What Is Puke?

In finance, puke is a slang term that refers to the act of selling a security or other asset despite the fact that it will be done so at a loss. In investing, the goal is to always sell an asset after it appreciates, earning a profit on the initial investment. However, there can be many situations that result in an individual needing to sell an asset right away, even if it has not increased in value. Reasons to do so most often include the prevention of further losses or to free up capital to use in other, possibly more profitable ventures.

Key Takeaways

  • Puke is a slang word that refers to the sale of a security or asset at a loss; the price will have depreciated when compared to the purchase price. Or in the case of a short trade, increased.
  • The point at which an investor decides to sell an asset that is plummeting in value in order to minimize further losses is called a puke point.
  • Investors or individuals sell an asset at a loss usually to prevent further losses or so that they can free up capital that can be used for a more profitable venture.
  • Puke points are opportunities for shrewd investors to buy value stocks at a discount.

Understanding Puke

Puke, or the puke point, is when an investor decides to sell an asset even if the sale is not in their best financial interest. It may also be used to describe the point at which an investor realizes they will be unable to recoup costs after the value of an asset has plummeted. They are said to puke at the occurrence (or the thought of the occurrence).

These types of sales often take place when an asset is plummeting in value and an investor wants to cut their losses before an even more significant depreciation occurs. For example, an investor may have bought a stock at $225 and it is now trading at $175 because the company incurred significant losses due to a faulty product.

Later, analysts indicate that the price will most likely continue to drop. At this time, an investor may cut their losses and sell at $175 before the stock falls any further. The investor can then use whatever capital is left over to invest in another, hopefully, more profitable, asset. The $175 sale price is the investor's puke point.

Some savvy investors wait until an asset drops significantly in price if they expect traders will be offloading a once-promising share that is now plummeting in value.

Puke, or puke point, originated in the early 2000s and is often attributed to investment analyst Dennis Gartman, from Virginia. It was then made widely known by the financial author A. Gary Shilling.

Example of Puke

Suppose an investor named Rashida Martin has been actively purchasing shares of a company she was told was increasing in value, called Hammers, LTD. Over the years, Rashida has invested heavily in this company, purchasing shares every time she had extra money to invest. She has invested widely over time, but a significant amount of her money is tied up in Hammers, LTD.

Suddenly, the stock begins to plummet. Rashida watches as the shares drop from $45 to $35. As they near another large drop-off point, Rashida begins to realize that if she doesn’t sell these shares soon, she may not be able to find a willing buyer. Although she originally purchased them for $50, they are now valued at $25. This is Rashida’s puke point. Although it makes her sick to do it, she wants to sell the shares before they drop in price anymore. She feels that a 50% loss is preferable to any additional loss.

Rashida finally manages to offload all of her shares of Hammers, LTD at $20 per share. She sells them to a broker at Spring and Garden. They purchase each share at $20 with the hope that the prices will rebound and their investment will pay off. Over the next few months, the share price begins to climb back up and eventually plateaus at $35 a share. Although Rashida’s puke point cost her $15 a share, the comfort of knowing that she wasn’t going to experience a total loss was worth it to her.