Tip 20 – How to quickly determine why a stock fell and how to react

If you want to know why a stock fell, you need to ask three questions.  These three questions will help you pinpoint the reason and allow you to take action.

Those three questions are…

  • Was it the stock?
  • Was it the sector?
  • Was it the market?

Stock
To determine if it’s the stock, simply Google the stock and see if there is any negative news such as a legal issue, bad quarterly report, or the CEO sends a stupid tweet. You can usually find bad news on a stock within five minutes.

If I find bad news on an on sale stock, I typically don’t react. The reason is, bad news with an On Sale stock typically doesn’t drive the stock down for long. The strong financials of the company usually overcome and cause the stock to go back up. It can take days, weeks, and in some cases months but the stock typically does go back up.

I’ve only had one On Sale stock go down in the last 5 years. That stock was WWE.  A few years back they experienced leadership turnover. In same cases, large institutions don’t like to see leadership turnover as it can be perceived as a bad sign.  WWE stock dropped by over 50%.  I never sold it because I refuse to lose money.  I’ve applied the 4 m’s to this business and I know the stock will go back up. It’s just a matter of time.

Now in some cases I’ve seen people sell On Sale stocks when they receive bad news but if the stock is still On Sale, the stock can quickly turn around and climb higher than ever before and in this case, the investors lose out on the gains because they sold at the wrong time. Your best option is to not react and simply let the stock go back up.

If you don’t find anything negative on the stock, that’s good news! This means the sector may be falling.

Sector
If the sector falls, find out what happened to the sector. Similar to bad stock news, I typically don’t react. The strong financials of the company usually overcome and cause the stock to go back up. Plus, an entire sector typically doesn’t stay down for long.

If you can’t find bad news on the sector, that’s more good news! This means the market is falling!

Market
If the market falls, this is going to sound crazy, but that’s exactly what you want! That’s the most exciting time for an investor. When the rest of the world is in panic mode, you should be grinning ear to ear.

When the market falls and there is nothing wrong with your stock or the sector then you have yourself a stockpiling opportunity!

Stockpiling is the #1 most powerful investment strategy. This is the strategy that turns everyday investors into millionaires and millionaires into billionaires.