been doing all this while, it will be very hard or you to hold through this downturn.

By now, it should be clear that this sell down is NOT a normal pullback/correction. The magnitude of this global sell down is at its historical record.

The downturn and sell down like what we are facing now challenge the mental state and psychology of even the most experienced and prepared players in the market.

It is easy to say ‘Hold through the downturn and wait for the recovery’ but how many people, especially those who’ve been in the market without prior knowledge and experience can handle the emotional and financial pain from holding a sharp falling knife?

Fastest S&P 500 correction in history. (source: 2nd Skies Trading)

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(2) ‘This Company is Too Big to Fail’ Myth

To clarify, most market (at least the index) does recover and trend higher after a recession, no doubt about that (just look at the S&P 500 and our very own KLCI).

However, it is foolish to say that any company will survive and recover from a massive selldown/recession.

If there is anything that the world has learned from the global financial crisis, it is that even giants fall.

And even if they do not fall, some may not be lucky enough to recover from the crisis (picture below).

Not all companies can survive and recover from a recession.

(3) The Silver Lining: Cutting Loss is actually Preparing You for the Long Term (Opportunity Cost)

If you have been ‘investing’ without proper knowledge and processes, or via Facebook social media tips for the past years, you are not actually ‘investing’.

You have been gambling all these while.

“But man, I made money!”

Well, to be honest, anyone can easily make quick bucks in the longest bull run in history.

That said, a bearish sell-down requires a whole lot of psychology and different skillsets from an investor. Market movement and price action in a bear market are fundamentally different compared to a bull market.

Hence, in scenario like what we are facing right now, cutting loss might actually be a good thing for you in the long term. Consider this:

You are now holding a portfolio/share value worth RM50,000 with an RM20,000 unrealized loss – and you’ve built this portfolio up based on tips from some investing and Facebook forums, alongside some vague understanding towards the market.

Instead of holding on to a mistake, why not cut your loss then and there and make use of what’s left of your capital to learn the proper way to invest?

Invest a few hundred or thousand ringgit and equip yourself with proper investing knowledge and processes and store your remaining bullets (cash).

If you can survive this sell down and learn the proper method, you can (AND WILL) be able to live to fight (invest) another day.

Read: Why You Shouldn’t Care About What Stock Investment ‘Influencers’ are Buying on Social Media (Especially Right Now!)

No Money Lah Verdict

To be clear, as the market develops, I am also learning and picking up new lessons and skills as well.

That said, as I am writing this, I have come across many close friends that have approached me for opinions and thoughts.

This made me realized that many people have, in fact, been ‘investing’ in the market without proper mindset, knowledge and fundamental skills, which motivated me to write this article:

There is nothing wrong to HOLD, IF that’s your game plan.

And unlike what most content and post are suggesting on social media, there is ALSO nothing wrong to CUT LOSS if your stop-loss levels are triggered. (or if you memang do not know what to do all these while and was just blindly following tips on social media)

The point is to protect your mental confidence and what’s left of your capital.

The market DOES NOT care about your EGO.

The market DOES NOT care about your need to be RIGHT.

Again, as long as you can protect your capital and confidence, you can always live to fight (invest) another day.


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