Thursday, July 16, 2009

Loss Booking

People who have tried their hands at the share market would know what booking loss is. It's basically part and parcel of optimal use of resources – money in this case. When the price of the share you purchased is going down and you sense that it may go further down and not going to go up in the timeframe you selected, it's best to sell it and book losses because there may be another stock which could be going up. It's best to release your resources from that 'losing' stock and put it on the 'gaining' stock. So, though you have encountered losses, you have saved yourself from bigger losses and given yourself a chance to make profits by investing the resources in a gaining scrip.

You must be wondering why am i talking about share market as what i mentioned is pure common sense and that i am no trade guru. This share market anecdote applies well to various activities we do in our lives. One example from the medical field which comes to mind is that of amputation. To prevent 'poison' from spreading to other parts of the body, we cut the affected part. It doesn't mean that we don't like/love the part we are cutting and that we don't feel the pain in cutting the leg that we pampered so delicately. It means that we are ready to trade it off for a larger benefit of our body.

Problems. This is one word every human being can associate with. A lot of people say that we should address problems heads on and that we should take them as challenges and resolve them. According to me this is partially true. Sometimes, the resources required to solve a problem may be huge and the gain by solving the problem may not be enough – in that case, an easier workaround and using the resources to serve better purposes may be better than trying to solve the problem completely. It's like you exit form the problem by booking losses and invest that money into some other scrip.

A lot of 'intelligent' people have this ego problem - “how is it that i can't solve this problem”? This is really grave. Haven't you seen it screw up that very important board/competitive exam? The time (resource) ran out while you were busy solving a 5 marks problem and in turn left 50 marks unanswered. Don't you 'pass' (or guess the answer to) the question in the rapid fire round in a quiz competition?

The trick is to estimate the effort required to solve a problem and whether it is worth putting in that effort. For this principle to work, the goal you are working toward should be clear – else the “worth” of the effort may not be correctly estimated. It's best not to honor our ego, book losses and come out and do something worth the time.


Think...

8 comments:

nidhesh July 16, 2009 at 1:02 AM  

Nice Post....the idea is truely intellectual and logical in terms of the examples suggested here. Said that, the decision involved in finding out if the resources r being wasted in a task can be real tricky ones. This post along with others are food for thought.

Krishna July 16, 2009 at 2:17 PM  

Hmm....Food for thought....

Well the imp criteria is to identify the below case before hand...

"the resources required to solve a problem may be huge and the gain by solving the problem may not be enough"

This is in sync with Loss Booking in share market where one need to identify that the share price of that particular scrip will go down!!!!

Lakshmi July 17, 2009 at 5:42 PM  

It all depends on what you value more..
after all, everything in life is relative, isn't it ??
If my ego is more important to me than success- i.e, if I definie my objective function as to stand for what I believe in, rather than to succeed at any cost -- won't the whole perspective change?
As a matter of fact, the better market player would buy low and sell high..
I dunno what is right and what is wrong.. but I know what matters to me.. I believe in myself, my beliefs, my values, my integrity , more than success.
Even if success matters to me, it would be based on my ego that "I" should succeed. So, I don't see the point in blaming one's ego.. or giving up on it.. (After all it's my ego... atleast I should ackowledge it :P)
I feel all our deeds, good or bad, is driven by our ego...
Just my view... :)

Prashant Mehta July 18, 2009 at 1:02 AM  

@Lakshmi,

I agree with you completely. It all depends on how you define your objective function. However, even after defining an objective function, we fall prey to our ego. And that is where we re-define our objective function implicitly.

To give you an example - If you have no equipments and you want to break a strong wall, banging your head against the wall will not help. In that case, you need to look at you objective again - why do you want to bang your head on the wall. If it is to come out of a closed room- it's better to leave your ego and look for a door.

Biswajit Biswas July 19, 2009 at 6:26 PM  

Dear Prashant,
After reading the whole blog, what was it all about. Is it the about proper tilization of resources, or using resources intelligently. Please clarify.

Thanx.

Prashant Mehta July 20, 2009 at 9:32 PM  

@Biswajit Biswas

It is about utilizing resources properly and intelligently :)

alpesh July 26, 2009 at 6:59 PM  

good logical thought..it's must must for one, before embarking on there respective journeys...

but but but
Dont you think that many ppl think about it but ultimetly lay down before there greediness and end up in making huge loss???
I think this greediness is the main cause of concern that needs to be addressed..wht say?

My comment is WRT Share Mkt..i hope you got it..

deicider July 27, 2009 at 12:12 PM  

Good Post but not the greatest one I have read from you.I will give you a little piece of advice Prashant...choose your examples more aesthetically,the idea of amputation that you put here though acute was not astute.BUT this is just to enhance the literary sensibility of your piece.
I read the piece and the comments that ensued and it seems that people have not taken kindly where it comes to giving up their ego and I for one agree with them.
If I solve a five marks sum that noone else would or could solve and lost fifty marks in the process it would be utmost stupidity for the world but would be an immense ego boost to me. However, the point is that there are certain phases in life where you cannot afford this stupidity....specially where your job,money ,career or your family's happiness is involved.Ego is a good thing because it can keep you motivated and increase your self belief,as Lakshmi very poignantly puts it ,it measures to you standing up for what you believe in.
But excess of nothing is good,not even a good thing.
When we are so obsessed with this self belief that we close our minds to reason and shield our decisions from reevalution then ego becomes the monster that ultimately leads to the demise of all that we have worked so hard to build.
It is not a simple process to explain "ego" as there are many things linked with this feeling.Maybe Prashant, you can have a seperate paragarph or two to discuss this.

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