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Why Do Stocks Always Go Down Right After You Buy?

Stocks are one of the most popular investments, but it can be frustrating when they drop right after you buy. This is a common phenomenon that occurs when investors go through the classic investment adage “buy low, sell high.” The drop in prices can be due to various technical and psychological factors. In this blog, we will explore the reasons behind these drops, the risks associated with them, and how you can avoid them. From understanding market trends to timing the market, we will provide insights and strategies to help you navigate this tricky terrain and minimize your losses.

So, let us start by understanding why stocks go down right after you buy.

Why Do Stocks Always Go Down Right After You Buy?

Stocks can drop after you buy for various technical, market-related, and non-technical, psychological reasons. Let us first have a look at the technical, market-related reasons for the same:

Technical Factors:

Market Volatility – Market volatility is one of the most common reasons why stocks drop after purchase. This refers to the rapid changes in the value of a stock and happens due to different factors such as global events, economic data releases, or changes in the stock’s underlying fundamentals. This volatility can result in sudden and sharp declines in stock prices, even right after you’ve made your purchase.

Timing Risk – Timing the market is a challenge for even the most seasoned investors. Stocks may decline after you buy because you have purchased at a high point, just before a drop. This is a risk that is inherent in any investment and highlights the importance of timing and careful market analysis.

Market Correction – Market corrections refer to a drop of 10% or more in the value of a stock market index and can result in a decline in individual stock prices as well. These corrections are a normal part of the market cycle and occur as a result of investor sentiment and the reevaluation of a stock’s underlying value.

Economic Indicators – Economic indicators such as interest rates, inflation, and unemployment rates can have a significant impact on stock prices. Sudden changes in these indicators can result in drops in the stock market and therefore a decline in the value of individual stocks.

Company-Specific Factors- Finally, stock drops can also be a result of company-specific factors such as poor earnings reports, management changes, or regulatory issues. These factors can result in a decline in a stock’s value, even if the overall market is performing well.

These are the technical factors. Next, let us discuss the non-technical, psychological factors responsible for the fall in stock prices right after buying them.

Psychological Factors Responsible For The Fall In Stock Prices

An investor’s mindset, behavior, and psychology also play a vital role in determining the fall, rise, and different variations in a stock’s prices. Let us now have a look at the non-technical factors affecting the prices:

Buy Low, Sell High- One of the most fundamental rules of investing is to buy low and sell high. Unfortunately, this is easier said than done, and many investors struggle with this concept. The natural inclination to want to buy stocks when they are at their highest often leads to purchases right before a decline in stock prices.

Emotion-Driven Decisions– Emotional investing can often lead to poor investment decisions. Fear and greed are two of the most common emotions that drive investors to make impulsive decisions, leading to purchases at the wrong time and resulting in drops in stock prices.

Overconfidence Bias– Overconfidence bias refers to the belief that we are better at making investment decisions than we actually are. This can lead to impulsive purchases and a lack of consideration for market conditions and trends, resulting in declines in stock prices after purchase.

Herding Behavior– Herding behavior refers to the tendency of individuals to follow the crowd and make investment decisions based on the actions of others. This can result in a surge in demand for certain stocks, driving up prices, and leading to a drop in prices after the initial surge subsides.

Behavioral Finance Theory- Behavioral finance theory highlights the role that psychology and behavior play in investment decisions. This theory suggests that the irrational behavior of investors can result in suboptimal investment outcomes, including declines in stock prices after purchase.

So, we have seen the technical & non-technical factors responsible for the decline in stock prices right after buying them. Next, let us discuss the impacts of this phenomenon on investors.

Impacts on Investors of Stocks Going Down Right After You Buy

Following are the various impacts that investors face when stocks go down immediately after buying:

Loss of Capital – One of the most immediate impacts of stocks going down right after you buy is the loss of the capital invested. This can be especially damaging if a large portion of the portfolio is in a stock that has declined in value.

Reduced Confidence in Investing – A decline in the value of stock soon after purchase can reduce an investor’s confidence in their investment abilities and their willingness to invest in the future. It’s important to maintain a long-term perspective and understand that market fluctuations are a normal part of investing.

Missed Opportunities – Selling a declining stock can result in missing out on potential future gains if the stock price were to rebound. It’s important to maintain a long-term investment strategy and avoid making knee-jerk reactions based on short-term market fluctuations.

Increased Anxiety – Watching the value of a stock decline soon after purchase can result in increased anxiety and stress for investors. It’s important to understand the risks associated with investing and maintain a level-headed approach, avoiding short-term reactions to market fluctuations.

