Unsuccessful investments can be depressing and hard to deal with. A failed investment can be a great disappointment if you have reached the age when you should be reaping the benefits. That is why a good exit strategy is always best from the onset. Through it, you can drop a failed investment quickly enough and avoid more significant loss.
Below, we share five symptoms of a failing investment:
- Extended periods of negative cash flow
One of the first and most obvious signs of a failing investment is if the company/startup’s balance sheet reads negative continuously for extended periods. Companies can indeed experience difficult times. It is normal. That is why a few months of negative cash flow might not be a cause for alarm. But if the company has failed to bounce back after months of hoping, you might want to protect yourself and exit such an investment.
- Continuous decline in the stock
As an investor, your goal is to make a profit. So you must always keep abreast of the trend and the industry you have invested in. If the stocks you have bought continue to decline, it might be time to cut your losses and move on. This trend will likely continue if a stock’s price keeps falling for prolonged periods. It is better to lose some than all. Hence, it would be best if you exited the trade before a further downward spiral.
- If the investment yield is not competitive
Your expected returns must be realistic. You can make sure of this by checking similar investments in other companies. Once you know what you should get, ensure that the investment meets this expectation. If not, you might want to move. It means the investment is not doing well. Whether it is bonds, stocks, or a startup, ensure the investment yields competitive returns.
- High employee turnover or unexpected (unfavorable) changes
An obvious symptom of a failing company is that people don’t stick around with such businesses. Both customers and employees flee. This is a sign of poor management, which soon leads to a loss of revenue. The moment you notice staff abandoning the company, perhaps it’s time for you to leave. If the company is always hiring new employees, it is also a sign that they can not retain good talent.
- Poor customer rating
Customers are the ones bringing in the funds. If they are unhappy, the business suffers. If the company continues to fail its customers, this signals trouble. You might want to move your investment elsewhere before the trouble comes. You are in the business of making money as an investor. Therefore, if you spot a sign of failure, the wise thing is to move as soon as you can.
Having a plan is crucial in every investment or trading you embark upon. An essential element in every investment strategy is an exit plan. It indicates when to leave an investment when it is yielding or failing. Tools such as stop-loss and take-profit are designed around this idea. But in long-term investment, you must determine an exit plan before you begin.
An exit plan is created based on the following factors:
Time
Before investing in a company, stock, or other assets, determine the time length for the investment. It can be short-term or long-term. The long-term investment could survive market downturns and volatility. But a short-term plan will be more suitable if you need the money within months or a year.
A factor determining the time horizon of the investment can be your age. For example, a young person under 35 might want to hold their investment till retirement. In contrast, an older investor might be looking at a shorter term, especially if they’re close to retiring.
Investment goal
If you set a target profit for your investment, your exit plan would be based on that target. In the same way, you should determine at what point you wish to let go of the investment takes an unfavorable turn. Although this especially applies to short-term investments, deciding when to leave a long-term investment is essential once things get rough. Fortunately, holding investments for a more extended period usually produce favorable results.
Risk tolerance
The level of risk you can handle should also determine when to let go. Risk-averse investors are willing to forego significant potential returns to lower investment risks. For instance, some prefer US Treasuries to stocks even though stocks have greater yields. The reason is that such investment is risk-free if you wait until it matures.
How to deal with unsuccessful investments
Unsuccessful investments can be disheartening and tough to deal with. But remember that it happens to the best of investors. Even Warren Buffet has had his share of failed investments. It may feel like the end of the world, but it isn’t. You will bounce back and possibly do better next time.
Here are some tips to remember:
Learn from your mistakes
Failure is as great a teacher as success. Therefore, this experience must have taught you what does not work. It is an excellent opportunity to take time off and reevaluate your investment strategies. And discover areas to improve next time.
Find out if recovering your capital is possible
The chances of this might be slim, but it is worth checking if there are provisions for money recovery in the investment scheme.
Do not over-analyze
It is good to reevaluate and record the loss for learning and improvement. However, you might waste more time, energy, and sometimes money while over-analyzing the loss.
Give yourself time and try again
The knowledge gained from that loss will not benefit you if you do not put it to use. Sometimes, the way to quickly recover from a failed investment is to find a new one. This might be scary at first, but that is why you need a little time off to gain perspective. This time, getting back and doing it better could lead to better rewards and faster recovery.
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