One of the most frequent questions I get from readers is what to do when a stock’s price falls 30% to 50% and whether they should buy more, continue to hold, or sell to cut their losses. Tough choice… which is why it’s important to have a systematic and logical investment process to evaluate your investments if/when such an event happens.
So if you’re faced with this dilemma and you’re not sure what to next, here’s the three-step process I always use when one of my stock has fallen by 30% to 50%, or by any significant amount for that matter.
1. Find out what caused the drop
First, you need to find out the reason(s) that caused the company’s share price to fall by 30% to 50%, and evaluate whether the situation is a temporary or permanent one.
If the negative situation is temporary, then the company is …