Reduced Portfolio Diversity – Selling a declining stock to minimize losses can result in reducing the diversity of an investment portfolio. This can increase the risk of a negative impact on a portfolio by market corrections in a specific sector. It’s important to maintain a well-diversified portfolio to reduce the impact of market fluctuations on the overall portfolio.

These are the effects investors face of the fall in stock prices immediately after buying. Now, you must be wondering how to avoid this decline in stock prices. Thus, let us discuss the same next.

How Can You Avoid Stock Drops After Buying?

We have seen why stocks always go down right after you buy them and the impact of the same on the investors. Following are some points on how you can avoid the stock drops after buying:

Diversification– Diversifying your investment portfolio can help reduce the impact of market fluctuations in specific sectors. Consider investing in a mix of stocks, bonds, and other assets to spread your risk. By diversifying, you reduce the risk of buying high and selling low in a single stock or sector.

Long-Term Investment Perspective- Adopting a long-term investment perspective can help reduce the impact of short-term market fluctuations. This approach can also help reduce the effect of psychological factors such as fear and greed on investment decisions. A long-term perspective is essential in successfully executing the buy low, sell high strategy.

Investment Research- Thorough research and due diligence before investing can help reduce the risk of stock drops after buying. Consider factors such as company financials, industry trends, and market conditions before making an investment. The more you know about a stock before you buy, the better positioned you are to execute the buy low, sell high strategy.

Investment Psychology Management- Managing investment psychology and avoiding knee-jerk reactions to market fluctuations can help reduce the impact of stock drops after buying. Consider seeking professional help from a financial advisor to help manage investment psychology. By avoiding emotional decision-making, you can increase your chances of executing the buy low, sell high strategy successfully.

Timing the Market- Avoid trying to time the market by buying and selling stocks based on short-term market fluctuations. This approach is often unsuccessful and can result in missed opportunities for investment gains. Instead, focus on a long-term investment strategy and buying stocks at fair prices with the potential for long-term growth. Timing the market goes against the traditional buying low & selling high approach.

By taking these steps, investors can reduce the risk of stock drops and maximize the potential for investment success while adhering to the buy low, sell high strategy. In the final section, let us also look at a hedge fund that has managed to break all the records with its YTD results in 2022, despite the economic fluctuations.

The Bottom Line

While investing in the stock market comes with inherent risk, there are steps investors can take to reduce the impact of stock drops, such as diversifying their portfolios and taking a long-term investment perspective. Avoiding stock drops after buying is a combination of technical and psychological factors. Diversification, long-term investment perspective, thorough research, investment psychology management, and avoid timing the market are some of the key factors that can help reduce the risk of stock drops.

Visit www.secvolt.com for more information and related topics.

 

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Ashish Verma

Ashish Verma is the founder and CTO of Secvolt, with close to 10 years of experience in the IT industry. He has been the technical backbone of the company and has worked tirelessly to make the technical infrastructure robust. He is a passionate entrepreneur who generates solutions that have the potential to bring change.

In order to ease the client’s interaction with Secvolt, he has strived to develop the business’s technological foundation and establish a user-friendly platform. Ashish has also contributed substantially to smoothening the company’s administration and ensuring that there are no lacunae in the broad structure of the organization. 

Early Years

Coming from a middle-class family, he was aware of the problems that people faced while using technology. He sought to create something that was simple to use yet had a powerful effect. As he studied computer science, he became eager to offer a solution to real issues. He began his professional career at Amdocs, where he gained expertise in client management while catering to more than 20 clients. Later, he moved to Citicorp, where he had exposure to the investment industry. His time at Amdocs and Citi enabled him to produce high-standard, efficient, and scalable technical infrastructure.

He left corporate jobs for his startup because he was passionate about working on the concept of a smart city platform. He expanded the concept internationally and even collaborated with Global Dignity-Kuwait. Things didn’t work out for him the first time. He states, “My failures didn’t stop me from experimenting and trying new things.” He rose from the ashes like a phoenix and founded FewerClicks, an End to End IT solution company.

He worked on the creation of Solster Finance, a decentralized financial platform based on the Solana blockchain. He created this platform single-handedly which has helped the team raise a $1M investment and a revenue of more than $5M within 6 months of launching. 

