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When a Stock Is Down a Double-Digit Percentage, Should You Buy More or Sell?

By Nicholas Rossolillo and Brian Withers – Oct 9, 2021 at 5:52PM

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Stock market volatility is inevitable; having a strategy in place is key.

It's an immutable fact that the stock market is volatile -- and individual stocks even more so. Stocks can quickly fall in value over short periods of time, sometimes by double-digit percentages. Should you sell when this happens or buy more? In this segment from "The 5" on Motley Fool Live that aired Sept. 30, contributors Brian Withers and Nicholas Rossolillo discuss how to approach this situation, and why it's important to keep adding new money and stocks in your portfolio. 

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Brian Withers: "Can you please share your thoughts and Skillz (SKLZ -0.68%). I'm down more than 60 percent, but after Motley Fool recommended seven percent of my portfolio." We talked a little bit about this yesterday. If the Fools makes a recommendation and let say they come out and say, "We're selling this stock," they still have confidence in the business and they still view it as a recommendation. I'm very curious at the math here and we can't give personal advice. But if you're down 60 percent on the disposition, that is now seven percent of your portfolio, was it like 15 percent of your portfolio before when you bought it? I'm a little worried that a company has become that big of your portfolio that quickly. JD, I'm hoping that you're putting aside money every day for every paycheck to add into the market and if you're doing that, one way to reduce your exposure to skills is by other stocks that you're confident in. Maybe that seven percent over time as your portfolio gets bigger, it becomes a smaller portion and maybe the volatility doesn't bother as much. Nick, did you have something you want to add there?

Nicholas Rossolillo: Yeah. Ditto to both of your comments on both of those companies. I think I would add, sometimes is difficult to detach ourselves from the business itself and what it's doing from the stock price. Sometimes there can be really long stretches of time where the two are completely uncorrelated. I'd heard a number of those this year that have done that. They just went up too fast last year during the initial first year of the pandemic and everybody was online doing everything exclusively online than this year. They're still growing but it's like, "Oh man, they're not doubling year-over-year anymore."

Detach yourself from stock price, just look at the business. If nothing has really fundamentally change if you still like the business itself, the same reason you did when you initially bought it, that doesn't necessarily mean you should add to it. Brian, where you said just keep adding to your portfolio and by other stocks to diversify, it's really important. But you don't necessarily need to panic-sell either because the stock price has under-performed over, let's say a year, is still a short period of time in the grand scheme of things. Don't let stock price performance over a year or less dictate your decisions.

Withers: Yeah. Also, make a pitch. Nick, you mentioned what's your original thesis is, and sometimes these things are actually good to write down. Whether it's put in a Google Doc or keep a little notebook. You would be surprised. It's good to go back and revisit what it is that attracted you to the business on the first place. Then it's very easy then to compare; are they still doing those things? If you don't write them down, it's always, I can't remember what I had for lunch yesterday. After you've owned the stock for a year, do you really know the reasons why you bought it? Unless you capture them somehow.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Skillz Inc. The Motley Fool has a disclosure policy.

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