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No. of Recommendations: 0
This share keeps on dropping? Is it time to sell LMND?
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No. of Recommendations: 1
LMND's financials are solid. It's your market-timing that caused you trouble. (You bought high, and the stock is now retracing to something closer to intrinsic value.)
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No. of Recommendations: 3
Not just because of a market price drop. That's not investing Foolishly.

Fools do not change their investing strategy based on market performance but on a company's business performance. That is the commitment you make as a Foolish long term (3-5 years or longer) buy-and-hold investor. When the going gets tough, Fools should not falter. In fact, it should be comforting when a company's market price goes down as part of a larger market movement rather than due to any company-specific reason.

Stock prices will go up and they'll go down and sometimes they feel stalled. The benefit of long term buy-and-hold investing is that for the better companies (the kind The Motley Fool seeks out), they'll sustain consistent growth more than they'll experience drops in price. Inherent in that theory is an understanding that the price can and will go down. Sometimes by big amounts, sometimes small, and sometimes over a short period and sometimes over a longer period.

It's normal to believe that if a company's market price appears to be in free fall, it must be caused by something significant. But the might just have been caught up in the frenzy of market volatility even as the business continues to be successful and strongly positioned. Volatility works both ways - if the big swings also occur in the upward direction and investors stay invested long enough. This is why Fools do not buy or sell based on price movements but based on conviction in the long term (3-5 years or longer) growth potential of the company.

For many Fools entering the market at just the right time, the first market correction can be a serious punch to the gut. David Gardner has said that 60% of a portfolio's positions over time will show gains while 40% will experience losses. After he said that, I checked my portfolio (which I rarely do) and sure enough, 59% of my positions were in the black. How did he know? That's why I subscribe to Foolish services!

The point is you should focus on the quality of your companies, not the movements of the market price. If you are confident that the company is operating in a positive direction, then over time the market growth should justify your faith. I call it investing in companies, not markets. I also maintain that investing is what happens between quarterly earnings reports and strive to not make investment decisions immediately before or after earnings reports.

The idea is to be ready to launch an investment offensive when companies in which you are already interested in investing go on sale. If you have a cash reserve handy, you can add to your positions in the companies with which you have the highest conviction, or tapping your Buy Watch List. Having a cash reserve is not sexy, and some Fools think they have to put all their money to work. But the opportunity cost of not having a cash reserve can be bigger than the the benefits of being fully invested.

What I might do is to build a watch list divided into four categories. First, there are the Must Haves, companies in which you have deep conviction and absolutely want in your portfolio. Second, there are the Strong Haves, companies in which you have strong conviction but wouldn't just totally die if, like, they weren't in your portfolio. The last category is the Nice Haves, companies in which you have positive conviction but aren't especially excited over. The last category is Never Haves, those companies you just flat out think are wrong for you.

Then, when the market presents an opportunity like this, you are all ready to go.

One unofficial rule many Fools follow is buying in thirds. Let's say you want to purchase about $2500 of a company. You could buy $1000 now, then another $750 on a future dip in price, again the final $750 down the road when the price is again at a discount. Market downturns can present golden opportunities for adding another third.

Possibly the most important message I could try to convey is to remove emotion from your investment equation. Decisions to buy or sell a position should be proactive, not reactive. This means your decisions are based on a researched watch list, specific news and opportunity, not in response to day-to-day movements of the market or explosive but not necessarily meaningful events affecting a company's future promise.

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