Today my shares of BJ’s Restaurants Incorporated got obliterated by the market, losing more than 15%. The opinion on the Motley Fool is that the stock should be avoided because the sector has slowed. I have a relatively large position in the stock that I have been acquiring little-by-little for a while.
What will I do now? Call my broker in a panic and sell everything? Buy more to average down? It is times like this that rattle the confidence of even the most seasoned investor. Everyone knows what to do when the market is going up. What about when it’s going down?
The answer is that I am going to stand pat. The news on the stock is that earnings increased – the shares only fell because the earnings were not as strong as the market was expecting. The company is still expanding and doing well. The whole restaurant sector is just doing poorly – probably because the “recovery” is not really a recovery, and increases in gas and food prices are starting to take their toll on the restaurant going public. Everyone is having trouble – not just BJ’s.
There is no reason to sell just because the price fell. I didn’t feel it was overpriced at $38, so there is no reason to think it is overpriced at $32. I wouldn’t sell my home just because someone offered me $20,000 less for it than I paid. Unless I’m looking to sell, the current price really doesn’t matter.
Likewise, I have as many shares as I want to have, so there is no reason to buy more just because I want to lower my cost basis. Who is to say also that it won’t fall further? Buying when a stock is falling is called “catching a falling knife” for obvious reasons.
I think the company still has a lot of room to expand. Because I am buying the business, and not trading the stock, these fluctuations don’t bother me. So long as I still like the company, I’ll hold on. IF BJ’s is strong like I expect, it will last through any sector weakness. When the sector rebounds, it will have fewer competitors and be in an even better position.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.