The following is my answer to a Quora
question: “When
the stock hits lower circuit, will it be a wise decision to start accumulating
it for long run?”
Stocks hit lower circuit for a reason. Unless you know what that reason is, and
understand how the situation will play out, it is never a good idea to buy
them. If you believe that this lower
circuit is due to inclement news that you feel to be false, or misleading, and
the market has overreacted, this would be a good time for bargain hunting. But if that news is due to fund
underperformance, management issues, or consecutive losses, and there seems
little scope for there to be an improvement, this is a stock to stay away from.
It may mean there could be a leveraged
buyout, bankruptcy application or delisting.
Sometimes, it is preferable to wait and see, exercising caution. When even large funds, with entire departments
of analysts are staying away, chances are, you should, as well.
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