[Korean Culture & Language] Stop-loss

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Investors are occasionally forced to sell their investments at a loss. The 10 percent rule states that if a stock's price falls by 10% or more from its purchase price, the investor should sell it. Even though it seems simple, many investors have learned the hard way how difficult it is to understand the most fundamental rule in investing.

Photo by Jason Briscoe on Unsplash

It’s hard because no one wants to sell at a loss. Selling at a loss also means that the investor admits that they made a mistake. However, they may lose only a tiny amount of money and still be financially and psychologically well enough to invest the next day only if they can put their ego aside. Cutting one’s losses early saves them from taking a catastrophic collapse from which they will be unable to recover.

The 10% rule doesn’t only apply to stocks but also to people in Korea. Like the old stock market saying, an investor should ‘cut their losses short and let their profits run’. It means they should exit early when they’re losing money and remain patient when they’re making money. 

‘손절’ in Korea means ‘to cut off someone before they cause you more harm’. 

Below is a meme that reads: ‘손절해야 할 친구 기준 딱 정해줌 (The kinds of friends that you should cut off even at your loss).

 

Can you think of a ‘friend’ you should 손절?