When a stock in your portfolio drops, do you freeze and hope for a recovery? That can lead to bigger losses.
In this post, you'll learn two powerful strategies to handle falling stocks: the Assassin strategy, where you cut losses early, and the Hunter strategy, where you buy more but only if the fundamentals are strong.
You'll discover how these approaches protect your portfolio, prevent emotional decisions, and help you stay in control. By choosing the right strategy, you'll stop losses from snowballing and position yourself for long-term success.
Estimated Reading Time: 5 minutes
Be an Assassin or a Hunter When Stocks Drop
When a stock in your portfolio falls, it’s easy to freeze, hoping it will bounce back. But holding on can lead to even bigger losses.
Instead, tackle falling stocks with a clear strategy—become either an Assassin or a Hunter, terms from the great book The Art of Execution: How the World’s Best Investors Get it Wrong and Still Make Millions by Lee Freeman-Shor.
Here’s how these strategies protect your portfolio.
Assassin Strategy: Cut Losses Early
As an Assassin, your focus is on cutting losses quickly. Here’s how it works:
- Set a rule to sell if a stock drops by 10-20%.
- This approach protects you from a small loss turning into a large one.
- Selling early also frees up cash to invest elsewhere.
Research shows that most stocks that start falling continue to underperform, especially in down markets. By acting quickly, you control your losses instead of hoping for a turnaround that may never come.
Click here to start finding ideas that EXACTLY meet your investment strategy.
Hunter Strategy: Average Down Only if Fundamentals Are Strong
As a Hunter, you’re willing to buy more of a stock that’s dropped, but only if the fundamentals are strong. This approach, known as averaging down, lowers your average purchase price.
Here’s how to apply it:
- Only average down on companies with solid fundamentals: Look for steady revenue, strong management, and low debt.
- This strategy requires confidence in the company’s long-term potential.
- Avoid averaging down if the company’s fundamentals look weak, as it could increase your losses.
Being a Hunter is about research and patience. Only double down if you believe the stock is undervalued and can recover over time.
Avoid Freezing: Choose Your Strategy and Act
Doing nothing is not a strategy and is costly. Holding a falling stock without a plan often leads to deeper losses. Or if it is a greater bargain at a lower price you could not gain from it because your investment has gotten too small.
By picking a strategy—either Assassin or Hunter—you stay in control and avoid getting caught by surprise.
Set up your plan:
- As an Assassin, sell if a stock drops by your set percentage.
- As a Hunter, average down only if the stock shows strong, long-term value.
Which Strategy Suits You?
Ask yourself if you’re more comfortable with a quick exit (Assassin) or doubling down on stocks you believe in (Hunter). Having a strategy stops you from holding onto a stock purely out of hope.
Bottom Line
The bottom line is: Falling stocks are part of investing, but handling them with a clear approach like the Assassin or Hunter strategy from The Art of Execution helps protect your portfolio.
You’ve worked hard on your investments—now protect them by choosing the strategy that fits you best.
FREQUENTLY ASKED QUESTIONS
1. What should I do when one of my stocks starts dropping?
First, don’t freeze or hope for a rebound. Decide on a clear strategy. You can be an Assassin and sell quickly to cut your losses or a Hunter and buy more if the stock’s fundamentals are still strong. Doing nothing often leads to bigger losses or missed opportunities.
2. How do I decide whether to sell or buy more of a falling stock?
Ask yourself these questions:
- Are the company’s fundamentals (like revenue, management, and debt) still strong? If yes, consider averaging down as a Hunter.
- If the fundamentals look weak or you’re uncertain, sell quickly as an Assassin.Either way, don’t rely on hope—have a plan and act decisively.
- A falling stock in never a hold and hope position
3. What’s the benefit of cutting my losses early?
Selling early, as an Assassin, protects you from a small loss turning into a large one. For example, if you sell at a 10-20% drop, you can reinvest that money elsewhere, instead of waiting for a recovery that might never come. It’s about limiting the downside and staying in control.
4. When is averaging down a good idea?
Only average down as a Hunter if the company’s fundamentals are strong. Look for a low valuation, solid revenue, low debt, and strong management. This lowers your average cost per share and sets you up for gains if the stock rebounds. Avoid averaging down if the company’s fundamentals look weak—it could worsen your losses.
5. What happens if I freeze and do nothing when a stock falls?
Freezing often leads to deeper losses. Without a plan, you might hold a stock that keeps dropping or miss a chance to buy more at a lower price. Acting—whether selling or averaging down—keeps you in control and aligned with your strategy.
6. How do I know if the Assassin strategy is right for me?
If you prefer avoiding losses and don’t want to risk more money on a falling stock, the Assassin strategy is a better fit. Set a rule to sell if a stock drops by 10-20%, and stick to it. This approach works well if you’re more risk-averse or uncomfortable with uncertainty.
7. How do I make the Hunter strategy work for me?
To succeed as a Hunter, you need to believe in the company’s long-term value. Research is key—check your research again. Only double down if you’re confident the stock is undervalued and has a strong chance of recovery. Patience and research are your best tools.
Click here to start finding ideas that EXACTLY meet your investment strategy.
