Unexpected Share Price Declines

Don't spend too much time "puzzling" about a share-price decline. It is nearly always impossible to find out in advance what the reason is. It could be due to any number of factors, ranging from the relatively mundane (e.g. a fund manager like Fidelity progressively reducing its holding) to the extremely serious (a black hole in the accounts). If I were forced to guess, I'd say that less-than-sparkling results were a major factor behind the most recent slide. Clearly INV, the house-broker, was not impressed by the results: he has been on the offer for most of the way down!

Bear Markets - Shares Declining

Instead, decide how much you are prepared to lose on the particular share. And if it goes to that point, sell it.

How much you are prepared to lose obviously depends on a number of factors, which only you can decide upon.

My view is that when a stock is moving as determinedly in the wrong direction as HVE has been, not just for the last few days but actually weeks or indeed (if you ignore the brief spike in late July, which I was lucky enough to make a quick profit from) months, it is best to sell sooner rather than later.

I don't dispute that Market Makers are 'crafty', but even they cannot keep a good share down indefinitely. And by the way, whether they are short or not is not particularly relevant. If they have good reason to suppose that the SP is going to continue heading southwards, then being short is not a bad strategy, is it?

Maybe HVE is a good share that will come right soon. (In which case, I for one will happily buy it again.) But that's not what the only real clue to whether a share is "good" or not - its price - is currently telling us.

People who ignore price action over what they think are 'fundamentals' don't always lose - witness Warren Buffett. Trouble is, most of us are not mini-Warren Buffett's, whatever we might like to think; none of us, alas, have his bank balance or his amazing patience.

The only reason it might not be wise to sell now is that maybe it really has bottomed now - witness the tiny upward glitch late in the session. But if it continues downwards - what will you do? Cut your losses, or keep on puzzling over why it is dropping?

As my old friend (?) Giant Lizard Sam would say, "I Think The Answer To That Should Be Obvious" ;-)

Except that, knowing him as well as I do, I suspect that he would decide that this was (yet another) share that 'The Market Has Got Wrong'! The trouble is, even if the market has got it wrong, it can afford to be wrong for a long, long time. The question you need to ask yourself is: if the market is right, how much can you afford to be wrong?

Someone told me years ago 'Don't fight the market - it's bigger than you.' But from time to time in the past I have done so.

Occasionally, getting out will turn out to have been premature - and that smaller loss was taken unnecessarily. But stubbornness can be very expensive. So nowadays I do jump early. Though with spread betting it is very much easier, as one can phase an exit, thereby 'giving the stock one last chance' to come good (e.g., dumping one third when say 7% down, another third when 10% down, and final lot when 15% down. Or some other set of tripwires). Not so easy with a shareholding - especially one too small to cheaply sell in parts - when the temptation instead is to give it just one more day, and then be swept away by the others who did the same and are now rushing the exit.


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