Fundamental analysts (FA) are forecasting a continued downtrend for the stock market, the twin effects of rising oil prices and credit becoming more expensive, consumer demand-a key factor in the profitability of listed companies is expected to decreased dramatically as consumers becomes more discerning in their purchase decisions.
Technical analysts (TA), on the basis of current indices breaking below crucial “support” levels are projecting that the market would go lower leading to more losses for current stock market investors.
Your stock portfolio (either direct purchases or through equity funds) is now down 20%+ or more, do you cut your losses or just hold on to it?
Some points to consider:
What is your “intent” when you decided to invests in stocks in the first place? Is it to trade? Speculate or invests? If it’s for the first two reasons then you should have cut your positions already as trading and speculating is premised on prices going up immediately after you bought.
If you are investing (presumably for a medium to long term goal), let me share some insights for you to consider:
It is a fact that the stock market will rise and fall over time, no amount of FA or TA is going to enable you to time the market except if you have a crystal ball that tells the future. The decision to sell and getting out of the market should not be based on “current” price levels but on the “anticipated” price level in some future date.
The decision to sell should be similar to the thoughts processes that you have undertaken when you decided to buy. Questions you need to ask are: Is the share of stock of the company i bought capable of riding out this crisis? Is the current general market weakness enough to drive it out of business? How is the management of the company reacting to these? If you answered positively to most of these questions, then the current decline should not be a worry to you and the most prudent action is to HOLD ON.
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