Capital Losses
You buy a stock then watch the price go down and stay down. At some point, you decide to end the pain and sell it. This type of loss is called a capital loss because it involves an actual dollar amount.
Lost Opportunities
When a stock goes nowhere or doesn’t even match the risk-free return of a bond, you’re losing money. You lost the opportunity to invest your money in something that would have earned you a positive return over and above the risk-free return. In the end, it is a true loss.
Missed Profit Losses
This type of loss results when you watch a stock make a significant run-up then fall back, something that can happen with more volatile stocks.
Not many people are successful at calling the top or bottom of a market or a stock. You might feel that the money you could have made is lost money—money you would have had if you had just sold at the top.
As the tips, the best cure for this type of loss is to be happy with a reasonable profit. Don’t try to squeeze every penny out of a stock; you’ll risk the possibility of a retreat and a missed profit loss.
Paper Losses
If you believe the company’s long-term prospects are still good, it might be an opportune time to add to your holdings.
You can tell yourself that your loss “is only a paper loss,” or, “If I don’t sell, I haven’t lost anything.” The reality is that if you make a mistake or something unforeseen happens, you have to decide what to do about it.
On the other hand, your paper loss becomes a lost opportunity if you believe this is where the stock is going to stay and you sit on that paper loss. If you do this, you lose the chance to invest your money in something that earns you a profit.
