The Most Effective Way to Survive the Risks in Stock Investing

Stock investment is always considered an attractive channel for generating profits, but alongside growth opportunities are potential risks that any investor can face. From market fluctuations and misinformation to a company’s internal factors, all can lead to losses without an effective prevention strategy. This article will provide a detailed analysis of the various risks in stock investment, complete with real-world examples and handling methods to help investors minimize losses, thereby building a safer and more sustainable portfolio.

1. What to do when you lose money on stocks due to market fluctuations?

Market fluctuation is an unavoidable factor in stock investment. These fluctuations can stem from macroeconomic news, interest rates, wars, pandemics, or changes in government policy. When stock prices drop sharply, many investors tend to panic and sell off, leading to even heavier losses. To handle this effectively, the following strategies should be applied:

• Stay calm and assess the cause: First, analyze whether the price drop is due to short-term factors (immediate impact) or long-term ones (affecting the company’s fundamentals). If it’s short-term and the company still has a solid foundation, holding or buying more shares can be a reasonable choice.
• Diversify your portfolio: Avoid concentrating all your capital in a single stock or sector. A well-allocated portfolio helps reduce the negative impact from the fluctuations of one group of stocks.
• Use a Dollar-Cost Averaging (DCA) strategy: If you believe in the company’s long-term prospects, you can buy more at a lower price to reduce your average cost. However, this strategy should only be applied when the company maintains good financial health.
• Cut losses at the right time: If your analysis shows that the company’s prospects are no longer positive, set a clear stop-loss level (usually 10–15%) to protect your capital, rather than waiting for the price to recover.
• Monitor information and seize opportunities: Many periods of high market volatility open up opportunities to buy good stocks at a low price. The key is to have analytical knowledge and investment discipline.

In March 2020, the global outbreak of the COVID-19 pandemic caused the US stock market to plummet. The S&P 500 index fell by more than 34% in just over a month. Many investors panicked and sold off, but some patient investors applied a strategy of buying at low prices. Investors who applied Buy & Hold and Dollar-Cost Averaging (DCA) strategies to blue-chip stocks like Apple, Microsoft, Amazon… reaped huge profits after just one year, as the market recovered strongly and reached record highs by the end of 2021.

The lesson learned is that market volatility is not always the end; sometimes it’s a great opportunity. It’s crucial to maintain discipline, not panic over negative news, and always have a defensive plan and a sensible buying strategy during a crisis.

2. What to do when you lose money on stocks due to a weak company?

Investing in a weak company often carries significant risks because the problem stems not just from market fluctuations but from within the company itself. When you realize the company whose stock you hold is facing serious difficulties (poor management, financial imbalance, declining market share, or legal scandals), you need to act promptly to avoid deeper losses.

• Re-evaluate the company’s entire situation:
• • Analyze financial reports to determine solvency, bad debt, and operating cash flow.
  • Check the actual business situation to see if revenue and profit are still stable or are in serious decline.
  • Examine the leadership team; if the management lacks credibility or consistently makes poor decisions, the risk is even higher.
• Decide to cut losses when necessary:
• • If you see that the company is unlikely to recover, cutting your losses early will help preserve capital and provide opportunities to invest in other potential stocks.
• Restructure the portfolio:
  • After selling the weak stock, you should reallocate capital to companies with strong financial foundations, stable industries, and prioritize industry leaders.

Risk management lesson for next time: Don’t go “all-in” on a single stock, even if it’s a company that was once highly rated. Always monitor information and periodically assess the company’s health.

FLC Group was once one of the notable real estate and aviation companies in Vietnam. However, after its Chairman, Trinh Van Quyet, was arrested in March 2022 for stock market manipulation, the shares of FLC and related companies like ROS, HAI, AMD… continuously hit their floor prices. From its peak, FLC’s price lost more than 80% of its value.

Investors who closely followed legal and corporate governance news were quick to cut their losses as soon as the negative information emerged, instead of waiting for the price to recover. Some reallocated their capital to blue-chip stocks like VNM, FPT, and HPG, and within 6–12 months, they had recouped their losses thanks to the stability and regular dividends.

The lesson learned: When a company faces serious legal or governance issues, you need to act quickly. The investment portfolio must be diversified to spread risk and not depend on a single stock. A company’s internal information can have a greater impact than general market fluctuations.

You can review the characteristics of what a joint-stock company is right here.