He has previously worked on many blockchain technologies and cryptocurrency ventures, which include Decentralized Finance Applications (Defi), Decentralized Applications (Dapps), File Contracts (SIA, record-keeper), Smart Contracts (rust, solidity), and NFT Development. His experience and effective communication have helped many team members understand Secvolt effectively and the underlying technology it is powered by.

He possesses the ideal combination of strategic thinking and excellent business insight. He is responsible for formulating technical aspects of the company’s strategy to guarantee alignment with business objectives. With his drive to experiment with new technologies, he has helped Secvolt achieve a competitive edge. Being in charge, Ashish never holds back in encouraging the different departments to make profitable use of technology, helping to grow as an unstoppable team at Secvolt!

Hanif Shaikh

Hanif Shaikh is the founder and CMO of Secvolt, with over 8 years of experience in the industry. He plays a crucial role when it comes to the growth of Secvolt. Since the beginning, he has acted as a mentor for each and every employee of the company, and he makes an effort to be accessible to his staff anytime they need him. 

Hanif first entered the Blockchain and Crypto world in 2016, and nothing has stopped him since. He views blockchain as a transparent platform that provides authority and accountability back to the people. He consistently believes that “overcommunication is better than miscommunication.” He has lived by this motto with his staff, clients, and networks.

Early Years

Hailing from Gujrat, a state in India, he is following his dream to contribute to making this world a better place. In the process, he has struggled, made some mistakes, and learned lessons from those mistakes to achieve success in life. His entrepreneurial attitude dates back to his childhood when he learned from his father’s business and aspired to have it all. He came from a humble background and had ambitions to succeed in life.

He has developed two successful businesses from scratch, and in the process, he has inspired young people to start their own businesses. He was an integral part of the Quora Mumbai Meetups and helped it become a great success in a short period of time. Later, he began organizing meetups to raise awareness about blockchain, cryptocurrencies, and their applications. He also shared his knowledge of ICOs, highlighted reputable ICOs, and established a small cryptocurrency community on WhatsApp groups.

He chose to go on a Blockchain Tour in India in 2019 and met some fascinating people. Throughout his journey, he has been able to build an extensive and robust network that has aided Secvolt’s growth. Because of his expertise and understanding of the Crypto Industry, he has been featured on several news channels and has advised the youth on the subject.

He is in charge of the company’s marketing operations and is responsible for developing its marketing strategy and vision. He oversees a group of passionate marketing professionals and plans promotional strategies with the goal of making  Secvolt a global brand. 

He is a perfect blend of a practical attitude and innovative business acumen. He believes in the ability of individuals to perform exceptionally well when given an environment to experiment and explore their passions; a culture that he has built at Secvolt.

Divakar Choudhary

Divakar Choudhary is the founder and CEO of Secvolt who has been trading for more than six years now. He started the business in 2018 with the conviction that if anybody could dominate the market, it was him. He poured all of himself into the business and turned Secvolt into a market-beating machine.

Divakar developed the fundamental quant models that perform risk management and capture alpha using his skills from the previous organization and his time spent in the market. In order to make the system effective, he backtested risk mitigation algorithms and worked on them for more than 4 years to produce results.

Early Years

He began his crypto journey in 2013 after getting his first gaming Laptop and melded in with the Blockchain community like sunbeams on the ocean. He created many YouTube channels at the age of 15 and businesses by the time he was 17. Technology has always piqued Divakar’s interest. He endeavored and succeeded at freelancing in his effort to achieve financial independence. However, he soon realized that freelancing would always keep him in the rat race, and the only way out would be to build a machine yielding generational wealth.

Soon, he started trading using his own capital but suffered a loss in the market. He says, “95% of people lose money & the rest 5% make money from the loss of those 95%.” He then began working on an effective technique to be included in this 5% after losing part of his own assets during the early stages of trading. He began evaluating quant strategies using statistical models.

With his methodology, he once produced a 20% ROI in a single month. With the zeal of creating something exceptional, he borrowed money from friends and family and generated decent returns for them using primitive quant models. Month after month, the system’s efficiency and the competence of the man behind it allowed for excellent market returns.

In the beginning, Divakar worked on his laptop for over 18 hours. It took every ounce of his energy as he executed about 530+ deals daily for 4 years to create this company from the ground up. In 2021, he increased his volume by 827%, trading a total of $52 million and hitting a single account.

In his words-

“What does becoming “THAT” GUY mean to you? Who did you need when you were young? Be that person!”

He is a perfect example of someone who followed his passion and made a fortune from it! He dreamt of creating generational wealth as a youngster, envisioned it as an adult, and is now making it a reality with Secvolt!