Money 101  >  Money Myths

"Stocks that go down will always go up."

POSTED ON September 19, 2019

The myth

Stocks are among the most aggressive types of investments. And since they give you part-ownership of a company, their price is affected by the company’s performance.

In the short term, stocks fluctuate because traders buy as low and sell as high as possible. In the long term, the company’s success or failure determines its stock value.

Most large and stable organizations have stocks that trend upward. This, however, is still no guarantee that stock value will keep climbing. In 1997, for example, Kodak was one of the largest companies in the US, and its stocks were priced at $94.70 each. The current value is about $2.50.

This just shows how there is no real guarantee that leaving stocks for a long time will allow their value to recover, in case they drop. 

Why do people believe it?

Some large companies have experienced sharp drops in value that they eventually recovered from. This makes many people believe that this is the rule, when in fact it is more of the exception.

Risks of believing this myth

If you hold on to stocks whose value has dropped (especially when the company is experiencing severe financial or operational difficulty), you may end up losing all the money you invested if the organization does not recover. 

Verdict: False.

While there is still a chance for a company to recover from difficulties, there is no guarantee that a stock price will always go back up, even if it is a large organization.