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Let’s begin. A stock market crash. It’s a topic that investors need to understand. What should you do when the stock market goes down and you find your portfolio’s value taking a dip as well? Should you pull your money out of the stock market? Or should you find opportunities to buy? Many investors tend to panic during a stock market crash. What do you have to do? Learn how to face a stock market crash from a legendary investor, Warren Buffett. Check out my other blogs such as, “What’s The Best Way To Invest A Thousand Dollars In The Stock Market?“.
Stock Market Trading and Market Crashes
The stock market trading these days is much better thanks to the COVID-19 vaccination programs currently being rolled out. Even so, there’s a surge in the number of new cases of coronavirus infections, which could pressure some governments to put tighter restrictions around certain parts of the economy once again.
Not only that, the vaccine programs may not go smoothly as planned since it’s possible that there could be some hiccups during the distribution process. If some people opt not to get vaccinated, then it’ll be difficult to achieve herd immunity. If various governments from different parts of the world decide to shut again, the economies will be affected and so will the stock market.
If you’re an investor, you need to know how to prepare for a market crash. Who else can help you better prepare for a market crash than the Oracle of Omaha? Warren Buffett has been dubbed as one of the greatest investors of all time so he definitely knows a lot of things about stock market crashes.
What is a market crash?
When a market index such as Dow Jones Industrial Average, Nasdaq, and S&P 500, drops severely for one day or a few days of trading, this is referred to as a market crash. It goes beyond just a stock market correction wherein the market drops by 20% from its 52-weeks high within a span of days, weeks, or months. It is a part of the market cycle, which wise investors know and welcome.
Why should you listen to Warren Buffett?
If you’re looking for tips on what you need to do during a market crash, you should listen to Warren Buffett. This famed investor, who is the chairman and CEO of Berkshire Hathaway, keeps a clear head during uncertain times. He stays optimistic even during a downturn. He has continued to build his wealth even during market crashes. Read on if you want to know his strategy.
Preparing For A Stock Market Crash
There’s always a risk of a major downturn
When you’re investing in stocks, you should always remember that a major downturn can happen at any time. Stocks are unpredictable and fall often. Warren Buffett said that there’s no way to determine how far stocks can fall within a short period of time. Downturns are inevitable and they come in different shapes and sizes.
You need to remain calm if you wish to make good decisions once the stock market crash. Buffett always reminds investors that investing is not a game. It doesn’t mean that a person with a high IQ will make better decisions than those with a lower one. Whether or not you have ordinary intelligence, what you need when investing is a cool temperament. You need to know how to control urges that may get you into trouble when you’re investing.
Although there’s no guarantee that investors can always resist the emotional and often irrational urges that could result in bad decision-making during a market crash, trading on margin almost always guarantees poor judgment. Debt will ruin almost all decision-making processes when investing, especially during a downturn.
Don’t Time The Market
It’s enough to know that stock market crashes are inevitable. Buffett pointed out that no one can say when stock market crashes will happen. Downturns are painful for investors. But it doesn’t matter how much you try to avoid them, there’s no way to accurately time the market.
Although major downturns and stock market crashes happen all the time throughout the course of history, the fact remains that stocks offer wealth-building returns. If you’re an investor, a recession isn’t the time to liquidate a recession. You should be the type of investor who keeps most of their portfolio invested.
You should go on the offensive during a recession instead of selling stocks. You’ll find wonderful and well-priced businesses during bull markets. However, businesses trading at a discount to their fair value is rare during these instances. You should go shopping during a recession because this is the perfect time to find top businesses in the clearance aisle.
Thank you for staying with me until the end. And as promised, here are two bonus tips for you.
Don’t get too caught up in the economic headlines and forecasts, whether they’re good or bad news. You are an investor and not a trader. You should have long-term views and you must keep focused even during downturns.
Remain Patient and Calm
The fate of a business is tied to its performance. Setbacks are inevitable. But stocks managed to survive corrections, recessions, and depressions. They will continue to do so in the future. So, if you’re facing a market crash, you must keep your
Stay calm and patient. Remain focused and avoid debt. Most importantly, take advantage of any buying opportunity. Always remember that downturns can happen anytime but they will eventually return to an upward trend.
We hope that with these tips, you’ll be in a better position to face a stock market crash. If you have any comments, suggestions, or even additions to this list, feel free to comment below. We’d love to hear from you. Don’t forget to hit the like button and share this blog. Click Subscribe so you’ll be updated whenever we post new blogs.
Recommended for further reading:
- Keys to Success – Napoleon Hill
- How to Make Money in Stocks: A Winning System In Good Times And Bad
- Stock Market Investing For Beginners: The Investment Guide
- The Five Rules Successful Stock Investing
- Rich Dad’s Guide to Investing