Don't panic in a down market

July 18, 2008

The price of a stock I bought last month recently plunged 20 percent. I'm a new investor, and just thinking about this makes me anxious. What should I do?

The price of a stock I bought last month recently plunged 20 percent. I'm a new investor, and just thinking about this makes me anxious. What should I do?

Review your original reasons for buying the stock to see if they still pass muster. Maybe you overlooked a flaw or two that changes your overall assessment of the company's value and potential. If so, admit the goof and cut your loss by selling the stock now; holding on in hopes of an unlikely reversal just gives the problem a chance to compound. But if you still believe the company belongs in your portfolio, seize the opportunity to buy more shares at a bargain price. That's particularly wise if the plunge is due to a setback that's probably temporary, such as a disappointing earnings report or bad news that primarily affects a competitor but is unfairly tainting the entire industry.