"What to do if your stock is down 25, 30, or 40%!
First off, don't get emotional about it and make an emotional decision because your loss irritates you every time you see it. The way I see it,you have three choices: first, you could just sell the stock and forget about it. Second, you could buy more because you're trying to dollar-cost average down and, hopefully, recover quicker. And the third option is, you step back, drop the emotions, and look at the fundamentals of the stock. By this, I mean you should take an objective view of what that stock is worth.
I believe it's important to remember that owning a stock means you have partial ownership in that company. I believe the best option here is number three, which will take a little bit of time, but is well worth it. When looking at the fundamentals, you should look at what you're paying for the earnings of the business- both over the past 12 months and going forward. If both the forward PE and the PE for the trailing 12 months are low, verify that the earnings are from operation, and not from gains on such things as sales of assets or buildings. You should also take a look at the cash flow for the business, and ask yourself a question: will this amount of cash flow continue, going forward?
Next, I'd recommend taking a look at the debt of the company and the current ratio, to see if the company is going to have trouble paying their bills going forward. A low current ratio would mean they don't have much liquidity, which could make it hard to pay future bills. As far as the debt goes, we like to look at the debt to equity. If it's more than 1.4 times, you may want to consider selling the stock, especially if you can see that the debt has been continually increasing over time. Too much debt could cause the company to go bankrupt, which then leaves the shareholders with nothing.
There are many other factors to look at, but I believe the few mentioned here will help you stay out of hot water, most of the time. Once you do your due diligence, it may make sense to sell a stock if the fundamentals have broken down. It also could make sense to add to the position if the fundamentals look strong, and you know you have a small allocation to that position. The main point we want to make here is that this decision shouldn't be quick, nor should it be emotional. Remember that investing is for the long-term, so be patient and think about where the investment will be 2-3 years down the road, not the next week or two!"
Reference: Brent Wilsey, Wilsey Asset Management