Everyone investing in the stock market hopes to strike it rich. However, as is more often the case, those dreams get shattered and the stock you thought would be sky high has hit rock bottom. If you are ever caught in this situation, there are a couple of things to keep in mind.
Keep Calm
It’s not easy to take a financial hit. However, there are several things you can do to overcome this setback and succeed. First, keep your wits about you. The worst thing you can do in the situation is let despair take over. Step back and try to take an objective look at your situation. Look for a way to profit, even if the situation seems hopeless.
Learn from Your Mistakes
In order to avoid a similar setback in the future, ask yourself what you can learn from the situation. Did you place too much hope in one stock? Becoming too attached to an investment can cloud your judgment. Did you have a loss limit set up? A loss limit makes sure you don't lose everything by selling your shares if the price hit a certain level. The best investors can take a loss and turn it into an opportunity.
Take Advantage of Lower Stocks
The first step is research. See if you can find any stocks that seem to be underperforming. Since the market works on something of a boom/bust cycle, there may be several stocks at the bottom or coming out of a bust that could make worthwhile investments. Another thing to keep in mind is not being afraid to take a profit. If you have a stock that’s up from when you bought it, but not as high as it once was, don't be afraid to sell it. The smallest profit is better than a loss.
Prevent Disaster
Now that you are up and running again, what can you do to protect yourself? Apply the rule old investing rule: diversity. Having a diverse investment portfolio acts as something of an insulator against the wild swings in the market. Sure one stock could be plummeting, but another one could be soaring. Don’t forget to set up a loss limit on your stocks. Doing so could keep you from another big loss.
Remember What You’re Dealing With
The most important thing to keep in mind is the nature of the market itself. The market is an ever changing beast. The market darlings of today can be pariahs tomorrow. The stock market is irrational. Those who can be rational in the midst of this irrationality are the investors that truly prosper.
