It won’t go more low!.

How low a blue chip stock can go?

You can think that it won’t go that low. However, history tells us that practically and theoretically the price can hit the bottom i.e. ZERO. People generally buy on blue chip stocks after they fall, hoping that after a few months down the line it will recover, after all it is a market leader.

Things don’t turnaround this way always. If the fundamentals are deteriorating, it will be difficult to sky fly in the long term. If the fundamentals are improving, still the stock fall you can obviously buy on the dip. Till the fundamentals are intact and improving it’s always a good sign.

What do I mean by fundamenntals?

By fundamentals, primarily I mean the earnings and the management in the driving seat. If the management is dubious, however high the earnings may be, bad management drags it completely. Similarly, how good the management may be if there is no growth in the picture, its time to avoid it.

As human nature, we need a quick rich scheme. Rarely anyone wants to get rich slowly. Though we read in nursery that slow and steady always wins the race. When somethings keeps growing we start neglecting the fundamentals, that where we lose completely.

Similarly, there is no limit how high a stock can go, just because it has doubled doesn’t it cannot double from here on. It’s just roll backs to the basic stuff.

Life and investing are simple. But we love complicated things in a complex manner, since that sounds fancy. You can go as high as you want just with the basics.