Just Be Patient; The Stock Will Rebound
By Matt Siegel

(FORTUNE Magazine) – Your shares of Deadbeat Inc. have fallen from $100 to $3? Be patient. Think long term. Eventually, they always come back.

That, says Peter Lynch, the legendary mutual fund manager, is one of the most dangerous things people say about stock prices. Now, there's nothing inherently wrong with buy-and-hold or taking a long-term view. But sometimes you've got to know when to fold 'em.

Say you'd invested $10,000 in Joseph Schlitz Brewing Co. in the early 1970s. Back then it was one of Morgan Guaranty Co.'s "Nifty 50" growth stocks. After all, there'll always be a market for beer, right? But Schlitz was unable to adapt when fierce competition hit the sleepy industry. The stock tumbled from $58 in 1972 to $7 in early 1980, until finally Schlitz was bought out by Stroh Brewery Co. in 1982. For your $10,000 investment (assuming you had patiently reinvested all dividends), you would have gotten a whopping $376.

Or take Transitron Electronic Corp. In 1959 this transistor and semiconductor maker, located along Boston's famed Route 128, was a cutting-edge tech play. Its stock climbed from $36 at its IPO in 1959 to $60 the following June. Then Fairchild Semiconductor came up with a better transistor-making technology. By 1963 the stock was down to $4; in 1986 the company was liquidated. Net payout for a $10,000 investment in common stock: zilch. The lesson, says Lynch, is that "They always come back" makes about as much sense as "They never fall." He adds: "These are not lottery tickets. If the company does well over the long term, then the stock does well."

--Matt Siegel