What to do when your favourite stock crashes?
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The answers to these questions are to go back to your homework. The key is to study what went wrong. The sudden crash can be a result of either of the two things. The first is a one-off event like quarterly numbers, rupee movement, etc. These are not permanent events but the stock markets tend to react sharply to them. If the event is not permanent, then the impact on the stock should not be permanent either. Hence no cause for worry. Your long term view should remain.
The second is a more serious problem. And that is a change in the fundamentals of the company. This could be the result of change in company policies, acquisitions or business sell offs, change in government regulations, etc. In all, events that are more permanent in nature and hence impacting the overall fundamentals of the company. If the fundamentals of the company have changed and are no longer in line with your previous estimates, then there is only one course of action that remains. And that is to get rid of the stock and book losses.
So the bottom line still remains the same. Whether there is a crash or a boom in the stock price, always go back to the basics. If the fundamental strength of the company is intact, such crashes should be viewed as an opportunity to reduce your cost of purchase, i.e., buy more of the stock. If fundamentals are no longer the same, then it is time to get rid of your favourite stock.
What do you do when your favourite stock crashes? Share your comments with us or post your views on our Facebook page / Google+ page.
01:30 | Chart of the day | |
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Source: Economic Times * Data till April 22, 2012 |
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As you may know, service providers levy hefty charges for calls and SMS made for premium services. The reason given for the high charges is that it includes the price for content. But the regulator has argued that participating in competition and voting hardly involves any content. As such, tariffs for such calls and SMS should not exceed four times of the applicable local call or SMS charges. This move does offer some relief to customers. On the other hand, the pricing power of telecom players would be affected to some extent.
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The RBI is in no mood to allow borrowers to speculate on the basis of rise in value of collateral. The rise in loan to value ratio of gold loans was mooted precisely to curb this. The subprime housing bubble of 2008 came handy to remind the central bank of the downsides of excessive leverage. We do not think the RBI has offered any hints of correction in gold prices with the precautionary mandate. That gold continues to remain a safe haven asset class is uncontested. However, overleveraging and speculative trends can be very painful for an economy in the long run. All credit to the RBI to nip the problem at its bud!
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04:50 | Today's Investing mantra |
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3 Responses to "What to do when your favourite stock crashes?"
Girish Sumaria
Apr 23, 2012There should be nothing like favorite stock for a long term investor. This goes well for a trader who has more to benefit from daily price movements!
Every stock, whatever the fundamentals, can become over priced sometimes and that's the time you should control your LOVE for that stock....
Balbir Singh
Jul 18, 2012Your views are excellent. However, in case the company is a reputed one then an option to average out the buy price can also be exercised.
Regards.