What happens When the Price of your Stock Declines?
Posted on | February 2, 2010 | No Comments
This is a question that many of us faced in 2008. It is certain we will face this issue as long was we continue to invest. The answer, in short, is it depends.
First, check to see if something material has changed in the company that would effect the intrinsic value of the company. If your calculation of intrinsic value is unchanged in relationship to the stock price, you should not sell. In fact, as the price drops you may consider adding to your position. Let’s look at Qiao Xing Telephone (XING) which I purchased back in December for $1.92/share. At one point today it dropped below $1.83. Does that mean buying was a bad decision. The answer is not yet. The price has been dropping on now news. Investors hate uncertainty and no news, no communication from the company is the height of uncertainty. In the same way that I was not ready to sell when it appreciated to $2.73/share last month because it had not come close to full value. My underlying valuation had not changed. So, I hold. This kind of volatility is why many investors shy away from stocks like XING. But volatility is your friend. You can buy when a stock price retreats, decreasing your cost basis of a stock.
But not all price declines are neutral. Sometimes a price decline is associated with news such as huge losses, fraud or a company losing its largest customer. These catastrophic events would require a reevaluation of the company. And if the fundamentals have changed, if the companys instrinsic value has fallen below your the share price with your margin of saftety included, you may want to sell. Only you can decide.
Disclaimer: I own 1500 shares of XING. I am not a finance expert, I am a film and television producer. I strongly urge anyone who is interested in XING to do your own research before you invest. Make sure you understand why you are investing in a company and when you will get out of the investment. Really, no one should listen to someone on the internet without doing their own research first, even if it is me.
Related Posts:
Comments
Leave a Reply
Subscribe to Chroma Investing
