There are a number of reasons why a stock is seeing a large percentage decline. Perhaps a recently released earnings report is showing a drop in revenue, maybe the company’s business model needs a serious overhaul, perhaps a rival company made a breakthrough, or political instability plunged the market into chaos.
Whatever the reason, a decline in the price of a security is inevitable, and it happens to the best companies every day. A top-notch will understand why the decline is happening, and that will affect the investment decision.
If a company is been doing well and seeing a decline in its daily performance, it may be a statistical blip or a somewhat impactful piece of financial news spurring the loss. If a stock has been in decline for days, weeks, or months, there may be more serious problems going on—and that may tell investors to stay away, or to buy it up while the price is low.
Although most commonly used in context with daily movement on the New York Stock Exchange, NASDAQ (NYSEARCA: QQQ), or S&P 500 Index (NYSEARCA: SPY), percentage decliners can be measured over any time period. For example, many stock screeners will allow you to apply a filter that can show the biggest losers (decliners) for a week or year. In fact, many investors pay close attention to the stocks that show the biggest average decline for the past year, in order to evaluate the stock as a potential Buy. One popular strategy is the Dogs of Dow which assumes last year’s worst performers will be this year’s winners.