What to do When Stocks are Going DOWN?

Value investing Philippines is basically an unknown art of investing (at least in the Philippines). Most people would try trading as oppose to investing, because of the “quick” money that can be had. But both traders and investors experience the pain of seeing their portfolio go into the red zone. So what should be your action when this happen? Should you sell your stocks, cut losses or become a trader while the market is down, then an investor when the market is up?

I would answer this question on the premise that we all do investing. We buy things when its a bargain and sell it if its overpriced. So what happens if you buy and the market turns against you? Should you cut loss?

I would first think of the reason why I bought the stock in the first place. And if the same reason is still valid while the stock is going down, the only logical thing to do is to buy more. Not cut loss. When you cut loss, and your investment thesis is still valid, you’re not taking advantage of the opportunity to buy more at a lot cheaper price.

Well, most people would say, what if it goes down some more? And what if you’re wrong?

If it goes down some more, its just the nature of the market. If you’re right, it will go back up. Its easier to be right most of the times. The harder part of it is having the conviction for it. When Warren Buffett said that you don’t need a high IQ to be successful at investing, it is true. What you need is the temperament. The emotional aptitude to buy when the market is selling. Going against the crowd is what makes it hard.

So when my own portfolio is going into the red zone. I look at it with dispassion. It doesn’t bother me. And if I did my homework and research about the stock, I welcome the thought of buying more from the price decline. See my trades, I bought more and more as the stock goes down, because I believe I am right. I may be wrong while most of the people are selling. But we will see. It takes confidence and botherline arrogance to say that all the people are wrong and I am right. So a red portfolio means, everybody is wrong and if I kept buying means I am proving everybody is wrong.

When you followed someone into an investment. Be it a recommendation from a membership site, when you bought the stock and it went down, you’re in a lot of trouble. Because 1) you don’t know if the one recommending did his research 2) and is he correct?. 3) does the guru have a skin in the game? All these questions, will make or break your conviction. Because, the ultimate question would be, are you right to follow someone? If you think you’re right, then buying at falling prices makes sense and it doesn’t bother you. But if you’re wrong, it makes it harder and harder to hold or to buy more.

I am not here to be arrogant. I am just stating an example on how you should think about things. Investing is 15% strategy and maybe 85% emotions. If you know how to handle those emotions, and be rational all the time, I believe anyone can be successful.

Anyway, if you’re going to be a value investor, you will always be on the look out when people are panicking. That’s where you can find opportunities. Just make sure, you are not panicking yourself. 🙂

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