Paper loss refers to a loss which has occurred but has not yet been realized. It is calculated after a comparison with the current market price of a security and the earlier purchase price. The stock’s value has lowered but since the security is still not sold, losses have not been realized. Paper loss is also called unrealized loss.
Plenty of investors make themselves believe that since their loss has not been crystallized, they have actually not suffered any real loss. Nothing can be further from truth.
The assumption that paper losses are not real is a misleading one. This is because of the simple reason that enormous amount of time would be taken for the stock to go back to the break even point. That is also not taking into account the effects of inflation which otherwise makes the “grow back” time even longer. Suppose you possess a stock that fell by 25%, the same amount would first require growing back 34% before getting to the break – even point.
You can prevent big losses by not putting more than 4% of your entire portfolio to a specific stock. After you purchase it, you need to put a trailing 25% to avoid loss on it. Thus total risk becomes very low.
Free charting webinar
Mon, Nov 18th, 2013 12:00 PM - 1:00 PM EST
During the 60 minute session Paul Coghlan, founder of Coghlan Capital, looks at current charts for currencies, precious metals, US indices, highlighting turns and low risk entry points using the Median line analysis methodology.
Median line analysis reduces risk and increases the chartists ability to see trend direction, trend strength and highlight entry and exit levels.
Seats are limited so be sure to reserve your spot today. The webinar will be recorded, by signing up you'll receive an email with the webinar replay afterwards.