Has this happened to you? It has to me. I see a stock mentioned in the news, or someone I know and trust says she's making a killing in XYZ stock. I should get some. I buy. It goes up. I buy some more and it goes up some more.

But soon after, the stock starts falling.

I think if you're around the investment game long enough you really can't avoid it. The nature of the game is that stocks go up and stocks go down. The real question to ask when this happens is "How far is down?"

When I buy into a company I do so with the expectation I'll make money. when my stock goes up I congratulate myself on making (yet) another good investment. Ah, but when my stock goes down - and sometimes it does - what to do?

The first thing I do is to take a step back and assess the nature of the problem. Nine times out of ten I made one of three fundamental mistakes:

• I bought into strength and now that strength is fading
• I made an error in my research
• I'm not alone

Fading strength
I have made many a bad investment by buying into strength. See, the chances are about zero that when you've found a good company to buy into that you're the only one who has found it. In fact, you're much more likely to find the good companies to invest in by the mere fact that their stock is on the rise. Good news travels fast. (Bad news travels faster, but that's a story for a different day) Did you buy when the stock had been rising for a while? Did you buy because you wanted to get in now, before it became more expensive and you didn't want to lose out on that appreciation?

If so you bought into strength. This isn't necessarily a bad thing; but it does mean you need a lesson in investing discipline. Consider this experience just such a lesson. Learn from your mistake.

Bad Research
No, I don't really think you, or anyone else for that matter, might make some mistake in calculating rates of return or growth, that you can't make a simple division to get a PE ratio. You can look up all those good things, and lots of other key numbers to help you evaluate a stock. Assuming you did look up and compare all those numbers...

You did, didn't you? No? Hmm.

We're only human. It's hard to separate emotion from the process of investing. Seriously though, we all need to put plenty of time and thought into our purchase decisions. Too many times I've bought without doing my homework; and too many times it's come back to haunt me.

Everyone's hurting
Sometimes, believe it or not, it's not about us. Sometimes when our stocks go down it isn't because we've made some fundamental error like buying into strength or not doing our homework. Sometimes storm clouds move in and the investment seas get rough. Sometimes everything is off. This is alpha kicking in, in the bad way that alpha affects our investments.

Alpha, for the uninitiated, is the term given to market risk. Alpha is the factor by which market changes affect our investments. Whether a particular stock goes up or down, there are only two fundamental components of the move: The market component and the stock's change in value relative to the market component. That market component is known as alpha. The "relative to the market" component is known as beta.

If in our case, our stock went down because the overall market was down, then we might not need to concern ourselves with our stock. We might want to ask whether we've picked a good time to invest in the first place.

After all, we're in the market to make money. If there's no money to be made in the market then why are we here?