If a company you invest in suffers a catastrophic blow, the knee-jerk reaction may be to sell it straightaway.

It is human nature to want to take immediate, decisive action to avert a crisis, especially when there is money at stake.

Take the BP oil spill disaster for example. In 2010 an explosion and fire on its Deepwater Horizon oil rig killed 11 people and devastated the environment. It was also bad news for investors; BP’s share price plummeted by almost 47% in the two months following and it was forced to cancel its dividend until 2011.

Toyota’s vehicle recalls is another case in point. This week the car giant announced it was recalling 1.3 million cars worldwide to carry out safety checks. The latest glitch follows a string of problems for the company. In October it recalled 7.4 million vehicles and during 2009 and 2010 a further 12 million, its share price inevitably being hit each time.

These unpredictable events affecting large, reputable brands illustrate the fact that there’s no such thing as a risk free investment.

However, abandoning companies during times of crisis may not be the best course of action. Buying a share shortly after a sharp fall can in fact prove highly profitable.

Going back to the BP example, figures reveal if you had stuck with an investment in the oil company since the day of the disaster – 20th April 2010 – you would have lost 20%. But if you had bought at the low on 2nd July 2010 you would have made 57%.

So, how do you decide whether to stick or twist?

If one of your investments suffers a hit to its share price, the first thing to do is assess the reasons for the crash. It may be due to economic factors, sector specific issues or internal company problems and all of these can affect how quickly the share price will rise again.

Graham Spooner, investment research analyst at The Share Centre, says: “Even if a company has good long term investment prospects, things can sometimes go wrong in the short term. For example, a profit warning can hit the share price hard. In this instance it may be worth selling the stock with a view to buying them back at a lower price.

“Sometimes a stock may have longer term investment opportunities, however an event external to the company or a short term issue has affected the share price. In this instance, an investor may be better to stay with the investment but bear in mind they may see a short term loss. Remember a loss is only on paper until the stock is sold.”

Wider economic factors can also affect a share price. For example, the eurozone crisis has had an impact on companies based in the region and stocks have been marked down almost for association with Europe. However, many are still strong global companies with good investment potential.

Spooner adds: “It is worth noting that whatever the reason for the fall in share price, if another stock offers the potential to perform better than the existing investment it may be worth switching. Holding on to poor performing investments prevents you from investing in more promising opportunities.”

Timing is clearly key but there are trading strategies that can help to take some of the emotion out of the decision of when to sell.

Richard Shiel of TD Direct Investing suggests putting a stop loss on a stock which can be set to activate before the share price falls below a certain level.

Setting a target doesn’t mean you have to sell, but it can act as a reminder to review the situation.

The golden rule is to remember that stockmarket investment provides opportunities to make both a profit and a loss. So don’t risk money you can’t afford to lose.