Whenever we buy a stock we have a very clear rationale for it. Although you can analyse all sorts of financial and industry details, the investment case comes down to just two or three factors. When a stock we own falls steeply our job is to work out whether our investment case has been impaired. Often the answer is an easy: No, so we quickly move on. Sometimes it may require analysing new information, which could involve one or more analysts. The important thing about your process is to act quickly without being impetuous and making the wrong decision. US fund manager Richard Pzena once said that the decision you make after a stock has fallen significantly has the biggest impact on your returns. Do you buy more, sell or hold on, based on the share price and your current estimate of intrinsic value (not what you paid for it). The key to this process is remaining unemotional, accepting responsibility for the decisions that need to be made, being open-minded, not passing blame and making your decision based on facts.
Nathan has over 20 years' investment experience. Before joining Peters MacGregor, he worked for 9 years at Intelligent Investor, including 4 years as a Portfolio Manager. Nathan is a CFA charterholder