Ever buy a stock and have it go down immediately? Leaving your purchase as the high price for the day? Eventually, it happens to everyone. But not everyone reacts the same way. Here are some thoughts.

How you react to an immediate decline in the stock price says something about your personality.

But how you should react is more a function of why you bought the stock than anything else.

If your investment premise was that of a long-term buy and hold, what do you care if the stock price went down immediately?

After all, the stock will have down days going forward. All it really means is that you bought on a down day. If an immediate down day changes your perception of the stock, then you probably didn't have very clear view of the company to begin with.

If your investment premise was a short-term trade, you need to examine your timeframe, or the cause for the trade. If your trade is based upon a measurable event, such as a news release, or announcement, will the lower price now cause a big enough movement over your entry point? If not, maybe you should bail out. If it will, then why worry?

If your premise was a short-term day trade, well, you just lost, that's all. Start again tomorrow.

All the stock price drop really means is that your premise, whether investment or trading, is being immediately tested. Your confidence will always be tested at some point during an investment. You just got tested sooner instead of later.

Sometimes it's hard to distinguish between a test in your confidence of your position, or your confidence in yourself. But you need to make that distinction. Everyone makes investment mistakes. The best recover from them immediately, even if it means a loss.

Taking a loss shouldn't shake your confidence in yourself, if it's based on your new decision that your purchase was flawed. After all, you now have it right! So that's a good thing, right?

There are some people who just cannot tolerate an immediate decline in the value of their position. If this really bothers you, it says something about your risk profile. Perhaps you shouldn't be buying stocks at all.

But if you are a stock buyer and it bothers you to have the stock decline immediately, you need to spend a little more time preparing yourself.

Try to determine, in advance, how much you are willing to risk on your investment premise. If you haven't done this, you really haven't finished your research. Part of any thorough research is calculating the potential downside.

After all, investments are risk/reward propositions. Sometimes the risk side wins out.

But when you calculate a downside ahead of time, it is often lower than a one-day movement. Then when the first day drop happens, if it is still higher than your calculated downside, you won't feel so bad.

There are some ways to approach the problem of "buyer's remorse."

One simple way to avoid buyer's remorse is analogous to entering a pool of cool water. Go slowly. Instead of jumping in, ease your way in. With a stock, this means building a position over time. Instead of buying 500 shares all at once, buy 100. Then add to the position over time. If the stock goes down after the first 100, the next 100 is cheaper. If the stock goes up after the first 100, take comfort in the profit you have on the first 100.

Another way to approach this problem, if you have enough shares, is to actually sell a portion of your position (not all of it), and repurchase the shares at a lower price. Not recommended for anyone with a true long-term viewpoint, but if it consoles you to have a short-term loss, in order to build a long-term position at a lower cost basis, you can try it.

The only problem with this approach is that it is impossible to catch the bottom. Pros don't even bother to try to catch the bottom of a chart.

If your premise is a short-term trade, determine in advance how much you are willing to lose on a position. Then set a stop loss limit order at that level. If the stock hits it, you're out with the loss.

If this happens to be only a 1/2 point or so, so be it. That's the price you've paid to avoid having to be in the "buyer's remorse" situation.

If the stop is lower, for example, 5% or so, and it gets executed, you may wish to examine whether your trading premise was just plain wrong. Probably was.

In the end, if you aren't willing to take a short-term immediate loss, you don't have the mindset for trading. No one wins every trade.

In the end, you just have to get accustomed to starting below water sometimes.

But what you really need to do is have a clear picture of why you are buying a stock. This includes having a defined set of events for selling the stock. When you have this, volatility along the way won't bother you much.

It is kind of like the advice they give to seasick boaters: "Keep your eye on the horizon."

Robert V. Green