Since launching the JIC Portfolio in January 2012 it is up 114.5% as of Friday 19th June 2015. I have had some losses along the way but in general I have tried to cut losses before they inflict too much damage. The table below shows the nine worst losses in the JIC Portfolio since inception in January 2012. Apart from Gem Diamonds, which I still hold, all the others were sold, or cut, crystallising a loss.

losses

My approach to “cutting” positions

“It’s not a member of the family!”

The biggest obstacle to cutting a position and taking a loss is our own psychological frailties. In general we hate to admit we are wrong and thus find it painful contemplating taking a loss; I find that once I cut a holding from the portfolio, that I have been fretting over for days or weeks, I actually get an enormous sense of relief; I don’t have to stare at it anymore with it taking up a disproportionate amount of my time and sapping my energy. The most important thing to me is the performance of the overall portfolio; that’s all that matters, not what one individual stock does. Don’t get emotionally involved, after all, as one of my old colleagues says “it’s not a member of the family!”

My view, learned through bitter experience, is that you are best cutting losses quickly. Conversely you should let your winners run. As Warren Buffet said “cut out your weeds and water your flowers”! All too often we are tempted to do the opposite. We add to our losers as it reinforces our original decision to buy it: “I was right to buy it at 100p so I must be even more right to buy more at 85p, after all it’s cheaper. Oh, and I will fund my purchase by selling part of my holding in another stock which is doing really well!”

I think it’s best to sell and move on; it saves a lot of emotional heart ache as well as money. The only stocks I really worry about are the stocks that I hold, after all they are the only ones that can damage my wealth should their share prices collapse. Stocks that are going…

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