Thursday, January 13, 2011

Investment Advice: Keep Your Composure When Your Stock Price Goes Down

There is advice about stock investing that someone gave to me...

If the company is doing the right things and you bought it at a price that made sense, the stock price will rebound, even if it drops. It just might take a while.

I take a look at examples of what I've seen since I started investing in 2008.
  • One stock dropped almost 80% of where I bought it. It took about 8 months for that to recover.
  • Another stock dropped 20% of where I bought it--THE SAME DAY. Within a year, I sold it for nearly 3X what I paid for it.
  • Another stock dropped 65% of where I bought it, within 45 days. A month later, I sold it for over a 50% profit.
  • Another stock dropped 13% of where I bought it, within a week. A year and a half later, the stock is almost 80% higher than my "buy" price.
  • Another stock dropped 85%. Two (2) years later, it returned to its value, and it is poised to jump significantly.
The person who told me this, though, mentioned when he bought an airline stock--JUST BEFORE 9/11 (in 2001 for those who aren't sure)--the price took a nosedive a couple days after he bought it.

It took his stock a little over four (4) years to recover. Eventually, he sold it for a nice profit.

The examples continue, but there is an important point.

Should I hold onto a stock when it loses its value?

I am not trying to suggest that you should hold onto your stock when the price drops ALL of the time.

If the company loses a key member, then you might need to consider selling, even at a loss.

If the company suddenly has a fire in its key plant, it might be a good time to sell.

However, if you bought stock...
  • in a company that has a good business and
  • at a bargain of a price,
then you are poised to make money. It just might not be as quickly as you'd like.

Good deals are good deals, even if the deals get better tomorrow.

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