Psychologists have written numerous articles about the defense mechanisms that people use to eradicate unpleasant or harmful things from their perceived reality. A catastrophic investment is a perfect example of anyone wanting to reverse or reverse.
The loss of a large amount of money can have a traumatic effect on the individual, especially if the loss affects important life milestones, such as retirement, paying for children’s education or buying a house. Many people may feel that they have not recovered from the economic loss and therefore take actions to make the situation worse.
Although unfortunately you cannot turn back the clock, it is better to manage this process psychologically rather than trying to make up for losses through risky investments or other drastic measures. Research shows that there are positive ways to deal with such losses, as well as identifying harmful ways and how to avoid them.
- Humans will naturally try to avoid losses. When losses occur, they will cause psychological and emotional stress.
- Losses in the market are inevitable, so dealing with losses is the key to cheering yourself up and recovering from them unscathed.
- Here, we first discuss some negative and positive ways to deal with financial losses.
Coping strategies for dysfunction
When faced with losses, many people will adopt dysfunctional coping strategies. These include:
- Inhibition: Trying to suppress the negative emotions associated with loss can be difficult and will bother you again. The suffering caused by financial problems and losses can easily turn into marriage or career-related problems or stress. You may eventually vent your dissatisfaction to family, colleagues or friends.
- Prediction: It is not uncommon for those facing huge losses to try to blame someone or something instead of taking responsibility for their own wrong decisions or excessive risks.
- Denial and self-deception: These dysfunctional coping methods can cause people to become obsessed with failed investments and hope in vain that “they will rise again.” If you buy a scrap, it is best to throw it away and spend the remaining money in a safer and healthier place. In short, reduce losses and move on.
Sound response strategy
Assuming that you have not filed a legal claim against the seller for your losses, or cannot afford the costs of the litigation, it is necessary to accept this situation. A meaningful way to cope is to learn from your mistakes and try to make up for the losses over time by making good and prudent investments in the future. This is not a quick fix or “certain thing”, but it definitely makes sense to try.
If you take too much risk, trust the wrong people, or just have bad luck, you can be more careful in the future and make your portfolio more diversified. Even if it takes several years, you may find that you have indeed recovered some or all of your funds. It is gratifying to think that this might happen. Diversifying your investment portfolio should always be an early step in investment. This will ensure a balanced portfolio and avoid huge losses.
Remember, some investments do go wrong. There are incompetent, immoral and dishonest people in the industry. Anyone can become a victim. This is life, what can’t kill you, can make you stronger.
Learn from mistakes
Rationalization is useful, but only if it is realistic. It is important to understand what you and others did and why. For example, are you tempted by large sums of money, or are you the victim of false promises or even fraud?
A deep understanding of what has really happened in the past is the best way to move towards a better future. However, when rationalization is really self-deception and you need to blame others for your own mistakes or fail to face reality, the process becomes negative. Trying to understand the reasons for your investment decision can help you avoid making wrong investment decisions in the future.
Seek professional help
In the case of particularly severe losses, it may even be losses that do not threaten a person’s financial survival. In some cases, people will feel frustrated or even desperate. Therefore, they may turn to the negative coping strategies discussed above, or worse. In this case, professional help may be needed.
Finally, in terms of how to invest your funds in the future, it may be worthwhile to hire an independent financial adviser with a good track record.
Frequently asked questions
What are some good ways to deal with trading losses?
Experiencing losses in the market can be painful, but they are also almost always inevitable. Evaluate carefully and objectively what went wrong. If the cause is not in your hands, there is nothing you can do. If you find mistakes or mistakes, take responsibility and learn from them. If you cannot figure out what went wrong, whether it is due to your own fault or external factors, then you may be able to temporarily stop trading.
Is it a wise strategy to double bet on losses to break even?
No, it may not be. But this is exactly what loss aversion describes-taking excessive risks to make up for paper losses, rather than grit your teeth and realize it to move on. In trading, this is called the disposal effect, and it causes people to persist in losing trades for too long.
Why do many traders fail?
When traders let emotions such as fear, greed, overconfidence, and herding behavior dominate, they often fail. This can lead to over-trading, chasing trends and scrambling to make up for losses. Having an objective and fair strategy that can be modified over time and sticking to it is the key.
Investment is a risky job, because it has too many uncertainties and variable variables. Loss is common and part of the risk. Although it is impossible to change the past, you can control your reaction to it. Choosing a reasonable response strategy will help you move forward faster and even make up for your economic losses.