With the flow of capital even smoother than water, trillions of dollars jingle about in the stock market every day. The number of transactions and their respective amount, enough to put someone in a daze. With the mountain of capital being as big as it seems, the thought of a quantitative fall in stock in a short period is usually as far as it can be from the mind of an average Joe. The brutality of the bear market can only be understood by the ones who get hit by it. A falling stock market being as rare as it is, is usually forgotten by non-victims only for it to claim new unsuspecting traders with their pants down.
What exactly is the stock market crash?
A stock market crash happens when the stock market prices take a nosedive in an extremely short period. The reasons for this can be numerous; wars, fall of a currency, natural disasters, aftereffects of sensational news or a pandemic like Covid-19 outbreak as to name a few.
How to weather through a stock market crash?
Being a trader in times of a stock market crash is or can be a nightmare for many. Or a beautiful dream for some. All-in traders in a bearish period know how terrifying a stock market crash is. While other traders, with the eye of an opportunist, see this period as a period of opportunity. How to survive in falling a stock market? How to not let a stock market crash be the push from the cliff for you? Let’s learn a few tricks to have a better chance of making the best out of this nightmarish period.
Keep your mind calm
Only with a calm mind can a captain get his ship through a storm. The first step in any unexpected situation is to keep your rationality and not panic. A good couple of years down the road, most calamities usually end up as a good campfire horror story. Thus, as an investor, it’s imperative to understand the current market sentiments, their effects in future and then plan your moves rather than panicking.
Find good stocks to buy
A stock market crash makes the value of almost all stocks go down. In layman language, all the stocks are on sale! Research which stock is a good one because those good stocks, with the passage of the bearish period, usually get back to their earlier values pretty fast.
Fighting against forces above one’s capabilities when one can afford not to is only something a fool would do. Just like in the case of confronting a bear, suddenly putting up a fightback in a panic is detrimental in a bear market. The bear will surely pounce on a panicked movement and yet leave something without any movement. A panicked selling or buying of shares to fight back during such time would surely only end with increased losses. Though an unpanicked investment in high liquidity and short maturity securities after making thorough research is a good idea.
Invest what you can afford
Taking more than what you should is always detrimental in any case. Investment is the same. “Every investment is subject to market risk”— all investment firms, no matter how much a positive track record, always include this line. Do you know the reason why? The flat reason being, there exists a one-in-a-million chance that the investment may fail. Hence, even the most professional traders dare not guarantee a profit. Therefore, respecting the daily needs of a body to maintain survival, the amount invested at all times should not be more than the amount one can afford to lose, even more so in a stock market crash when there is so much uncertainty.
Have a backup plan
All-in or broke was never a good idea, nor it will ever be. Winning an all-in sure gives a superior yield. But in all cases, it really is not worth the risk. Losing in such a case can be pretty harsh for anyone. It does not matter if your job gives you ₹12 lakh or ₹12 crores per annum. holding more than one income source always puts one more at ease. Thus, an all-in in investment is a big no, more so during a stock market crash. And there should also be a backup plan kept in hand. Investment without a pre-decided backup plan is a double edge sword. And during a stock market crash, the edge towards the wielder may perchance be much sharper.
Once-in-a-lifetime opportunities surely do exist. These opportunities may completely change one’s life. Missing these opportunities may be a thing of regret for many. The ones who pounced on these opportunities may be looked upon with gazes of envy from unfortunates. But there is a catch. There may exist many once-in-a-lifetime opportunities but there will be only one life for everyone. Thus, losing a once in a lifetime opportunity isn’t too bad. But losing yourself in regret for losing such an opportunity is. Therefore, hesitating and not grabbing the profitable looking stocks during a stock market crash is fine. It’s better to learn from the experience and look for other opportunities.
Frequently Asked Questions
The best stocks to invest in during such cases can differ according to the reason for the crash. Most of the time, defensive sectors like healthcare, finance etc. usually cope better than others in a stock market crash since they are very essential to keep the society functioning. Thus, it is better to invest in such sectors after good research.
A stock market crash usually drags down the stock prices of almost all stocks. It essentially is like the stocks are on sale. But thorough research before investing is advised, even more so during a falling stock market.
It is very hard to decide whether to keep or sell a share during a stock market crash. It is usually advised to sell out the shares of firms that look like having trouble with their debts during such times. Again, the foremost thing before taking any decision during a stock market crash is to calm your mind and keep your judgement intact.
Different traders have their own opinions on this topic. One of the most common strategies during a stock market crash is to play dead. Frequent buying and selling shares in such times usually only ends up with the investor piling up more losses than necessary.