Catching a falling knife and dilemma about it.

Catching a falling knife and dilemma about it.

One thing, I have maintained in stock market investment that I should think of about the capital preservation in every trade and do keep myself updated with the views on that equity that I have purchase that what others are thinking about it. So few days back, I purchased an equity that was hit by the government tobacco tax regulation. Though I have no interest in the company dealing with the tobacco sector as my portfolio mainly consists of IT, banking, and the energy sector, the sector I am assuming that will have demand in the coming years too.

But in case of ITC, I took a different approach, though ITC is famous for tobacco product specially cigarettes, but it is not typically fully tobacco company, as it is diversified in other sectors too that is FMGC business and Agricultural business, personal health care and hotel business (though they demerged this business but now they hold 40% share on this new entity.) . Another good thing is that whatever consumer brands they are in, are well known in the country and they are profitable too. Also there FMGC sector entity is not a small business for them.

My Dilemma.

There is one rule that I learned that if something fall below 7% of your purchase price, then it is time to sell and currently ITC fell into same category. Though I am not rigid about rules that I should sell but I was wondering whether I should average it out or not.

Reasons for averaging out.

Whatever impact happens due to government regulation on its profit margin, will be passed to the consumer and market will recover in the next 2 quarters when the company's balance sheet shows profits still maintained.

Reasons to sell or no further buying.

Again, reason for buying is based on speculation and after the news, it did keep going down without any current sign of reversal. Putting more money today might cause me to think same question again in future.

So what I am going to do.

I guess I am not going to further invest as I feel market is keep selling it and pushing the price down, but based on optimistic investors who are seeing it as a cheap opportunity and my gut feeling (that in the next 6 months it will be trading high) I will keep it. Also it is a good dividend paying stock in the past and I like to keep dividend-paying stock in my portfolio, so I will keep it but not going to further increase my exposure in it.

These are personally my views and it is not any kind of recommendation. These are written so that in the future I can read again about my decision for not selling or not buying and check if I had made a right decision or not. Please DYOR for these decision but if you have any siggestion then I am happy to read them too.