3. What to do if you lose money by investing in stocks based on unreliable rumors?

Investing based on rumors—especially unverified ones—is one of the leading causes of heavy losses for investors. Rumors can cause stock prices to rise or fall sharply in a short period, creating a sense of FOMO (Fear of Missing Out) or panic selling. When investors realize they have been caught in a wave of unreliable rumors, they need to act quickly and decisively to minimize the damage.

• Immediately stop emotional trading: If you find that the initial information is baseless, immediately stop buying more or averaging down. Trying to “recoup losses” based on rumors can cause losses to swell.
• Verify the source of information:
  • Check information from official channels such as the company’s website, financial reports, and announcements from the State Securities Commission or the Stock Exchange.
  • Avoid relying on social media groups or forums that provide “stock tips” without any legal basis.
• Set a stop-loss rule: If the stock drops to a certain level (e.g., 7–10%), cut your losses to preserve the remaining capital instead of hoping the price will recover based on other rumors.
• Learn from the experience for next time:
  • Only invest based on well-founded fundamental or technical analysis.
  • Limit trading in small-cap (penny) stocks that are easily manipulated.
  • Do not buy into a “wave” of rumors without official confirmation.

In 2016–2017, the ROS stock of FLC Faros Construction Joint Stock Company caused a “fever” on the Vietnamese stock market when its price skyrocketed from a few thousand VND to over 170,000 VND/share. On social media, many rumors spread about ROS’s “massive” projects and explosive profits, creating a massive buying wave.

As a result, after the State Securities Commission intervened and the market discovered non-transparent financial reports, the price of ROS plummeted uncontrollably, losing over 90% of its value in just a few years. Many investors who bought at the peak based on the rumor that “ROS will become the new blue-chip” lost almost all their capital.

Some savvy investors successfully managed the situation by selling off their shares as soon as the rumors were unverified and the price began to fluctuate abnormally. They then moved their capital to stocks with real business fundamentals, helping to preserve profits and avoid the historic price collapse.

The lesson learned is not to invest based solely on rumors. Always seek information from official sources. Rumors can create waves, but they can also “sink” prices to the bottom in an instant.

Read more about what a share is, what the rights and obligations of owning shares include, and why shares are so important in running a business.

4. What to do if you lose money when investing in stocks with a margin loan?

When you take out a margin loan to invest in stocks (margin trading) and incur losses, timely and appropriate action can help minimize the damage. Below is a specific guide on how to handle this, along with a widely recognized real-world example. Here’s how you can handle losses from margin trading:

• When the margin ratio falls below the required level, the securities company will issue a margin call. You can:
  • Deposit more cash or collateral into your account to restore the margin ratio.
  • Sell some of your existing securities to meet the required ratio and avoid having your position automatically liquidated.
• Financial risk management: If the market is in a sharp downturn, you should consider using a stop-loss order, restructuring your portfolio, or reducing leverage. This helps limit further losses during volatile periods.
• Sue or demand compensation if there is wrongdoing by the securities company. In some serious cases, losses from margin trading may be due to the securities company failing to fully disclose risks or improperly executing a margin call. You can:
  • File a lawsuit or seek mediation through FINRA if in the US.
  • Demand compensation if you can prove deceptive or unreasonable behavior from the broker.
• Learn from the experience and slowly plan your reinvestment
  • Keep a trading journal, learn from your mistakes, and only allocate a small portion of your capital to margin positions in the future.

A prominent case is Archegos Capital Management, the investment family office led by Bill Hwang. In 2021, Archegos was forced to liquidate billions of dollars in securities when it failed to meet margin calls from several major investment banks like Credit Suisse and Morgan Stanley. As a result, the liquidation caused a sharp drop in the prices of many stocks they held, reversing their asset value in a matter of days. These banks suffered billions of dollars in losses before quickly closing their positions to mitigate further damage.

The lesson learned is that high-level margin borrowing without securing a safe position can lead to enormous losses. Parties on the other side of the margin must have the financial capacity to react quickly when the market closes. Risk management and portfolio diversification are vital when using financial leverage.

5. What to do when emotional stock investing leads to losses?

Emotional investing is one of the most common mistakes investors make, especially those new to the market. When emotions—such as fear, greed, or excessive excitement—take over, investment decisions often lack rationality and lead to losses. Here’s how to handle losses caused by emotions:

• Stop trading immediately: When you realize you’re being driven by emotions, the most important thing is to pause all buying and selling activities. This helps prevent further losses from trying to “win it back” or “chasing the trend.”
• Re-evaluate your investment strategy: Review your entire portfolio, identifying losses that came from emotional decisions (buying based on rumors, panic selling, or chasing high prices). From there, create a plan to restructure your portfolio based on financial data and fundamental analysis.
• Apply disciplinary principles
  • Set a stop-loss level for each stock.
  • Define clear profit targets before investing.
  • Only use a portion of your capital to participate; avoid going “all-in” based on emotions.
• Use technology to reduce emotional impact: Use trading bots or price alert applications to automate parts of the investment decision-making process, limiting personal emotional interference.

