Valiantly Hanging On to Valeant

My dumbest investment was buying shares of Valeant Pharmaceuticals — or, rather, holding on to them through the stock’s collapse. I am now trying to use options to make back some of the loss. — C., online

The Fool Responds: Many people buy stocks that seem promising but then end up cratering. When a stock falls, it’s valuable to investigate why it’s falling: If there’s a temporary issue, such as a fire at a factory that will delay shipments of a new product, it’s often best to just be patient. But if there are deeper and potentially longer-lasting problems, such as a major scandal, spiraling debt or a competitor running away with market share, selling may be the best response.

Valeant’s shares traded for less than $10 apiece in 2008, only to pass $250 in 2015 before plunging again. They recently sold for less than $12. What happened? Well, the company was slammed with allegations of improper behavior and faced intense criticism over its steep drug prices. Its debt soared to more than $30 billion, too. At recent levels, some feel it’s fairly priced now and that its future is potentially bright, due to lots of new products.

If you agree, it can make sense to keep hanging on. Otherwise, move your money into one or more stocks in which you have more confidence. Don’t try to recoup your losses in a stock in which you’ve lost faith.