We’ve probably all had that one friend that thinks everything is a conspiracy. The world is out to get us and theirs nothing we can do about it?
Right? I definitely have friends like that. But those situations I guess you could say are tolerable. There’s nothing to be lost by something thinking chem trails exist. Unless of course, they try to go out and shoot the plane down that’s dropping them.
But the one thing that is absolutely intolerable in my eyes, is keeping your money liquid due to the fear of a stock market crash.
It’s legitimately painful to read
I love talking stocks. I love teaching people how to buy stocks. which is why I participate in a ton of Facebook groups about trading, investing, mutual funds, ETFs, heck even penny stocks. It’s tough, because I see a lot of ignorant people on there, and that’s in no way an insult, they are trying to learn.
The one thing I absolutely hate, is during a legitimate discussion about forecasting, or maybe a specific companies performance, the doomsday activist enters. He’s been calling the crash for the last 8 years, he’s a genius! It’s bound to happen eventually! The agonizing pain of missing out on one of the greatest bull markets in history doesn’t even phase them.
Related: How Far Back Would a Market Crash Take Us?
Because you know what’s better than capital appreciation? That one time you’ve been right out of the 150 times you’ve said it. That I told you so moment when the market comes crashing down. If you can’t tell by now, I’m being sarcastic.
You’re never going to predict a stock market crash
I’ve seen it literally every year. Multiple analysts, individual investors, and traders, they all call for it. But the fact is, you’re never going to know the exact moment it is going to happen. We will eventually enter another correction, and as I write this, up in Canada, we are definitely in correction territory. Heck, we are going to hit another bear market one day.
But stockpiling your money into a high-interest savings account paying you 0.5% isn’t the way to go about things.
So, if we can’t predict a stock market crash, and it’s not wise to stay liquid, what the heck are you asking me to do exactly?
Some of the biggest money made in a stock market crash is during the recovery
Let’s look at a few crashes in the post Y2K era. Of course, we have the infamous Dot Com Bubble and the American housing crisis of 2008. These were 2 different collapses based on 2 entirely different reasonings which aren’t relevant to this article. What is relevant is what collateral damage was done to stocks in the general market during this time.
When there is a correction or we enter bear market territory, people usually tend to hold steady on stocks they believe to still hold value. When there comes a crash, like the two instances above, it tends to cause global panic. Unfortunately for them, when people panic, people sell.
I noted it in my article on Stocktrades about a potential stock market crash, and I’ll note it here again. A little quote by Warren Buffett, arguably one of the most famous investing quotes of all time, should drive the point home.
“Be fearful when others are greedy. Be greedy when others are fearful”
I’m going to let you do the research yourself, think of it like a little homework experiment. Pick a few stocks you feel were highly valuable prior to the Dot Com Bubble and the American housing crisis. Then, watch them plummet while the chaos is going on.
Now, after the dust seems to have settled, see how long they take to recover. I’ll give you a little hint on what industry to look at; Canadian bank stocks. Particularly the big 5. Canadian banking stocks are highly regulated, and are about as bullet proof of an industry as you can get.
During the crisis of 2008, most of these stocks lost nearly half their value. What did smart investors do? Bought them up like they were the next best thing. Within two years some of these stocks had recovered to their pre-crash cost. Some had even appreciated beyond it.
The price of a stock doesn’t determine the value of a company
To sum all of this up in a few words, I could simply say these 4. Don’t worry about it. Invest your money. Pick profitable companies and watch your capital grow. When(not if) we hit the next correction, bear market or crash, simply re evaluate your stocks.
If they are still profitable, if the fundamentals haven’t changed and the company is still chugging along, don’t do like most and sell in a panic. Dollar cost average your way to a ridiculously good share price, collect the dividends and secretly laugh at those that exited the market.
This article has been republished with permission from Modest Money.