How to Cope With a Stock Market Crash - A Simple Guide for Nervous Investors
‘Nothing travels faster than the speed of light, with the possible exception of bad news, which obeys its own special laws’.
The cover to the Hitch Hikers Guide to The Galaxy includes two words.
The writer, inventor and futurist Sir Arthur C Clarke once commented that Adams statement ‘DON’T PANIC’ was perhaps the best advice that could be offered to humanity. It’s especially relevant to the stock market investor worrying about a stock market crash.
Volatility and economic uncertainty can be emotionally challenging to the investor. The media world, knowing that bad news sells, provides the investor with constant forecasts of doom and financial armageddon. It’s not difficult to see how investors can lose their nerve, panic and sell their portfolio at a loss. That’s what happened in 1929.
So what can the investor do to cope and even profit from a stock market crash?
Well, for a start, don’t panic.
1. The Cover Of Your Portfolio Should Read ‘DON’T PANIC’.
Panic can lead to paranoia and it’s a bad thing for everyone, especially investors. It was panic that made the 1929 Wall Street stock market crash so quick and severe.
When you panic, you cannot think clearly, become irrational and confused and when that happens you make bad decisions, like following everyone else, who may also be making bad decisions. Bad decisions then snowball. These decisions can cost you a lot of money.
Instead, consider the known facts and the probable impact of what you know you don’t know, and write down a plan detailing your options, and preferred option forward.
2. 1929 Will Not Happen Again
The stock market can be volatile and recessions come and go, but events like 1929 are unlikely to repeat and remember that even in 1929 a lot of people made a lot of money.
3. Have A Simple Plan Of Action
Sometimes there is a time to sell. However selling at a loss does not mean all is lost. You can get it back, and more besides, by buying more of the same for less.
4. Sell And Buy
By selling higher and buying back in at a lower price you could end up by owning more of a great company for less. Over time as markets rise your gains may be far greater than before as you own more shares.
‘Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble.. to give way to hope, fear and greed’.
When everyone else is losing their heads, keep yours. When and if a future stock market crash happens, keep your head, activate your plan and don’t panic, and you may come out of it a lot wealthier.
Jamie E Smith is the author of Making Money From Stocks And Shares
This content was provided by one of our users, Jamie