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Thursday, March 28, 2024

Losers Average Losers

Is there a difference between adding to a losing position on the way to building a fortune and doubling down on a loser stock in a series of bad bets? Perhaps you see something the market has missed? Perhaps your timing is excellent (the second third fourth time)? Perhaps you're Warren Buffett? Or maybe the difference is just the odds, which are around 99% against you. 

Losers Average Losers

Courtesy of 

I’m not a huge fan of this quote from Paul Tudor Jones. Some of the best investors of all time have made a fortune adding to temporarily losing positions. And while this is true, it is equally true that the worst investments and the worst investors have added to losing positions, not knowing when to call it quits.

Let’s use Twitter as an example. If you bought 100 shares of the IPO at 26, and added 10 shares on each of the 25 times the stock closed at an all-time low, you would have tripled your original position, and would be down 30% on your investment.

TWTR

Thinking a stock can’t go any lower, and then acting on that intuition is a strategy that will leave your account dilapidated. There are a lot of ways to lose money in the market, and 99% of investors who continually lower their cost basis will do just that.

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