“Come Back” Fallacy

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One quote often mentioned on many occasions is that “Stocks recover if held long enough.”

The stock market is full of examples of stocks of investment grade that have never “come back.”  Some have vanished entirely.

“Come Back” Fallacy

There are examples of many stocks that were prime investments in the past or were darlings of investors in the past.   They are now selling at a fraction of the prices they once commanded.  They have never “come back.”

It should be realized that even when stocks do come back, the original investor benefits very little if it takes the stocks a long time (20 to 30 years) to do so.  During that period,

  • his life, needs and desires have changed,
  • the value of money has changed, and 
  • in the meantime, other opportunities have slipped by.

The Better Approach

So, it is much better to accept a loss, if you can, while it is still moderate – say 10% or so. 

If the stock really runs away from you, usually it is better to take a substantial loss and start anew than to be tied hopelessly to something which you wouldn’t buy if you had the cash.

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