If the stock price on the watch list suddenly falls so according to calculations will provide a very large margin of safety, do not immediately buy. Ask first to the stock advisor that you rent. Do a check and re-check, there is an issue of whether how the stock price may fall? Many things can be correlated with the fall in stock prices:
• Reports from analysts that the company’s performance is not in line with expectations. For example, revenue drops, profits fall, costs rise high because many raw material components come from imports while the exchange rate falls, and others.
• Issues of defaulted debt
• Issues of shares used as collateral for debt
• Potential exports that will fall because there are changes in regulations in export destination countries, such as increasing import duties
• Companies subject to legal cases, or claims from customers/public.
• Recession issues that hit the industry/sector even the country or the world in general
• And there are many other examples. The longer we are in the investment world, our business instincts will be increasingly honed.
If the source of the issue is a problem in the company’s fundamentals, we need to re-evaluate, for example, revise growth estimates. It could be that re-valuation will give a smaller MOS value.
If the issue is not due to fundamentals, wait until the falling price is stable. Because stock prices are falling too deep does not mean it will stop falling, there is even the possibility of falling deeper. Like the parable of catching a falling knife, don’t get caught immediately because it could be that the hand will get hurt, wait until it falls to the ground and be quiet. However, who can predict the future? Indeed we can know at what price is the basis? No one knows.
Patiently Waiting for the Most Right Time
Because behind this fall in stock prices, there may indeed be fundamental problems that we don’t know yet. So, the best practice. Give enough time for the price to fall stable for some time. Sometimes it can be in a matter of weeks or months. The key is patience.