Market corrections and crashes are a certainty.
There is nothing you can do about it.
But you can prepare yourself to react and take advantage of the situation.
Photo by Chris Liverani on Unsplash
5 ideas to better prepare for the next stock market crash/correction.
In 2020, I invested most of my cash in one stock ETF (indexing the worldwide market) in the middle of the COVID crisis.
When the “Markets” go down, rationally, we all know that we should buy.
And yet, most investors sell.
I am no exception to the rule, I have done so in the past.
But during this last crisis, I did something different and invested heavily. It gave a boost to my search for financial independence.
5 things that made it possible.
1. Knowledge.
I read books on finance. And they often describe the crash process. For example, JL Collins, in his book The Simple Path to Wealth, writes, “a market crisis when you have cash is a windfall.” This concept has matured in me.
“During this accumulation phase, celebrate market drops. While you are in the wealth accumulation phase, these are gifts. Each dollar you invest will buy you more shares.”
— JL Collins
2. Visualization.
More than 25 years ago, I found myself in the French Karate military championship final. I had lost early in the competition in my weight category (-70kg).
Winning in all categories (no weight limit)was my last option. I had observed my opponent, and he had great attacking power. Before starting his action, he often made a “little call” with his hand. I visualized this situation and programmed myself to counter as soon as I saw this “little call.” I won with this technique.
Why am I telling you this?
A crash becomes the “small call.” As soon as it appeared during COVID, I started to invest. I was mentally prepared.
3. Reflect on the subject and develop your principles in calm weather.
“Markets always go up.” I reflected on this concept in calm weather. I ended up embracing it. A strong belief will help you act when everyone else screams the contrary.
4. Isolate yourself from the noise.
The press is often a source of anxiety, but it’s much worse in these moments. If, like me, you’re in it for the long term. Ignore it.
5 Have your resources available.
If you need to convert bonds into stock, transfer cash from one bank to another. Make sure you can do this quickly. It would be a shame to miss the boat for administrative reasons.
Conclusion
Markets correct themselves regularly and sometimes collapse. Responding without emotion is rational but extremely difficult. Prepare yourself like an athlete and win your next mental battle.
Disclaimer: I’m not a financial advisor. All information posted is merely for informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information on this website, you do so at your own risk.
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Good morning Drop,
I just discover your blog after reading your interview by Mustachian Post.
You wrote that you invested heavily in 2020, I had as well that chance probably not so heavily than you but I had interesting gain at the end of 2021. I sold a big chunk of my portfolio in the preparation of the crash period we are in now and in 2022, I did not stop investing.
What about you?
Thank you for your blog that I will follow with great interest.
Meilleures salutations,
S
Hi S,
Thanks for stopping by my blog. Appreciate.
My philosophy is long term.
I don’t try to “time” the market. I don’t have the skills to do that and I think very few people do. 😀
So I follow the market by indexing it through a world ETF. I don’t sell (until now).
In the last few weeks, I have taken advantage of the downturn to buy more aggressively.
I wish you success in your investments.