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 you will be doing so at a loss.

Key Takeaways

  • Puke is slang for selling a security at a loss.
  • 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.
  • 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.

Some savvy investors may hold off on purchasing assets until they reach their puke point as a strategy. Their hope is that other asset holders will be scared and sell off their assets at a reduced rate instead of holding onto them and waiting until they rebound.

Example of Puke

Suppose an investor named Rashida Jones 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 any more. She feels that a 50 percent 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.