By Adrian Mastracci Business in Vancouver “Podium” Column November 5 to 11, 2002 Issue

The difference between the amateur and the professional is knowing when to walk away.

I recently looked at a portfolio whose value was $530,000. Just 18 months ago, it was worth $885,000. The biggest deficiency was that the investments were allowed to fall freely without any intervention. Nobody was taking action.

Successful investors know how to deal with investment losses. They know when to hold and when to fold. Moreover, they do it quickly and without regrets.

Making portfolio selections is not about always being right. Part of acquiring the skills of investing is about coming to grips with the prospects of being wrong. This experience touches us all, including the professionals.

It is important to admit that one was wrong about the initial investment analysis and equally important to do something about it. However, folding the tent on an investment heading south is one of the hardest steps to take. Yet investors who have mastered it, know what a dramatic affect it can have on the success of a portfolio.

Let me illustrate the pain of incurring losses with a few numbers. If you lose 10 per cent of your investment's value, you need to gain 11 per cent of the new value just to get back to the break-even point.

By the time you've lost 50 per cent, you need to record a 100-per-cent gain before you'll break even. And once you've lost 90 per cent, you would need to gain 900 per cent to get back to where you started.

Incurring losses is a normal consequence of investing. The positive step is to curb the losses sooner rather than later.

The reasons for a loss are not important. If the investment strategy is not delivering on expectations, it may be time to act like a professional, take the loss and move on.

In the perfect world, investors too want to close their eyes and hope that the losses magically reverse themselves.

In reality, the reversal does not happen often enough.

Being wrong does not make a bad portfolio manager. Staying too long with the loss is the dilemma.

While investors cannot curb all losses, this five-point approach should help:

• Stop getting emotionally attached to the investments.
• Expect some investments to result in losses.
• Establish the personal threshold for losses, such as 20, 30, or 40 per cent.
• Take the loss when the personal threshold for losses is reached.
• Do not second-guess your decision to take the loss when you reach your threshold.

A loss strategy will contain portfolio damage when the picks go south. A simple approach, such as selling at 30 per cent below purchase price, would be a positive step.

It is less painful to bail out than to insist that the investor is right and then bail out later with bigger losses.

Every loss starts out as a very small loss.

Just imagine for a moment having applied that "30-per-cent-and-out" strategy to Nortel, 360 Networks, Enron, and all the other recent big-time losers.

Investing is a game of probability.

Yes, an investor can bail out too early on a loss position.

However, successful investing is about being right more often than wrong.

Invest like a professional -- that first loss is likely the best loss. Know when to fold and when to hold. The medicine is awful, but the investment experience will improve.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.