In times of market panic, it can be difficult to know what to do.
When the stock market takes a turn for the worse, emotions can run high, and it can be tough to think clearly, especially when you’re watching your portfolio decrease in value.
But it’s important to remember that panicking is not going to help you or your investments. In fact, it could make things worse.
To help you stay calm and make smart decisions during a market panic, we’ve put together a post with three things you can do to help you get through the downturn.
1. Firstly – do you have a long-term investment portfolio, a trading portfolio or both?
Segregating your portfolio into either a long-term investment portfolio or a shorter-term trading portfolio is a must.
Why is this important?
For long-term investments, a volatile market that is on a downward trend opens up new opportunities.
You can either add new stocks that are undervalued and have finally ‘gone on sale’ or you can choose to purchase more of your current holdings at a lower cost.
When it comes to short-term trades, don’t forget to ensure that you have tight risk management parameters such as stop losses set up.
To avoid being tossed around in a volatile market, make sure that the majority of your portfolio is back in cash.
If you don’t mix your long-term and short-term investments, you are less likely to panic and sell at low prices which, in the end, will affect your long-term outcomes.
2. Secondly, ask yourself if you would still buy the current stocks you hold in your long term portfolio if you get another chance?
Knowing the answer to this question will help you make a decision when you find yourself wondering whether you should sell what you currently own or purchase more of what you already have.
If you’re confident that you would still purchase the same stocks even if the market takes another downturn, then it’s likely that these are long-term investments that you should hold onto. However, if you’re not sure, it might be a good idea to sell your positions and wait for the market to stabilize before reinvesting.
3. And finally, are there any sectors or industries which have clearly been oversold in this panic to take advantage of?
Think of the market as a machine:
- When looking at the short-term, the market is a voting machine – people vote to buy and sell based on media headlines and emotions like fear and greed.
- In the long-term, the market is a weighing machine. The true story and numbers behind a company do not lie – if a company is lacking with its numbers, no amount of good news or positive thinking in the short term will change what it shows on the scale.
Your best chance of success is to buy into strong companies that are not only capable of weathering the storm during tough times, but also thrive.
They thrive because their competitors are either taken over or disappear, clearing the way for those that survive to grow even stronger in the future.
So watch where other successful investors are putting their money and you will notice that they are always capitalizing on inexpensive valuations in selective sectors and industries.
This is the foundation upon which they build their reputation and secure successful long-term performance.
Maximize these 3 Action Steps by Preparing for a Market Crash in Advance
So to summarise, today we covered these action steps you can take during market panic. These steps are:
- Segregate your portfolio into either a long-term investment portfolio or a shorter-term trading portfolio.
- Decide whether you will buy more of what you have, or sell what you have.
- Buy the strongest companies which will not only survive but prosper during hard times.
By keeping a level head and following these action steps, you will be able to successfully overcome challenging markets.
Go after the opportunities that are waiting for you, rather than running away in fear like so many investors do. This will set you apart.
By the way, if you’d like to not only confidently survive, but also even thrive during market panic, I recommend you join me in my next FREE live online masterclass.
It’s a highly interactive class, complete with your own downloadable workbook, and I guarantee you’ll walk out of the Masterclass with a completely different filter of the trading and investing world.
If you’d like to join me, book your spot here, and I’ll see you on the other side.
Terry
