One breezy afternoon, Steady the turtle and Zippy the rabbit were on their way to the park when they spotted Mr. Mole digging near his carrot patch.
“Hi Mr. Mole! Are you planting more veggies today?”
asked Zippy.
Mr. Mole looked up, wiping the dirt from his nose.
“Well hello there, Zippy and Steady! Yep, I’m planting carrots—and trying not to make the same mistake I did with that old energy stock of mine!”
“Wait—what mistake?” Steady asked.
Mr. Mole chuckled.
“Sounds like a good time to talk about something every investor needs to know: when to cut your losses—a lesson I learned the hard way.”
🪓 What Does “Stop-Loss” Mean?
“A stop-loss,” explained Mr. Mole, “is when you decide to sell a stock that’s going down—before it gets even worse.”
Zippy tilted his head. “So it’s about selling when the price drops?”
“Kind of,” said Mr. Mole. “But smart investors don’t sell just because the price dips. Prices move up and down all the time. What matters is why it’s going down.”
🧱 Price Drop or Broken Story?
“I once bought a company because I believed it would grow,” Mr. Mole said. “But after a few years, sales dropped, new competitors came in, and the CEO left. The company’s story had changed.”
Steady nodded. “So if the reason you bought the stock no longer makes sense, it might be time to sell?”
“Exactly,” said Mr. Mole. “That’s what I call a broken story. If the foundation of the business starts crumbling, it’s smarter to move on—even if you lose some money.”
🔍 Should You Sell Every Time It Drops?
Zippy asked, “But what if it’s just a small dip? Like the market being nervous for a week?”
“Good question!” Mr. Mole smiled.
“Sometimes, stocks drop for silly reasons—bad news, fear, even rumors. But if the business itself is still solid, you might just need to stay patient.”
He held up a carrot.
“This carrot might look small now, but if the soil’s good and the sun keeps shining, it’ll grow. But if bugs eat the roots, well… I pull it out and plant something new.”
🥕 Mr. Mole’s Advice
“Here’s what I learned,” said Mr. Mole.
“Have a reason to buy—and a reason to sell. Don’t just hold on because you’re hoping it’ll bounce back. Be honest: is this still a smart place for your money?”
Steady smiled. “So cutting losses isn’t failure—it’s part of the plan.”
“Right you are!” said Mr. Mole. “It’s about being a wise gardener. We make space for better growth.”
📌 Summary
- A stop-loss means selling a stock before losses get worse.
- Don’t sell just because prices fall—look at the business.
- If the company’s story or fundamentals break, it might be time to move on.
- Smart investors plan when and why they’d sell—before emotions take over.
🎓 Investment Quiz – Can You Answer These?
Q1. What is a stop-loss?
A) A way to stop shopping
B) Selling a stock to avoid more loss
C) Buying a stock on sale
Q2. Why might you sell a stock?
A) Its price drops for no reason
B) The company’s story has changed
C) You want to buy candy
Q3. What should you do when a stock dips?
A) Panic and sell immediately
B) Check if the business is still strong
C) Call Mr. Mole
👉 Answers: Q1 – B, Q2 – B, Q3 – B
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