The other day the market basically melted right before our eyes. If you were “fortunate” enough to be invested in the market during the crash of 2008, then I’m sure you have picked up some lessons from back than.
Below are some tips for surviving a stock market crash or just a really bad market.
1. Don’t panic. The worst thing any investor can do is immediately sell off all their shares. Just look how quickly most of stocks rebounded post 2008 crash. Had you sold-off right at the beginning of the sell you would have made a nasty loss.
2. Money management. My rule for trading is that you should be prepared to lose all your money in the market. While it sounds like an odd thought to have, it actually helps me stay calm under stressful market conditions, and, if you put all your money in a financial stock… well then… you deserve to lose all your money.
3. Dump the stocks you don’t really believe in or know about. I always found that the stocks that do best for me during shaky market conditions are companies where I know exactly what they do and how they generate money. Trying to make a bullish case for a company that you have no idea what they do is a recipe for disaster.
4. Check volume traded. The volume traded for a day is a decent indicator of whether the move is long lasting or just a blimp in the scheme of things. In short, larger the volume; more significant the move. Learn more about stock charts in our Chart School section.
5. Look for buying opportunities. The easier money is made off of crashing market. If you didn’t make any money in the 2009 rebounding stock market, then you probably never will! Don’t start throwing your money at every stock. Just because the price is low doesn’t mean it is a good buy, but if you stick with the best companies within sectors, then there are good money making opportunities to be had.
6. Find 1 gem. Some of today’s most notable winners in the market made their biggest moves through down markets. Think Netflix (NFLX) and Crocs (CROX). Choose a solid “no name” you feel good about and pick-up a couple shares. The risk is generally low, but the reward can be amazing.
Those are my tip to survive a stock market crash. What are some of yours?