One trap that I think a lot of people will fall into is the bogus belief about averaging down, i.e., buying more at the lower price, in the belief that the stock will eventually recover. It's just a way of losing more money -- people should know the correct approach is to cut their losses and get out.|
If you look at stocks that collapse, you often see an interesting pattern. There might be times when the price will go back up a little, and people will say, "See, I told you it would come back", but the trend is still down for the stock. (It's not a straight down, more like a roller coaster, going down a hill, then up a smaller hill, then down again.) What happens to a lot of collapsing stocks is that they eventually hit a point where they stabilize, and just make small movements around the stable point for long periods of time. The real difficulty is predicting how low that stable point is, and not buying a stock because it seems like a bargain, although it is still declining in value.
As far as the Internet stocks though, it's like watching limbo dancers -- how low can they go?