What to do when stock price goes down ? Buy more, Sell, Hold ?

How do I know what to do when stock price goes down ?
Should I buy more stock, sell it or hold it ?

Frequently asked question. The right answer may worth billions or even trillions sometimes.

First, you need to know why is stock price going down.

• Is market crashing or is industry crashing or is the specific business crashing ?
• Is stock price of competitors going down as well ?
• Is company in declining industry ?

If there is a high probability, that stock price will rise in the future, then hold the stock or buy more (if the price is too low).

If there is a high probability, that stock price will not rise in the future, then you should consider to sell the stock, to protect your money and minimize losses.

What you should definitely do when market drops is:

• Avoid panic - Emotional behavior may cause you to do bad decisions.
• Do not ignore risk limits

"Buying the dip" is a good investment strategy. But before buying a low priced stock, you have to be sure enough, that there is a high probability of price rebound.

For example:

When the price of Nvidia stock dropped, there was a high probability of price rebound, because Nvidia is a leader in its industry.

On the other hand, when the price of PayPal stock dropped, there was not so high probability of price rebound, because PayPal has many competitors.

Please mind there is always some risk when investing to any stock or other asset.

When stock price goes down, it can be a good opportunity to buy more. This investment strategy is called "buying the dip".

Before you buy "discounted" stock, you have find out why is its price going down.

There are some situations when it can be smart to buy the dip.

You have to consider to buy more stock if:

• Price is going down, because whole market is going down.
• Price is going down due to Pre-earnings pullback. In this case, the price drops a couple of days before company releases its quaterly financial reports. If company's economic performance is good, stock price usually rebounds quickly. But if company does not meet expectations, then stock price goes down even more.
• Price is going down, because of profit taking. This can be difficult to recognize.
• Price is going down, because of company's short-term economic underperformance.

It is not recommended to buy more stock if:

• Stock price is going down, because company is losing its competitiveness for a longer period of time. This may happen due to lack of innovations
• Stock price is going down, because company is losing its market share for a longer period of time. It can be related to losing of competitiveness.
• Company is in declining industry.
• Company has many competitors and their stock prices are rising.
• There is a significant probability that stock price will not rebound.
• There is a significant probability that company's market share will be decreased in the future. For example, because of geopolitics etc.