Buying cheap stocks is the key to successful investing. But it’s always disheartening to invest in a company believing it to be a bit of a bargain, only to see its share price fall significantly. It happened on Tuesday (3 February), when one of my pre-Christmas FTSE 100 purchases tanked 14.4%. What should I do?
The stock in question is RELX (LSE:REL), a global provider of information-based analytics and decision tools. But investors took fright following news that Anthropic had launched a plug-in for its Claude Cowork agent, enabling the automation of routine tasks.
Now, I have three options.
1. Sell
Firstly, I could sell up and book a loss.
The ‘7% rule’ says if a share price drops 7% below what you paid for it, you should get out. Apparently, it’s based on research that suggests a fall of this magnitude is an indicator of a major problem.
But is there really a big issue here? In my experience, investors often over-react to bad news. Do you remember the events of 27 January 2025? That was the day when Nvidia’s stock price plummeted 17% on news that DeepSeek, the Chinese artificial intelligence (AI) firm, had launched an open-source large language model that apparently cost less than $6m to build. Since then, Nvidia’s share price has risen 45%.
Personally, I don’t think there’s too much to worry about at the moment. RELX has been using AI for years. The group sees the technology as an opportunity to further improve its earnings. Its trading update for the first nine months of 2025 disclosed a 7% year-on-year improvement in revenue and it reported: “We continue to see positive momentum across the group.”
Of course, Anthropic might throw a spanner in the works but, for now at least, RELX appears to be doing well. From 2019 to 2024, it increased turnover by 19.8%, improved its operating margin by three percentage points, lifted its normalised earnings per share by 34.9%, raised its dividend by 37.9%, and boosted free cash flow per share by 29%. I think investors might be underestimating the group’s ability to see off the competition.
2. Buy
This brings me to my second option: buy more shares. At 17.5 times forecast 2025 earnings, they are now even cheaper than when I first invested.
However, even though I still like what I see, I can’t be 100% sure that Anthropic (and AI in general) won’t seriously disrupt its business model. I also don’t like having too much of my portfolio concentrated in one stock.
3. Hold
My final option is to take a long-term view and do nothing. As Warren Buffet once wrote: “Our favourite holding period is forever.” And it seems to have worked for him. From 1964 to 2024, he presided over an astonishing increase in Berkshire Hathaway’s stock price of 5,502,284%.
So what have I decided? Well, I’m going to stick with the Buffett approach.
With its healthy margin, blue-chip customer base, and international reach, I think the business has much going for it. And new investors could also enjoy (no guarantees, of course) a healthy dividend. On balance, I still think RELX is worth considering by investors looking to add a cheap FTSE 100 stock to their portfolios.
