Flat On A Failure

Let’s say we’re holding onto a position in a security in hopes that that security is going to go beyond some predetermined target price. If the security hits that target but doesn’t surpass it, and we decide to close out our position even though our profits aren’t as grand as we’d originally anticipated, this is called going flat on a failure.

Most of the time, when investors do this, it’s because they don’t think the security will exceed that target price and they want to invest their moolah into something else that might be a little more lucrative.

Example:

Let’s say we’ve invested $100 in 100 shares of Meat Smoothies, Inc., because we’re absolutely in love with the idea of drinking our ground beef. Our belief is that the rest of the world will be just as enamored by pureed meat drinks as we are. We have no doubt in our minds that that $1 share price will quickly increase to $2 per share, thus doubling the value of our investment.

Then, to our shock and dismay, it turns out that some people are kind of turned off by meat smoothies. The share price, instead of increasing to our target price of $2 per share, only increases to $1.25 per share. We’re still making money here...an extra 25 cents per share...but it’s not quite the return we expected. We decide to pull our money and re-invest in something else. We haven’t lost money, but we’ve still gone flat on a failure ‘cuz we didn’t make as much as we thought we would.