A famous example is GameStop (GME) in 2021. When the “short squeeze” movement erupted, driven by the Reddit community WallStreetBets calling for buys, millions of individual investors rushed to buy GME stock purely out of “FOMO” (fear of missing out). The stock price skyrocketed from $20 to over $480 in just a few weeks.

However, when the market cooled down, many investors who didn’t take profits in time or bought at excessively high prices suffered heavy losses as the stock quickly fell below $50. Those who maintained discipline, took profits at the right time, or avoided participating emotionally were able to avoid significant losses.

The lesson learned: Emotional investing can generate short-term profits but often leads to major losses. It’s necessary to analyze a company’s intrinsic value rather than following crowd psychology. Discipline and a long-term strategy are the keys to sustainable success in the stock market.

You can review your knowledge of what stocks are right here; the article will share common ways to make money from stocks and the difference between shares and stocks.

6. What to do when stock investments lose value due to a company’s legal issues?

In stock investing, legal risk is one of the most unpredictable factors. When a listed company gets involved in lawsuits, investigations, or is penalized by regulatory authorities, its stock price almost immediately plummets. Investors without a response plan can easily get “stuck” with their shares or suffer heavy losses. Here’s how to handle this situation:

• Closely monitor official legal information: Only rely on information from regulatory bodies (State Securities Commission, Ministry of Finance, courts, reputable news agencies), and avoid unverified rumors. This helps in assessing the severity of the issue.
• Assess the actual impact on the business: Not all legal troubles lead a company to bankruptcy. Some may only result in administrative fines. Investors need to analyze whether the incident will have a long-term effect on business operations or is just a short-term event.
• Make timely decisions
  • If the company commits a serious violation (financial fraud, criminal charges, high probability of delisting), you should cut your losses early to preserve capital.
  • If the issue is temporary and the company still has a strong financial foundation, you can hold or even take advantage of the low price to buy more, but this must be based on data analysis, not sentiment.
• Diversify your portfolio: The important lesson is not to put all your capital into a single company. When legal risks arise, a diversified portfolio will help reduce losses.

In 2015, the Volkswagen (VW) automotive group was discovered to have cheated on emissions tests for millions of its diesel-engine vehicles. This scandal led to the company facing numerous lawsuits, fines in the tens of billions of dollars, and a drop in VW’s stock price of over 40% in just a few days.

Many investors panicked, sold off their shares, and suffered heavy losses. However, investors who remained disciplined, analyzing that Volkswagen was still a global corporation with a strong brand, a large ecosystem, and the ability to recover, either held onto their shares or bought more at the lower price point. In reality, after a few years, VW gradually overcame the crisis, its stock recovered, and it brought significant profits to the group of patient investors.

The lesson learned is that investors need to analyze the level of legal risk: whether the incident is catastrophic or just a temporary crisis. Do not let emotions dictate decisions when the market fluctuates. Long-term investing and portfolio diversification help reduce risks from legal shocks.

7. What to do with low-liquidity stocks that cannot be sold?

During the investment process, one of the risks many investors face is getting stuck with low-liquidity stocks—stocks with very few buyers and low daily trading volumes, making them difficult to sell when needed. If not handled carefully, investors can suffer heavy losses or completely lose the opportunity to rotate their capital. Ways to handle low-liquidity stocks include:

• Re-analyze the reason for holding
  If the company still has a solid foundation, the stock may only be temporarily illiquid due to market sentiment. In this case, investors should be patient and hold on rather than selling off in a panic.
• Break down sell orders
  Instead of selling a large quantity at once, break it down into smaller orders over multiple sessions to make it easier to match trades. This is a method many institutional investors use to gradually exit illiquid stocks.
• Leverage information and timing
  When the company releases positive news (profit reports, major contract signings, market expansion news), buying demand increases, making it a good time to sell.
• Diversify the portfolio to mitigate risk
  Avoid concentrating too much capital in stocks with little interest. The investment portfolio should be balanced between blue-chip stocks, mid-caps, and a small portion of potential but low-liquidity stocks.

FLC Group was once a stock that attracted many investors. However, after the arrest of its Chairman, Trinh Van Quyet, in 2022, FLC stock and related codes in its ecosystem such as ROS, HAI, AMD, etc., became almost illiquid, with hundreds of millions of shares for sale but no buyers.

