Opportunity Loss

What is an opportunity loss? For this post, I'll take it as the loss in opportunity to make more money by investing our money rather than keeping it as cash in the bank, or in other words, the returns that we have given up by not investing our money. 

So, are opportunity losses just as bad as real ones? Should we hastily invest in a share because we think that it may go up and we may miss this good opportunity to buy it? I think that there are many opportunities out there and that it is better for us to forsake opportunity losses to prevent real ones as we can’t predict the future as well.

(Image source: picserver.org)

I think that it is better for us to take an opportunity loss than a real loss. If we lost an opportunity, it is easier to recover than from a real loss where our capital has been affected. We should be more careful to avoid real losses rather than trying to avoid opportunity losses. For example, if a share has dropped in price, we should do more research on why it has suddenly dropped and whether it can recover from it before investing in it rather than moving in without much research on the belief that if we don’t act now, the price will go up and we will miss our opportunity. 

There doesn't seem to be any shortage of opportunity in the stock market, we just need to spend some time finding them through analysis of different companies and different industries. Recessions also come in from time to time, which create many bargain opportunities. So, I think it is better to lose an opportunity than to take a real loss in capital by rushing into a declining company.

When we rush into a weak company, whose low price made it appear as a bargain ("bargain trap"), our loss in capital is irreversible and trying to earn it back may take a long time to regrow that capital back to original levels. If we lose all our investment, then remember that no matter how long we wait, the number 0 doesn't compound very well.

To conclude, I think it is better if we lose an opportunity rather than lose money in a poorly thought out investment. That being said, a drop in share prices should not discourage us from investing in a company but rather we should just find out the reason behind it and then decide whether the company is still a good investment in the long-term.

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