Sure, it would be great to be able to recall every lesson of TheHitchhiker's Guide to the Galaxy -- the collected street-smarts of the entire Milky Way -- at the drop of a hat. But for all the mind-bending secrets found inside the book, the single most important piece of advice it has to offer is printed on the outside, in large, friendly letters. It says, simply, "Don't Panic."
That's great life advice in general, but it's even more important for investors -- particularly those who invest in small, underfollowed, or misunderstood companies. Those stocks tend to be very volatile, and their charts look like roller-coaster rides.
The price of panic
It's important for shareholders to turn on the all-black anti-panic shades when their holdings lose 10% of their value overnight -- or 30%, or even more. Why? Because if you panic and sell at the bottom of such a drop, you won't be there when the market understands its mistake and the price goes back up again.
Take, for example, Motley Fool Rule Breakers pick Vertex Pharmaceuticals (Nasdaq: VRTX ) . The stock took a 30% dive from early March to late June this year, but it has since recovered and returned almost 50% since that dip. Talk about a buy-in opportunity. Vertex has gained a staggering 312% since it was recommended to the newsletter, dips and all.
And it's not the only Rule Breakers company to live through hard times in the market only to emerge stronger. For instance, Intuitive Surgical (Nasdaq: ISRG ) had to endure an 18% haircut right after its April 2005 selection, but it's up 140% from the bottom of that trough and 124% for subscribers who bought in on Day One.
When good stocks drop
These opportunities exist everywhere. Did you sell your Google (Nasdaq: GOOG ) stock this spring, when it was trading around $338 and down 28% from its 12-month high just two months earlier? Well, it's up 49% since then and nearly 400% since its IPO, thanks to best-in-class technology and an innovative corporate culture -- two traits that absolutely characterize ultimate growth stocks.
Apple Computer (Nasdaq: AAPL ) , Finisar (Nasdaq: FNSR ) , MEMC Electronic Materials (NYSE: WFR ) -- the list of big dippers is too long to mention. They all hit the skids hard recently, and yet they've all come back even harder.
If you panicked at the first hint of trouble, you're missing out on great returns now.
The Foolish bottom line
So, don't panic. Yes, some drops are quite correct, but when you're dealing with companies that truly have great growth opportunities and you're thinking long-term, most of them aren't. Those are precisely the kinds of companies our entire Rule Breakers team is there to help you find and help you follow. If you'd like to join us, a free 30-day trial is just a click away.
Fool contributor
Anders Bylund
is a shareholder of Intuitive Surgical but holds no other position in any of the companies discussed here. You can check out
Anders' holdings
if you like. Foolish
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