Investors should always aware of warning indicators that their investment could start losing some value.
The decision whether to sell or keep a losing equity investment is fairly straightforward.
First, identify the factors that cause the share's poor performance.
Sometimes, the broad market is weak, in such event, hold on to your shares and consider picking up some more if they match your investment strategy.
Given time, the market and good shares will always recover their value.
A weak market gives you an opportunity to acquire more shares at a lower price, which will bring down your break even price.
If the market is healthy but your share's price is still decline, consider the reasons for selecting the company in the first place.
If you had invested in the company for a specific reason, check if that rationale continues to hold.
It's important to include the corporate and industry developments in your assessment of stock.
Review the latest headlines related to the company and its filings to Stock Exchange as well as for any events that could potentially weaken your reasons for keeping its shares.
After doing your research, if you still find the same qualities in the company as before, then consider keeping the shares.
You should also consider the possibility that you could have selected the wrong counter in the first place.
You could have missed out on some important information in your initial assessment and for this reason, you have overpaid for your shares.
Hold on to losing shares only if you're absolutely confident of the company's potential.
Hanging on and hoping that the share price will return to your original purchase price level can significantly erode your capital.
A stock that drops 50% must increase 100% in order to break even.
Therefore, you must assess the possibility of the share price to double in value and the time required for it to do so.