Panic is the enemy of the investor.  All decisions must be carefully considered before action.  Where many investors fail is that purchases and sales are often made ill-considered and often in a panic.  For example, an investor hears about a stock or fund that is doing well and jumps on the bandwaggon near the end of its rise.  A short while later the stock reverses and drops below the purchase point.  Panic sets in and the investor sells to limit loss.

 

What should the investor have done?  If smart and the investor had done the necessary research and found that the company was a good buy financially, had run past price performance on her stock charting program and the company was well established in the marketplace then she should have purchased MORE stock if able.  A reduction in price of a good stock only means that you can purchase shares at a discount and that they have greater overall value.  The price to earnings ratio has increased as well as the potential for increased profits.  If the company is solid and you are investing for the long term, and you should be, then look at any decrease in market price as an opportunity to exploit.  High prices are only significant when you are trying to sell your shares.

 

There are some caveats to this.  If the reason the stock price had decreased was as a result of really bad news, corruption, etc. then you should also be looking to vacate your position as well.