So you have turned on CNBC, opened up your Bloomberg app or just received an alert that your favorite stock has taken a big hit. Your heart has now sunk into your stomach and those slight hints of doubt are now beginning to enter your mind. “Why did I buy this stock in the first place?” is the question you begin to ponder. This is familiar territory for anyone who has bought a single share of stock. The question is what should you do next?
Buy More Stock
Sophisticated investors understand that the bad times are actually the good times. What this means is that the best time to buy stocks is when the prices drop. The obvious reason is the fact you are buying an asset that has just gone on a flash sale. Big money can only envision opportunity during these times. Where small everyday investors get frightened when things go south. It took 5-½ years for the DOW index to recover after the 2008 recession. Meaning you gained all money lost in the DOW after 5-½ years if you did nothing. Those that reinvested dividends or continued to buy more stock did even better and made money during this 5-½ period.
Sell Your Stock
In stock investing you never lose a penny until you sell your stock. This is because as long as you own the stock there is always a chance for the stock price to climb. You should always set thresholds for the amount of money are willing to lose. Some experts believe it is best to sell when a stock drops between 5% - 8% but everyone will have a different risk tolerance and make decisions based on this risk tolerance.
Change Your Investment Strategy
If you are so distraught after your portfolio has dropped in value that you doubt the stock market than you may need to reconsider things. The stock market is not, I repeat it is not a get rich quick scheme. Your investing plans should be for the long haul, 10, 20, heck even 30 years down the road. If you are not a day trader then you should not check your stocks on a daily basis at all. Why, because you are in this for the long haul, not to make money for the immediate future. It does not matter how the market performs on a day to day basis. That is the purpose of your job. If this is the mindset you possess, then maybe stocks investing is not for you.