What To Do When Your Stocks Go Down

March 3, 2020 by vernielcutar

Regardless of what strategy you use for investing, there will come a time when your stocks WILL GO DOWN.

That’s 100% certain to happen at some point in your investing life.

And it happens even to good companies with good fundamentals.

But how should you react to it when your stocks go down, or if it starts to show some LOSSES?

Let me tell you first how most people react:

PANIC.

The average investors tremble at the thought of showing a loss in their portfolio.

They become jittery, irrational, impulsive. Taranta mode!

Guess what they do next? They sell ALL their stocks all at once.

What is only a paper loss has been transformed to a REAL MONETARY LOSS.

All because of fear and impatience.

So How Should You React When You Experience A Paper Loss?

I’m going to show you a step by step system on how to cope with a paper loss or major stock decline.

Magkahalong emotional and technical discipline ang kailangan.

Here it is:

Step #1: Stop Stressing And Keep Your Hands Away from That Sell Button

A declined stock is NOT a reason to sell. So, relax.

At this point, don’t rush in to your account and initiate a panic selling episode. 🙂

Keep this mind: you have already lost a few hundred or thousand pesos, what is there left to lose?

Keep calm, and keep reading…

Step #2: Look At The Vital Signs (the Fundamentals)

Imagine this:

May nakita kang tao na nasagasaan ng bus. Tinulungan mong dalhin sa ospital. Nag-hihingalo na siya.

Pagdating sa ospital, sabi ng doctor: “Mukhang naghihingalo na yan, patayin na natin yan.”

(You saw a person ran over by a bus. You brought the dying patient to the hospital. When you arrive at the hospital, the doctor tells you “this patient looks like he’s dying. Let’s go kill him.”)

Would any doctor in his right mind do that? Of course not!!

Because in real life, the doctor will LOOK AT THE VITAL SIGNS first. Heartbeat. Breathing. BP. etc..

And yet most investors act like a crazy doctor and decide to kill their stocks instantly when they sense an emergency. 🙂

No, don’t do that. Look at the vital signs first.

P/E Ratio. Is it still desirable? Is it still under 10?
Equity to Assets. Is it still above 50%?
Earnings. Did the company experience a sudden net loss this year?

If the fundamentals still paint a pretty picture, then the stock price decline is most likely temporary.

Step #3: Ask Yourself If The Stock Is Still An Attractive Purchase

After viewing the fundamentals, pretend that you don’t own the stock.

Then ask yourself: “If I was looking for good stocks to buy today, is this stock something I would buy?”

If the answer is YES, then buy more of that stock! You are actually buying something with a huge discount from fair value.

Step #4: If the stock no longer has good fundamentals, then that’s the time to consider selling it

Hopefully, you have diversified your portfolio so that the loss will not impact you too much.

Let go of it and then move on. Losing money in individual stocks is part of investing.

You will not be 100% right all the time.

Our goal is to be correct more times that we are wrong.

You will be wrong in many instances. But by filtering your stocks carefully and diversifying, you will stand the chance of being RIGHT more times than you are wrong.

And that’s the kind of mindset that will help you make more money in investing.