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Some investors will buy an action when its price drops, which allows them to enter the lucrative names at easier entrance points. Although there are many stories of success from investors using this method, it cannot always be an intelligent idea.
“Here’s the firm truth that no one wants to say aloud: buying immersion is not always the worst thing, because sometimes the immersion is available for a reason and the stocks fall because they are truly overrated or fundamentally broken,” said Wall Street Kenny Polkars in Trader Talk.
Polkari cites former hot investment, such as Enron and Lehman, brothers as examples. After years of prosperity, Enron’s shares marked a continuous decline from August 2000 to December 2001 as the company was involved in an accounting scandal. By the end of 2001, the shares were priced at ordinary pennies and the company filed bankruptcy, marking the then largest bankruptcy of Chapter 11 in history.
Lehman Brothers replaced this request in 2008, reporting $ 639 billion at the time of submission. Those who have invested in these companies are watching serious losses.
“Investors continued to buy these downturns, believing that the market was too much until the shares hit zero,” said Polkars of the two companies. “Now the purchase of immersion should be a disciplined strategy, not a blind religion.”
Read more: How to protect your money during economic turmoil, stock market instability
Not that buying shares, when low, is a particularly bad move for investors who hope to see a significant return – but to guarantee these downs are not indicative of Grimmer’s fates for the company.
“Successful investors carefully consider profits, revenue growth, debt levels, competitive advantages and general market conditions,” Polkari continued. “If you are buying downturns just because the prices have fallen, gambling, not investing. Before you invest your money, ask yourself: Why did the action drop? Did the company miss the profits? Or a wider market temporarily adjusts if the foundations are still strong?”
The Wall Street veteran claims that the investor should evaluate whether the company’s long -term estimates compensate for the current reduction in stock prices. Doing research by the company and its forecasts should reveal whether the purchase of DIP is an intelligent financial move or whether the action has been “overestimated from the beginning.”
“The smartest investors understand the difference between price and value,” he said. “They do not automatically jump every time the market pulls away. They patiently wait for real opportunities using discipline, not emotion as their guide.”
