How to Handle a Stock Market Crash
What can you do with the current volatility of shares in the stock market? How do we make investments in the markets when we are not sure whether the prices might rise or fall by a certain percentage? It is almost certain that the stock prices never stay the same because they might rise or fall anytime. It would come as a shock to anyone that puts their net worth all in a particular investment, only to them a few weeks later that the potential for profits has fallen.
This is why you need to be careful and have a proper understanding of the market crash, how it has performed over the years, the possibility of decline, and how to handle such situations.
Hello and welcome to this blog on finance and investment. It is our hope that you find this particular blog as interesting as the others and learn a thing or two from it. Check out my other blogs, such as “Warren Buffett is Selling off His Stocks this 2020 – The Reasons for His Action are Shocking“.
Here is the first thing you need to know in the Stock Market
The US stock market is made up of about 5,000 different companies performing business transactions, and everyone is offering shares for sale. Every investor is watching out for the ones that have the potential to thrive, to grow, to delight and serve their customers right, to generate more returns, and to make investments a wise choice for them as investors or shareholders. Now, we have established what investors are looking for. Now, as investors buy shares in those companies, be it in percentages or whole purchases, it will become evident that the company may be changing directions daily.
For example, one day a company may be the go-to company, with the right direction and purpose, maybe a positive change in leadership, or maybe it may become a company that just did not get things right because they had their sites on a long term goal and took their eyes off the goals for the short term. There are a million reasons stock prices change and more reasons why the markets change. Most of them are macroeconomic issues.
It would be unnecessary to bore you with some of the different factors (which may be 47, by my count) that have been known to have a direct impact on the valuation of the stock market, as estimated by the S&P 500, Dow Jones Industrials, the Nasdaq, and others. It may be difficult, but we really need to turn our attention from those thoughts to be great investors. However, I will give some data that can help.
Ok, let us play a game of consequence, a game containing factors or history. Does that remind you of a bridge or chess player? In these kinds of games, the player gets better with each game. Here are the statistics you can work with. Judging by the records of about a hundred years ago, the market crash has always recorded about ten per cent fall in prices at least once a year.
Sometimes, it falls as low as twenty per cent almost every four years, or thirty per cent every ten years. Should we talk about the COVID-19 and how it shook the world as of March 2020? The stock market suffered a fall of about thirty per cent, and it came as a shock. The stock market became more volatile than ever. Even though this was the first recorded decline by as high as thirty per cent in the last twelve years. Losing grounds or gaining grounds is pretty much how the market operates.
They can be very volatile and are subject to new information and human emotion. We need to have in mind that the market may fall by 10% at least once a year, or fall by 20% once in five years, or fall by 30% once in ten years. So, you can prepare for it.
First, it will be unwise to sell any shares during that period, when the market prices are low. Secondly, if you have some spare cash, seize the opportunity to buy, bearing in mind that you are buying at discount prices. Nobody is saying there will be a great success for every stock in our portfolio because that is not guaranteed.
But the market is actually providing opportunities to buy at lower prices. So a decline in market values should be an opportunity to buy some of those shares at a discount while others are scared. There is no need to get excited when you look at your portfolio; just keep building.
Warren Buffet once said, “Be fearful while others are greedy and be greedy while others are fearful”. Whenever the market is declining, it shows that people are afraid, and if history is anything to go by, those fearful times are actually the times’ Warren Buffet has invested heavily in the stock market.
So, whenever there is a decline, see it as an opportunity to buy, and do not be tempted to sell. Keep your long term goals in sight and if possible, but more stocks. So, let us start investing today.
Recommended for further reading:
- Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!
- Shares Made Simple: A beginner’s guide to the stock market
- Smarter Investing: Simpler Decisions for Better Results
- The Warren Buffett Way
- Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage