September 29, 2023


Learn Business From Experience

Put up-IPO blues: Methods to reduce your losses after driving the tech inventory dips

4 min read

TWLO and OKTA continued to have a dramatic experience, whereas DFEOX continued to expertise clean crusing. 

In case you had invested $10,000 in every of those shares in March 2021, right now you’d have:

  • $10,433 in DFEOX
  • $2,102 in TWLO
  • $3,671 in OKTA

Our purchasers who diversified have more cash now than they did in 2021. In distinction, our purchasers who didn’t wish to promote their single tech shares in 2021, and wishfully thought the shares would go larger, have skilled important losses.

“Ouch!” That’s all that involves thoughts once I see the purple and inexperienced traces within the above chart. 

It jogs my memory of this one time I used to be taking part in fetch with my black lab. It was a ravishing day within the yard and we had been having the perfect time. She grabbed the ball and ran in direction of me, however issues went awry when she didn’t decelerate and sprinted full power into my left leg. The crash harm, in the identical method holding onto a plummeting inventory hurts.

So, how can we flip this ache round?

Managing concentrated inventory

It’s simple to dwell on the remorse of not promoting in 2021 and to dread feeling caught proper now. Frankly, regret sucks nevertheless it’s not too late so that you can flip issues round.

For starters, one solution to handle concentrated inventory is what I name a “ground and ceiling” method. The title refers back to the worth at which we’ll begin promoting. It’s possible you’ll be conversant in dollar-cost averaging with time as your determinator. That is an efficient method when you will have a diversified portfolio with a clean experience, nonetheless an unpredictable inventory requires a distinct plan. The ground to ceiling method is an energetic method of dollar-cost averaging out of the inventory however utilizing worth — quite than time — because the determinator of when to promote. Right here’s the way it works:

At any time when the inventory goes up — like in 2021 — it’s useful so that you can have a ground, or a worth that’s decrease than the inventory’s present worth. The ground determines how a lot of a loss you’re keen to endure earlier than you begin promoting. This method retains you from holding onto falling inventory for too lengthy. Conversely, when the inventory is down — like in 2022 — you’ll wish to have a ceiling, or a goal worth that’s larger than the inventory’s present worth. The ceiling determines how a lot in beneficial properties out of your inventory’s present worth will set off a sale. The objective of the ground and ceiling method is to acquire the next common gross sales worth. 

It’s inconceivable to foretell your inventory’s future, however sustaining a ground and ceiling round a inventory’s present worth and promoting if you attain both threshold creates a buffer between you and the inventory’s volatility.

You’ll wish to goal the durations when your inventory worth retains rising and promote if you attain your ceiling. Because the inventory worth adjustments, you must alter your ground and ceiling costs. When the inventory ultimately begins falling down, you could cease promoting for a time period till you attain your ground, which you alter based mostly on the inventory’s most up-to-date excessive level. Finally, the ground retains you from driving an enormous drop, just like the one in 2022.

One blind spot I’ve constantly observed in my purchasers’ pondering, is once they solely give attention to the ground or the ceiling — they need to decide each at any given time. At any time when a shopper’s inventory goes up, their focus tends to shift to their ceiling worth they usually don’t acknowledge the truth of an eventual fall, neglecting a predetermined ground worth. I’ve additionally seen the inverse of this flawed pondering throughout dips. 

While you’re within the midst of a dip and you are feeling caught — like right now, in early 2023 — you want a ceiling. There’s nothing you are able to do about previous losses, however what you are able to do is keep away from repeating historical past. Get off the curler coaster earlier than the large drop by taking the ground and ceiling method.

Lesson discovered. Let’s flip issues round

I’m not right here to sugarcoat something or low cost your loss. In case you held onto a single tech inventory previous 2021, you’re in a troublesome place proper now. 

Happily, I’ve labored with a number of of us in your circumstance — together with ones at Twilio and Okta — and I perceive the ache and regret you’re in all probability experiencing. After taking time to course of and grieve your monetary losses, the perfect factor you are able to do for your self is to make an actionable plan to keep away from feeling like this sooner or later. That’s the beauty of life: You don’t should make the identical mistake twice. 

Let’s decide your ground and ceiling plan. Guide a name right now to start out your redemption story.

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