Risky Investments and Recovering From a Substantial Stock Loss

//Risky Investments and Recovering From a Substantial Stock Loss

Risky Investments and Recovering From a Substantial Stock Loss

Earlier this year I swore off gambling in the stock market, vowing to keep my investments just that, investments.  Well the investment club I am involved still has an appetite for it.  I actually don’t mind because this provides me with some exposure to that world without risking “my” money (yes, some of it is my money but eight-ninths of it is not).  A recent decline in one of these types of equities occurred almost contemporaneously with me finishing Benjamin Graham’s Intelligent Investor reminded me of a topic I haven’t thought about in a while, how much gain is needed after a substantial decline in a stock’s price.

What is the Cost of a Substantial Loss?

The idea is simple, if you have an investment that loses 50% of its value, how much does it have to increase in price to get you back to even? Most people would instinctively respond 50%…and those people would be wrong.  If a stock loses 50% of its value it needs to gain 100% to get you back to even.  For example, if you own ABC, Inc. at $100 a share and it suddenly drops to $50 a share you lost 50% of your initial investment, however, to get back from $50 to $100 your current investment needs to double.

Investopedia provides a fantastic chart:

Percentage LossPercent Rise To Breakeven


Understanding these numbers allow you to look at the equity in a different way.  You can start asking yourself questions like:

  • Is Mr. Market nuts or is this a value trap? This stock shouldn’t have lost 10% I should buy more, more, more!
  • Nothing has changed so maybe I should just hold on since I am investing for the long term?
  • The volume has dropped along with the price, has the big money moved elsewhere? How long is it going to take to get back to even?
  • Did the company release news recently? Maybe I should do more research


By | 2016-02-22T13:43:43+00:00 December 4th, 2014|Investments|0 Comments

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Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

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