My Stock is Crashing! Will I Buy More, Hold or Sell?

Navigating Stock Market Volatility: A Framework for Adding, Holding, and Exiting Positions

Key Concepts:

• Investment vs. Trade: Distinguishing between long-term holdings based on fundamentals and short-term price action speculation.
• Stop-Loss & Profit Target: Predefined exit points for trades, limiting losses and securing gains.
• R-Multiple (R): A unit of risk used to define profit targets (e.g., 1R = equal risk/reward, 2R = double the risk in potential reward).
• Fundamentals: Assessing a company’s intrinsic value based on sales, profits, cash flow, return on equity, and economic moat.
• Position Sizing: Determining the appropriate amount of capital to allocate to a single investment.
• Secular Decline: A long-term, structural downturn in an industry or company.
• Cyclical Downturn: A temporary decline in performance due to broader economic or industry cycles.

I. The Psychological Challenges of Market Fluctuations

The speaker begins by acknowledging the common experience of investors purchasing stocks with high conviction, only to witness price declines. He emphasizes that even experienced investors encounter this scenario, highlighting the importance of a pre-defined plan. The core dilemma presented is when to add to a losing position, hold, or exit entirely. He notes widespread concern regarding market overvaluation, geopolitical uncertainty, and other factors contributing to current market choppiness. He promotes an upcoming online event, Outlook 2026, as a resource for navigating this volatility.

II. The Foundation: Predefined Investment/Trading Plans

The central argument is that the “right” course of action hinges on a pre-existing investment or trading plan. He stresses the critical distinction between investing and trading, characterizing them as “two totally different games.”

• Trading: Defined by short-term price action, trading necessitates pre-set exit rules, specifically stop-loss orders. Emotional attachment is discouraged; the focus is on executing the plan regardless of subsequent price movements. The speaker emphasizes a focus on risk/reward ratios (R-multiples) – aiming for profits exceeding losses (e.g., risking $1 to potentially gain $2 or $3).
• Investing: A longer-term strategy centered on a company’s fundamentals. Price declines are not automatic sell signals. Instead, investors should evaluate whether the underlying business is improving (rising sales, growing profits). If so, holding and even adding to the position is recommended.

III. Trading Methodology: Technical Analysis & Risk Management

The speaker illustrates a trading setup using Salesforce (ticker not explicitly stated). He identifies a “double bottom pattern” and oversold conditions (Stochastics, Bollinger Bands) as indicators of a potential rebound.

• Stop-Loss Placement: The stop-loss is placed below the recent swing low, defining the maximum acceptable loss (“1R distance” from the entry price).
• Profit Target: Set at a previous resistance level, aiming for a profit exceeding the initial risk (e.g., “more than 2R”).
• Win Rate & Risk/Reward: He explains that a successful trading strategy doesn’t require a high win rate (50-60% is acceptable) as long as winning trades generate larger profits than losing trades (1.5-2R).
• Resource: He directs viewers to a video on position sizing and stock trading for a deeper understanding of calculating share quantities based on risk tolerance.

IV. Investing Methodology: Fundamental Analysis & Patience

Investing, in contrast to trading, is a medium-to-long-term strategy focused on identifying companies with strong fundamentals and the potential for “multibagger” returns (50%, 100%, 200%, or even 2,000%).

• Ignoring Short-Term Price Fluctuations: Selling solely due to a price drop is discouraged. The focus should be on the underlying business’s performance.
• Case Studies: Palantir & Apple:
  • Palantir (PLTR): Initially purchased at $13 in 2022, the stock dropped to $5, a 60% decline. Instead of selling, the speaker added to his position, lowering his average cost to $9. The stock subsequently rose to $168, representing a 1,700% gain.
  • Apple (AAPL): Purchased in late 2015 at $29, the stock fell to $20 (a 25% drop). Again, the speaker held and added to his position, resulting in a 1,000% return.
• Key Indicator: Business Fundamentals: The confidence to hold through downturns stemmed from a positive assessment of the companies’ underlying business performance. Buying a stock is likened to buying a piece of a business, and the share price will eventually reflect the business’s success.

V. Analyzing Declining Stocks: Distinguishing Between Short-Term & Long-Term Issues

The speaker outlines a framework for evaluating stocks experiencing price declines:

• Assess Business Fundamentals: Examine sales, operating income, cash flow, return on equity, and economic moat.
• Short-Term Cyclical Reasons: If the decline is due to temporary factors (e.g., industry cycles, economic slowdowns), holding and potentially adding to the position is advisable. Examples include temporary dips in digital advertising or cybersecurity spending.
• Short-Term Problems: Unexpected events like the Mad Cow disease impacting McDonald’s or Apple’s privacy changes affecting Meta are considered temporary setbacks.
• Long-Term Structural Issues: If the decline is driven by a fundamental deterioration of the business model (e.g., disruption by new technology, changing consumer preferences), exiting the position is recommended. Examples include Blockbuster’s demise due to streaming or the decline of traditional alcohol consumption impacting Boston Beer (SAM).
• Boston Beer (SAM) Example: The speaker details a 30% loss on Boston Beer, attributing it to a long-term decline in alcohol consumption. He emphasizes the importance of accepting losses and moving on.

VI. Portfolio Management & Allocation

• Full Position: The speaker advocates for building a “full position” in a stock, but not exceeding a 10% allocation of the overall portfolio.
• Organic Growth: Allowing winning positions to grow organically without rebalancing to maintain a fixed allocation.

VII. Recent Examples: Alphabet (GOOGL) & ASML (ASML)

• Alphabet (GOOGL): Despite concerns about ChatGPT and potential government intervention, the speaker and his students held and added to their positions, recognizing the continued growth in Alphabet’s revenue, operating income, and cash flow. This resulted in a 194% gain.
• ASML (ASML): Similar to Alphabet, ASML experienced price declines due to negative sentiment and concerns about competition. However, the speaker maintained his position, citing the company’s strong fundamentals and ultimately realizing a 107% profit.

VIII. Conclusion & Key Takeaway

The speaker reiterates the importance of a disciplined approach to investing and trading, emphasizing the need for predefined plans, a clear understanding of risk, and a focus on long-term fundamentals. He concludes by encouraging viewers to subscribe to his channel, explore his online courses, and join his Wealth Academy program. The core message is that consistent profitability comes from making larger gains than losses, achieved through a combination of patience, research, and emotional control.