Picture yourself on the edge of a towering cliff, watching in terror as the stock market plunges into the depths below.
It’s an unsettling sight, isn’t it? But what if I told you that such an apparent disaster could actually be a golden opportunity in disguise?
That’s right—investing in a falling market, contrary to common perception, can be your best bet for long-term financial prosperity.
In this post, I’ll explain why investing in stocks during a market crash can be one of the best decisions you ever make. I’ll also cover how to do it properly, as well as give tips on the right mindset and strategies that will help you succeed.
The Myth of the Falling Market
When the stock market plunges, it often triggers a wave of pessimism and fear among investors, spreading far and wide.
The media usually amplifies these sentiments, causing many investors to sell off their stocks in panic. However, experienced investors understand that it is precisely during such moments when the most profitable investment opportunities arise.
Take Andrew Roberts, for instance. He’s a successful investor who capitalized on a market downturn.
“What Terry’s taught me,” he shares, “is wait to see a downturn in the economy which means there’s negative news like Brexit or Trump becoming president – and what happens to the share market is it drops because all these fears come into place… Everyone else was freaking out and selling and we were coming in and buying—it was just like this wave and it popped back out and I literally made 20% like that. It was just like the easiest thing that I’ve done, and I just paid for the course multiple times over just from that.“
Strategies for Investing in a Falling Market
So, how can you emulate Andrew’s success and safeguard your investments?
Here’s a simple step-by-step guide
- Learn to identify good quality stocks
Before we start investing in a falling market, it’s important to know how to identify stocks that have made good returns in the past and are likely to do so again. This helps us create a portfolio of profitable stocks which can be used as a base for adding more investments during a market crash.
- Learn to read and analyse the markets effectively
You need to be able to tell when the markets are bottoming out and when conditions are ripe for you to swoop in. This requires a good understanding of market movements and trends so that you can identify when you can invest and trade confidently, when to start being cautious, and when you absolutely MUST stop trading.
This will ensure that you’re not blindly throwing your money into the market.
- Employ effective position sizing to ensure you can maximise market opportunities
Once you’ve learned how to read the markets, you need to have cash ready to deploy when conditions are ripe, and opportunities present themselves.
This is where effective position sizing comes in – it’s the technique of limiting your exposure to risk by allocating a certain portion of your capital to each trade you make.
This way, even if the market tanks, you’ll still have sufficient capital left to take advantage of the opportunities that arise.
- Have the right mindset and psychology in place
When markets crash, it’s all too easy to let fear and panic take the driver’s seat. This often leads many investors to make hasty decisions, resulting in premature selling of their stocks before recovery can take place.
This scenario is not uncommon – even the best of us can let our emotions cloud our judgement, hindering us from making rational decisions based on a system we know to be effective.
The best way to navigate around this problem is to have the right mindset when it comes to investing: being patient, firm, and disciplined in your approach. This will help you stay calm during market downturns and make better investment decisions.
James Doyle, another student of mine, recounts his experience:
“The ’87 crash, I spent 2 days pacing the kitchen floor; the ’97 crash, I didn’t sleep for 2 days; the GFC I was in the middle of a divorce, everything was gone and I just resigned myself to whatever happens happens, and they were huge losses — I would like to say that because of Terry and because of the St. Louis index, the pullback that happened in November and December last year, I slept easy. So, for me, that’s very, very valuable information and peace of mind is just gold.“
In conclusion, investing in a falling market isn’t about recklessly taking risks or attempting to time the market flawlessly. It’s about understanding market dynamics, devising a strategic plan, and maintaining emotional composure.
Remember, every market downturn presents a unique opportunity to purchase quality stocks at discounted prices. So, the next time you witness a sea of red on the stock market screen, don’t succumb to panic. Instead, view it as a sale and go shopping!
I encourage you to consider these strategies and adopt a long-term perspective towards investing. As the legendary investor Warren Buffett wisely advised, “Be fearful when others are greedy and greedy when others are fearful.“
So, are you prepared to seize the opportunity the next time the market falls? I believe in you, and I know you can do it!
P.S. If you’d like to learn more about how to maximise stock investing opportunities during a falling market, here are 3 resources you might useful…
- The first is my comprehensive blog post: Going From Absolute Novice To Confident Investor (The Complete Stock Investing Guide). It goes through all the steps you need to take in order to become a confident investor and reach your financial goals.
- The second is our FREE 10 Stock Criteria Checklist, which helps you identify what I consider to be the financially strongest 1% of stocks in the market at any time in less than 5 minutes. Click here to learn more.
- The third is our FREE 90-Minute Online Masterclass, where I’ll show you how I personally anticipate market crashes in advance and prepare for them. Click here to learn more if you’re interested.