Many retail investors had their capital trapped, unable to exit their positions. Meanwhile, investors who had a strategy to cut their losses early while the stock was still trading, or those who knew to diversify their portfolios and not go “all in” on speculative stocks, significantly minimized their risks.

The lesson learned is that you should not invest too much in speculative stocks that depend on “news waves.” When you see unusual signs regarding liquidity or company information, you need to make a quick decision instead of hesitating. Managing a diversified investment portfolio will help investors avoid getting their “capital stuck” in a single stock.

8. What to do about ineffective investments due to a lack of company financial information?

When investing in stocks, a lack of transparent financial information from the company is one of the main reasons investors are prone to losses. Financial information includes profit reports, revenue, debt, cash flow, business plans, etc. Without clear data, investors are essentially “betting blind,” and the risk is extremely high. The optimal ways for investors to handle this situation include:

• Prioritize companies with transparent information: Only invest in companies listed on HOSE, HNX, or UPCoM, where they are obligated to publish quarterly financial reports, audited reports, and public information.
• Utilize information from regulatory agencies: Investors can track data from the State Securities Commission (SSC), the Ho Chi Minh Stock Exchange (HOSE), the Hanoi Stock Exchange (HNX), or reputable securities firms to cross-reference figures.
• Stay away from non-transparent companies: If a company frequently delays publishing financial reports, or if its reports receive a disclaimer of opinion from auditors, it is a sign to exit early.
• Use independent analysis tools: Apply platforms like Bloomberg, Reuters, Cafef, and Vietstock to analyze financial situations and forecasts, rather than relying solely on ambiguous information from the company.

One of the most famous examples in the world is Enron – the American energy corporation. Enron was once praised as “America’s most innovative company” and attracted thousands of global investors. However, the company concealed massive debts and inflated profits for years, making it impossible for investors to grasp the true financial picture.

When the scandal was exposed in 2001, Enron declared bankruptcy, causing billions of dollars in investor assets to “evaporate.” This was a major shock and became a classic lesson about not investing in companies that lack financial transparency.

The lesson for investors is to always prioritize companies with transparent, audited financial statements. Stay away from “high-profile” businesses with ambiguous information. Cross-check financial information from multiple sources to make more accurate decisions.

9. How to handle investment losses when dividends are reduced?

When investing in stocks, dividends are an important source of income for many long-term investors. However, in reality, many businesses have reduced or cut dividends due to business difficulties or strategic changes. This not only disappoints investors but also puts them at risk of losses if the stock price falls accordingly. You can handle this in the following ways:

• Analyze the reasons for the dividend reduction
  • If a company reduces dividends to reinvest in production expansion, M&A, or new technology research, it’s not necessarily a bad sign. On the contrary, it could bring long-term growth value.
  • If dividends are reduced because the business is declining, accumulating debt, or losing market share, it is a warning sign to consider divesting.
• Diversify your investment portfolio
  You should not put all your capital into companies just because of their high dividend yields. It’s necessary to allocate across various industry groups and combine both growth stocks and dividend-paying stocks.
• Track the historical dividend payment policy
  A company with a tradition of stable dividend payments is often more reliable than those with erratic dividend policies.
• Consider restructuring the portfolio
  If the business no longer has growth potential, you should be decisive in selling and switching to stocks with better fundamentals.

In 2020, when the Covid-19 pandemic broke out, HSBC – Europe’s largest bank – unexpectedly announced a halt to dividend payments on the recommendation of the Bank of England to preserve liquidity. This disappointed millions of shareholders worldwide, especially investors in Hong Kong who heavily relied on HSBC’s dividend stream. The bank’s stock price also fell sharply.

However, investors who calmly held onto their shares and trusted in HSBC’s long-term strength benefited later. When the situation stabilized, the bank restored its dividend policy, and the stock price gradually recovered.

The lesson learned is that a dividend reduction is not always a disaster. Investors need to analyze the cause, distinguishing between “reinvesting for growth” and “financial difficulties.” If a company has a solid foundation, patiently holding on can bring long-term benefits. But if the reason for the dividend cut stems from internal weaknesses, selling early to preserve capital is necessary.

10. Conclusion

Through this article, we have explored the most common risks in stock investment today. It’s clear that stock investment is a potential path to increasing wealth, but it also requires understanding, the right strategy, and a steady nerve in the face of market fluctuations.

If you are interested in investment management, building a governance strategy, or organizing human resources within your business, please contact 1Office immediately to get