Recently, a friend of mine had an unfortunate situation with his investment.

He was owning a stock for 3 years, and during those years it was mostly going up, sometimes down, but not more then 3-4% as he told me. He was very excited about that investment, and the company (let’s name it XYZ) of that stock has good management team and positive cash flow.

A week ago due to some bizzare reason, the price of the stock dropped about 10% in one day without any indication of failure from the XYZ. My friend rushed and sold the stock (making a significant profit anyway); the next day the price gained back 12%. He was almost crying for letting the stock go.

Such short fluctuations can happen with every corporation, and mostly it happens due to some rumors around media. A good example could be the recent drop of the Apple stock due to one publication on one of the biggest internet media web-sites. Before selling shares, check if the company has same positive cash flow, same (or less) debt, same management. There is no need to worry about daily price fluctuations if you plan to hold a stock for several years unless you are an intraday stock trader, who trades the stocks inside a day playing on the price changes.

Stick to you plan, and follow it precisely. It takes a while and some experience to come up with a good plan, but once you’ve made it, stick to it.

As for the investing in mutual funds, if you’ve decided to hold a mutual fund for several years, hold to it unless there are changes in management of the fund and/or changes in fees. Never bail out the fund after first “bad” year, wait till the next one - if there is a tendency in poor performance, then you should make a decision on moving your money into another fund. Good mutual funds may perform bad one year, but the next year they usually gain back the lost performance.

Share This