Trapped by 75%!

Published: Aug 06, 2024

Updated: Aug 06, 2024

In the ups and downs of the stock market, every investor may face the predicament of being "trapped." Being "trapped" refers to the situation where after an investor buys a stock, the stock price unfortunately falls below the purchase price, making it difficult to achieve the expected returns in the short term. However, numerous investment masters and successful cases in history have shown us that being trapped is not a dead end; the key lies in how we respond.

I. Good Fundamentals, No Need for Excessive Worry

Warren Buffett, known as the "Stock God," has also encountered being trapped many times in his investment career. In 1973, Buffett began investing in The Washington Post Company, buying at a price of about $22.75 per share. Subsequently, the stock price fell to $16, and the following year it continued to plummet by 25%, once facing a loss of up to 60%. However, Buffett held firm, and after more than 40 years, this investment brought him an astonishing return of 90 times.

Similarly, Buffett started buying Coca-Cola Company stocks in 1988. Although the stock price fell by up to 50% afterward and remained sluggish for as long as 15 years, holding long-term until the stock price rose again in 2013, he earned at least 40 times the profit.

These cases tell us that even stock gods are often trapped. Ordinary investors, after being trapped, do not need to be disheartened. As long as the quality of the stocks in hand is still good, they can continue to hold long-term.

II. Domestic Investment Masters' Trapping and Turning Around

Not only international investment masters, but also famous domestic private fund managers such as Lin Yuan, Feng Liu, and Ge Weidong, have also been deeply trapped in stocks like Moutai, Hikvision, and Wantai Technology, and eventually made a fortune. For example, a classmate of mine was once trapped by 50% in Vanke A a few decades ago, but he finally held it for 10 years and sold it for a profit of 20 times.

III. Strategies for Dealing with Being Trapped

1. Do not rush to replenish positionsAfter being trapped, investors often think of reducing their holding costs by averaging down, but this may not be wise. When market uncertainty increases, being eager to average down may increase investment risks. The correct approach is to first analyze the market situation and the fundamentals of the company before deciding whether to average down. Averaging down should only be done for stocks with core competitiveness and no significant problems in the company's fundamentals.

2. Don't rush to cut losses

Cutting losses is a risk management tool, but being eager to cut losses after being trapped may lead to selling at a low point and missing the subsequent rebound opportunities. Investors should decide whether to cut losses based on their judgment of the company's value, rather than just because the stock price falls.

3. Don't rush to sell to break even

After being trapped, investors may be eager to sell when the stock price rises back to the purchase price in order to break even. However, this overlooks the long-term value of the stock. If the company's fundamentals remain healthy, holding for the long term may bring better returns.

IV. Long-term investment mentality

Investing is a marathon, not a sprint. In this long race, we may encounter various difficulties and challenges, but as long as we adhere to the correct investment philosophy and strategy, we can sail to the other side of success. Being trapped is just a part of the investment process, and the key lies in how we respond and overcome it.

Remember, patience and persistence are important factors for investment success. As long as the company's fundamentals remain excellent, being trapped is only temporary, and there is still a possibility of making a profit in the end. For example, I was trapped in Wangfujing by about 50%, but I remained unmoved and sold it with more than double the profit after holding it for more than a year. I currently have two varieties trapped by as much as 75%, and I still hold firmly and have already started to increase my position.

To sail the ship of investment to the other side of success, we need to have a firm belief and wise strategy. When facing the predicament of being trapped, let us use the experience of the masters as a lighthouse to illuminate the way forward, believe in the power of time, and ultimately reach the other side of wealth growth.

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Trapped by 75%!

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