What to do when stock prices fall : If you buy any stock and the stock’s price fall then what to do? It often happens with us. You buy a stock and you know that you buy the stock in intrinsic value. But after buying the stock the stock’s price starts to fall. In this situation there is many confusion.
What to do with the stock such should you sell the stock or hold the stock or buy more stocks and do average of the stock? Here in this article you are informed what should you exactly do with the stock in this situation?
Table of Contents
What to do when stock prices fall?
If you buy a stock and within somedays the stock price falls then what you should do?
First Option:
Many people think that they should sell the stock when stock price falls. Is it a wrong option? See,,,option is not right or wrong. It is depended on why the stock price falls and what is the problem of it? If stock price falls because of a permanent problem(like Jet Airways: it may be not take off in future) or you feared that the company will close their operations permanently then you should sell the stock. Now come to second option.
Second Option:
Now the question is when you should hold the stock? If it is seemed to you that the company faces the problem temporary not permanently(like Nestle when maggie faces problem) then you should hold the stock. This incident hapeens occasionally. If Usfd gives observations on any pharma company then the stock of the company is going down for 4-6 months. Many good quality stock’s price fall sometimes for next 4-6 months because of any incident or any other reasons.
Then you should hold the stock if you already invested a big amount. You have to aware that you should not invest in any stock more than 10% of your total portfolio in any condition. Imagine if you are investing 10000 rupees in stock market then you should not invest in any particular stock more than 1000 rupees in any condition. And you should follow this asset allocation strictly.
If you invested already 10% of your portfolio in any particular stock and the stock faces problems temporary then you should not invest more because you already reach the maximum threshold for this stock and now you should hold the stock. And if the stock faces problems temporary and you invest on this stock less than 10% of your portfolio then you can buy the stock upto 10% of your portfolio. Now it is time for third option.
Third Option:
When you should do average buying more stocks if the stock’s price falls. You should buy more stocks if the stock faces problems temporary(such as it is happened in second situation.). If the stock falls 20-30% temporary then It is right time to buy the quality stocks. In normal time you can get the quality stock in a premium value unless or untill the quality stock faces problems.
You can get the quality stocks undervalued or in intrinsic value when the company faces temporary problems or if there is panic in stock market. It is obviously right time to buy if you do not cross the maximum threshold of your portfolio. If you are investing 1 lakh rupees in stock market and you already invested less than 10000 rupess in falling quality stock then you should buy more the stock till the maximum threshold.
Just you should aware about the problem that it will be obviously temporary. Like Cadbury,Coca-Cola faced problems few years ago. There are now also quality stocks that you can get undervalued because of temporary problems. You should just aware that the problems are not permanent. It is no matter to hold the quality stock in loss for 4-6 months because stock market makes money in long term. But if your imagined temporary problem becomes permanently then you loss your money.
So ask yourself that is the company closed their operation after 4-6 months? When you use this ‘close’ filter you can get the right answers. Like Nestle,Cadbury will close for the problems. It is quite impossible. Now there are many stocks of permanently problems and also many stocks of temporary problems. You should buy obviously the stocks of temporary problems if company’s fundamentals are good. You can get it in burgain value.
If the stocks are with permanently problems then stay away from them. It is better to buy the temporary problems stocks because today there is problems but after somedays there will no problems. today you can buy it in low share price but when the problem will be fixed you can not get the same quality stock in low value. So buy the stock and wait for the fixing of problems. Many successful investors use this simple simple stratagem to be succeeded in their stock market career.
It is common obviously that you choose wrong stocks of permanent problems 3 times out of 10 times. But the loss will be covered up and come good returns by the 7 times of right choice of stocks. So it is not necessary to fear the wrong picking choice of stocks. Anyone can not be right always using any stratagem. So there are obviously mistakes. Forget it and learn from it and do invest as the above method is described(invest maximum 10% in any stock of your total portfolio) and become successful.
Investor’s life is damaged on long term investing when they invest maximum of their most of their portfolio in any particular stock. They do average of this stock and ego comes to them that their picking stock can never be wrong. So follow the 10% method strictly to avoid the mistakes.
If you have any query related to What to do when stock prices fall please comment below so that the topic can be covered.
What to do when stock prices fall ?
Many people think that they should sell the stock when stock price falls. Is it a wrong option? See,,,option is not right or wrong. It is depended on why the stock price falls and what is the problem of it?