Today after three weeks of volatility, the markets, oil and bitcoin are all in a free fall. An year ago I had talked about the impending recession and the market was going all up! This morning we have the first red signs of the 2020 Stock market crash, some already call today as the Black Monday. Within last 2 weeks, my gains from 33% have come down to 6% this morning, and can go lower.
In 2008/09 I was still studying and was not an investor. If you are like me, then this is the first time for you to go through this. I am penning down three potential approaches which make up this survival guide to the 2020 Stock Market crash.
Tip #1: Book profits now, enter the stock market at lows
This is brilliant advice, follows on the famous Buffet quote,’Buy when market is in fear and sell when its greedy.’ The only challenge is, when to exit and when to enter?
If you think you can do it, then sell and book profits, use stop/loss specially for stocks and wait on. However, nobody knows when you hit the bottom of the 2020 stock market crash.
Tip #2: Stay Put, Time in the Market is more important than Timing the Market!
Solid advice again, most FI bloggers will keep repeating it ad infinitum. There is value in it, there is a great reddit thread which I can suggest you to read.
The underlying belief is that if you continue buying at fixed intervals you will still benefit from the low prices of stocks (averaged out or DCA). Of course, the argument to that is that when stocks are cheap, why not buy more? Afterall, a stock market crash is an opportunity!
And then, there have been so many articles which always talk of a person investing in Market crash of 2008 and then becoming rich, that sounds like timing the market and not staying put.
Tip #3: Stay put, and yet try timing the Stock Market!
This is going to be my approach, and I do not have a lot of spare money just 4-5k EUR which I can time with! It won’t make me a millionaire.
- I will continue staying put i.e. the long term index funds will continue to be invested automatically, as always planned inspite of the 2020 Market crash.
- I will spend my spare cash into buying some handpicked stocks which I felt were overpriced, these are mostly large caps and also long term plays. My target price usually is that if my preferred stock is 30-40% cheaper than ATH, it can be a buy.
- I will not attempt to make short term gains, and that is beyond my risk taking capacity.
- I recognize the risk that companies I invest in, might go under or not recover for a long term.
Caution: We tend to look at history of stock markets and its rebound to look for recovery. Markets like Japan’s Nikkei was at 27000 in 1991, and after recessions/stagflation, even in 2020 it could only reach a high of 24000. So, beware of confirmation bias.
Update: Its June 2020 now, the market recovered 40% in-spite of record job losses, and announcement of biggest recessions in decades. I am waiting for the music to stop, reality will hit home.
What is your approach for the impending sell off? Join me on twitter if you want to hear more from me : GetFI Twitter