Today the market is going down. There will be a correction, and maybe the markets will even collapse. It’s not an opinion, it’s a fact. This is the nature of markets, they rise and fall, sometimes for no rational reason. Let’s remember the collapse of cryptocurrency LUNA/UST, when 42% of people reduced their investments in cryptocurrency, according to https://buidlbee.com. Sometimes things are going so well that it’s hard to believe that a fast-growing stock or other markets can fall. The key to effectively navigating a falling market must be prepared before it happens.
The plan before the storm
So, firstly you need to consider what you should do before the market sale. Well, it would be easy to plan if you knew when the market sale would happen, but it’s not. So, you have to prepare for the inevitable, and the way to do that is to start saving money when the market is growing. Don’t withdraw money from stocks, but make sure you have some cash on hand. It may seem crazy, but why don’t you invest all the money available to take advantage of the growing markets? What if you miss the party?
In growing markets, especially if they have been growing for some time, there are very few stocks that could be considered profitable to buy. So any of your stocks are probably already overvalued, and it’s hard to find securities to invest in when prices are high. This does not mean that you have to sell part of your portfolio to get some money, as this can have negative tax consequences. But if you regularly deposit money into a brokerage account, it may make sense to suspend any automatic purchases until you accumulate sufficient cash reserves. Another thing to do before market volatility starts is to make a list of companies you might want to invest in, but which are currently overvalued and trading above their intrinsic value. Building this list will save you time when it comes time to buy stocks.
During market turmoil
As soon as the market volatility starts, you need to avoid selling stocks and fixing losses. A falling market should not be a problem for you if you have made a plan of action before the storm and you already have cash. If you’ve done your due diligence when buying stocks into your portfolio, the best thing you can do during market volatility is probably hold on to your stocks.
Now it’s time to dust off the list you made before the market became unstable. When market fluctuations occur, there are good opportunities for transactions, and you should be prepared for this event.
Take a look at the stocks on your prepared watch list. The high-quality businesses you’ve been monitoring may currently be overvalued or undervalued. This is the ideal moment to verify that the business’s fundamentals, which you reviewed before adding it to your watch list, still indicate that it is healthy. If the intrinsic worth of the company is higher than its current stock price, you should use the cash you have on hand to purchase the shares.
In conclusion
What you shouldn’t do is try to predict market behavior and make purchases and sales at the “right time”. This is a losing battle that you will never be able to handle. You should evaluate your buying and selling decisions based on the company’s fundamentals and whether they are trading below their intrinsic value.
It sometimes happens that most stocks are sold off during major collapses. This means that you will find yourself doing something that most investors don’t do. You will probably buy more shares when others sell them, and you may question the correctness of your actions. This is completely normal when you become a value investor, but as soon as you feel comfortable, you will wait for the next collapse in the market to put your purchase plan into action.
