3i (LSE:III) is one of my favorite British stocks. The FTSE100 a private equity firm has almost everything I want in a stock investment.

The stock has performed well this year, but on Thursday (November 13) it fell 18% in one day. I understand why, but I don’t think there’s anything wrong with this business, so I want to buy something huge.

Buy dip?

When stocks fall, it can be a great opportunity for investors to buy shares of good companies at relatively attractive prices. However, there are some golden rules that I always try to follow.

One of them is that I never buy dips unless I can understand why. The stock market isn’t 100% competent, but it doesn’t cause stocks to fall for no reason either.

A huge change in stock prices is almost always a reaction to something. This may be an overreaction – it definitely happens – but I believe it is extremely risky to buy without knowing why the stock dropped.

So why did the company’s shares fall so dramatically after Thursday’s first-half earnings report? While some point to uncertain prospects, I don’t think that’s the real reason.

Why isn’t 3i working?

The president did warn about uncertain macroeconomic prospects. But as my Fool colleague Harvey Jones pointed out, this shouldn’t come as a surprise to anyone.

I think the real reason for the share price collapse is the disappointing performance of Action – its largest subsidiary. Since January, the retailer has seen like-for-like sales growth of 5.7%.

There are a few problems with this. The most essential thing is that it is much lower than the growth rate that the company achieved in previous years, which regularly exceeded 10%.

The situation is made worse by the fact that 3i values ​​Action at an impressive EBITDA multiple of 18.5. Add to this the information that they increased their rates to this level, and the cause of the crash is clear.

Why I buy

Action’s recent performance clearly illustrates the risks associated with 3i stock. However, the company still strikes me as a mighty company with sustainable competitive advantages.

Elsewhere in its report, the company announced that it was preparing to sell two of its shares. One is a pet food company called MPM and the other is a software company called MAIT.

In the first case, it is expected to achieve a return of 220% in five years and in the second case, 180% in four years. This is a remarkable result at a time when other private equity firms are struggling.

The key is that 3i invests its own cash rather than raising capital from outside investors, which allows it to invest on its own schedule. This is a great asset for the company and I don’t think it will disappear.

Stupid thoughts

The 3i results show the risks associated with a concentrated portfolio. However, what sets this company apart from its competitors is its ability to be selective about opportunities.

This happens by investing your own funds, and not by acquiring external capital. Given that this positive performance remains largely unchanged, I intend to apply the recent huge decline as an opportunity to buy the stock.