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FOOL SCHOOL
Unfortunately as a private investor this is one question you have to answer for yourself. If you need someone else to reassure you then this means, and this may sound a little harsh, you are not ready to be buying individual shares. What you need to do is find the reason for the shares going down and then determine if this makes any difference to your initial decision to buy. In many cases there may be no obvious reason. Share prices are by their very nature volatile. They often move up or down by a significant percentage even though there has been no underlying change in the company itself, but merely in what investors, as a group, expect from it.
If you intend to hold each company for a period of years then the chances that the price you buy at is the lowest price during that time is very, very small. There will also be numerous occassions when the shares rise and then fall back. Share prices do not move up in a nice straight line, they go up in fits and starts.
A share price could be going down because there is something wrong though. As an investor you have to try and work out if this is the case. Look to see if any news has come out about the company since you bought. If there was see if it impacts upon any of the reasons you bought the share for in the first place. Look at the company's competitors. Perhaps they are struggling and this is having a knock on effect. If so, why are they struggling and to what extent might this affect your investment? If just one competitor is struggling then your company may be able to pick up some of the pieces. If they are all struggling the prospects for the industry may not be quite as rosy as you thought.
In most cases it has to be a fairly major piece of news to alter your view of a share from a buy at a higher price to a sell at a lower price. If you find your view of the company is sitting on a knife edge, so to speak, you probably need to re-examine the criteria you use for buying a share in the first place.
Another thing to look at is whether the share was sitting on a high valuation when you bought. Such shares tend to be a lot more volatile and much more sensitive to shifts in investor sentiment. When a high-growth company is perceived by investors to be entering a period of prolonged, slower growth the effect on its share price can be dramatic. No prizes for guessing which direction the drama will be.
Some people believe that you should operate what is known as a stop loss system. This means you automatically sell your shares if the price falls by a set level, usually 20%. Most people who recommend this policy are brokers who, by a curious coincidence, will get more in the way of commission if you keep on buying and selling shares like this. The advantage of a stop loss is that it prevents really big losses on individual shares. After the events of the last two years this is in the forefront of many investors' minds. In some cases it will help you out. In others it will mean you sell out at just the wrong time.
In a well diversified portfolio you would expect a stop loss system to, on average, lower your returns. It limits your upside and increases your costs because of the increased number of transactions. Both of these factors lower your expected return. And what's to say that the share you buy next will do any better than the one you've just sold? A decent investment does not become of a dog overnight, or in a matter of weeks. Shares only have prolonged declines if they are significantly overvalued.
By buying individual shares you are making a statement that you think the market has valued them too cheaply. Just because the market is shouting a bit louder (i.e. the price has fallen) that doesn't mean you should change your mind. You should listen to what the crowd is saying but make your own mind up about whether their concerns are valid.