Investing in the stock market is a game of "high risk, high reward," but every investor fears the possibility of losing their money completely. People often hold on to falling stocks, hoping for a recovery, but this hope can sometimes wipe out their entire capital.

We've all heard the line, "Investing in the stock market is subject to risk," many times. But the biggest fear for a typical investor is whether their invested money could ever go to zero. In the dazzling glitz of the stock market, we often see only stories of profits, but the truth is that wrong choices and changing market movements can completely wipe out any investor's capital. Therefore, it's crucial to understand when money is lost and how long it's wise to hold on to a falling stock.

Can the money be completely lost?

The simple answer is yes, you can lose your money in the stock market. This happens if the company whose shares you buy goes bankrupt. If a company legally declares itself bankrupt, the value of its shares can drop to zero. Furthermore, if SEBI delists a company from the stock exchange due to fraud or violations, it becomes impossible to sell the shares you hold, and your investment becomes worthless. This risk is often greatest in penny stocks (very low-priced shares), where operator manipulation inflates prices and then the company suddenly disappears.

How long should you hold a falling stock?

The biggest mistake investors make is refusing to accept losses. When a stock starts falling, many investors hold on to it in the hope that it will "rise higher someday." This is called the "sunk cost fallacy." Experts believe that there should be a limit to holding on to shares. If the fall is due to market volatility, shares of good companies tend to rise again. However, if the decline is due to a flaw in the company's fundamentals, such as increasing debt, management fraud, or a persistent decline in profits, holding on to such shares is tantamount to exposing your capital to further loss.

When should one give up hope?

A savvy investor should recognize certain red flags before giving up hope and exiting. The first sign is a steady decline in promoter holdings. If the company's owners are selling their shares and exiting, it indicates they lack confidence in the company's future. Second, if a major legal case or scam comes to light against the company, it's best to exit immediately. Third, adopt a stop-loss rule. Before investing, determine how much loss you can afford. If you've decided to sell if the stock declinCan your money invested in stocks be completely lost? Know how long to hold a falling stock?es more than 15% or 20%, stick to it.

Recovery strategy in a falling market

Investors often try to average down by buying more of a falling stock. This strategy only works if the company is fundamentally strong (like blue-chip companies). If the company is weak, averaging down means "adding more weight to a sinking boat." Experts say that if a stock has fallen more than 50% from its peak price and the company's profits show no improvement, it's wise to book a loss and exit, investing the remaining capital in another good company to offset the losses.

 PC:Times Now