What to do if a stock drops 50%: a strategy for reacting intelligently
- Jose Heredia
- Oct 1
- 4 min read
Introduction: When the market tests you
If you've been investing for a while, you probably already know that the stock market doesn't move in a straight line. Sometimes, even the world's largest and most admired companies see their stocks plummet 50% or more in a matter of months.
📉 Remember when Meta (Facebook) lost more than half of its value in 2022 after disappointing revenue and posting losses on its metaverse project?
📉 Or when Netflix fell more than 70% in the same year due to losing subscribers after a decade of growth.
📉 Even Tesla has seen drops of more than 50% at different times, only to rebound strongly.

These stories show us that extreme volatility isn't reserved for small startups; it can also hit established giants.
So, what do you do when a stock drops 50%? The answer isn't to sell everything or cling blindly, but to follow an intelligent and objective process.
1. Understanding the real impact of the fall
A 50% drop hurts, but remember: you haven't lost until you sell.
Example:
You invested $1,000 in Netflix at $500 per share.
It drops to $250, and now your portfolio is at $500.
Only if you sell will you realize the loss.
If the stock rebounds to $350, you've already recovered some of it.
👉 Step One: Breathe and avoid panic selling.

2. Identify the cause of the fall
Not all declines are created equal.
Serious internal problems: scandals, fraud, structural customer loss (e.g., Enron, Blockbuster).
Weak financial results: such as Netflix losing subscribers.
External factors: global crises, interest rate hikes, recessions (e.g., the entire market crash in 2020 due to the pandemic).
👉 Key question: Does the decline reflect a temporary problem or a permanent change in the business?
3. Review the fundamentals with a magnifying glass

The analysis must be objective:
Revenue → Are they still growing or have they stagnated?
Profit margins → Are they under pressure?
Debt → Can the company sustain its payments?
Cash flow → Is more money coming in than going out?
Competitive advantage → Is it still a leader in its industry?
Example:
When Meta fell in 2022, it was still generating tens of billions in profits, although its bet on the metaverse raised questions.
This allowed many investors to hold or even buy more, resulting in a recovery in 2023.
4. Putting the investment horizon into context
Time is your best ally (or your worst enemy).
If you invested for the short term, a 50% drop may justify exiting to protect capital.
If you have a long-term vision and the company has solid fundamentals, you can wait for a recovery.
Example:
Tesla fell more than 60% between 2021 and 2022, but those who held on have seen significant rebounds in the following years.
5. Action strategies when it drops by 50%
✅ Hold
If the fundamentals are solid and the decline is more of a market-wide decline than a company-wide decline, waiting may be the best option.
✅ Averaging Down
Buying more at low prices reduces your average cost.
You bought Tesla at $400.
If it falls to $200, you buy more.
Your average price is $300.
With a partial recovery, you're already in the black.
⚠️ Only do this if the company remains strong. Averaging in declining businesses is dangerous.
✅ Sell and Reallocate
If the fundamentals have deteriorated or there are better opportunities, selling is valid. It's not about "recovering what you lost" but about making your money work harder.
6. Psychology: How to Control Fear and Ego

The market is a battle against your emotions.
Fear makes you sell at the worst possible moment.
Ego prevents you from accepting a mistake.
👉 The key is to analyze the company as if it were the first time you've seen it, without attachment to your investment.
7. Lessons from historic falls
Meta: It fell 70%, but those who trusted its revenue and margins saw the stock double in 2023.
Netflix: Its decline exposed weaknesses, but also led to a change in strategy (new ad-supported subscription plans).
Tesla: Its collapses showed that a company can be highly volatile and still recover thanks to innovation and market confidence.
👉 Lesson: Not all 50% declines are created equal. Some are death traps, others are historic opportunities.
8. What to do if a stock drops 50%? -> Practical strategy in 5 steps
Emotional pause: never make decisions in a panic.
Analyze the cause of the decline.
Evaluate fundamentals: revenue, margins, debt, cash flow.
Decide based on your horizon: short vs. long term.
Act with discipline: hold, sell, or average.
Conclusion
Watching a stock drop 50% is one of the biggest challenges for an investor. But it's also an opportunity to test your discipline and improve your strategy.
Remember:
Hold if the company is solid.
Sell if its model no longer works.
Average only if you have conviction in its future.
The difference between losing and winning in the stock market isn't avoiding declines (which will always happen), but how you react when they happen.
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