Your Stock Drops 20% What Should You Do

Things seem to be constantly changing and evolving. It should be no surprise. From the very beginning, the process of gradual or sudden change was the truth. No one can predict the future with certainty. If you disagree and think you or some TV expert can advise you on what will happen tomorrow, stop reading this newsletter. You are lying to yourself, or they are lying to you.

If you accept that the future is uncertain and unpredictable, what steps can you take to ensure your investments can survive this change? Here are my suggestions:

1. Buy great businesses or assets at 40 cents or less on the dollar. That gives you a margin of protection from massive price drops and the knowledge that you will survive those. There is nothing for sure, but your probability of survival has increased significantly by buying undervalued assets. In our book, I deeply analyzed European Residential REIT and purchased over 100,000 shares. The price has since dropped from $2.95 to $2.55 a share. The crowd part of my brain tells me to sell this stock. My system tells me to buy more. It’s currently selling for some 35 cents on the dollar. That relieves my stress somewhat, and I’m buying more. It produces an extraordinary dividend of 6.8%, so I get paid to hold it as well. It’s not easy because the crowd is selling, and the “experts” are telling people to sell as well.

2. With assets that don’t pay you to hold them, pay cash. Land banking is a great example. If you buy a piece of land for a 25-year hold, it makes no sense to use borrowed funds to buy it unless you have a plan to generate income from that land. Paying cash relieves a great deal of stress because of uncertainty.

3. It is an evident truth that the world is constantly changing. From minor tweaks to major catastrophic events, accepting this will help relieve your stress. Don’t be surprised when it happens. It’s supposed to. In Origin of the Species, Charles Darwin's primary thesis is that nature constantly changes. Change is vital to survival, from climate to environment to the intrusion of humans. If you want your investments to survive, you should to.

Listen to my free podcast, Invest Like a Honeybee, wherever you get your podcasts.