by Amanda Harvey
How to Approach Dealing with Stock Market Crashes
Dealing with a stock market crash is something that most traders would rather not even contemplate. It is a scenario that just about everyone would rather avoid. Or is it? If you consider Warren Buffet, the billionaire investor, who does a whole lot of buying when the markets are in a slump, it might be possible to consider market crashes in a different light to the gloom and doom that is usually promoted.
The First Step to Dealing with a Stock Market Crash
Part of dealing with a crash in the stock market is to rationally consider your current situation. Yes, it is likely that you have suffered losses. Depending on the nature of your investments, perhaps these losses are temporary, and the value will be recouped down the track. Either way, however, right now, the value of your portfolio is not looking too healthy.
Once you have assessed the reality of your present circumstances, dealing with a stock market crash then moves on to deciding what to do next.
Practical Considerations in Dealing with Crash in the Stock Market
Whether to sell investments at a loss is a decision that traders face in the event of a market crash. There are of course, many factors to consider when making this choice, but one of the most important things is to avoid panic selling.
Assuming that you have not tied up all your investment capital in places where it is not currently available, and that you have money to invest, it might make good sense to follow Buffet’s lead, and buy more while the prices are low. Of course, there must be a much stronger basis for every investment than simply a low price, but with proper research, a market slump can offer many opportunities.
The Psychology of Dealing with a Stock Market Crash
While avoiding panic when dealing with a crash in the stock market may sound like a difficult proposition, panicking certainly never offers any benefit. Going into a state of alarm about the conditions causes extra stress and leads to hasty and poorly considered actions. In the interest of preventing panic, it is wise to steer clear of too much exposure to media and market noise. The frenzy being stirred up is not conducive to maintaining a rational perspective.
It can be helpful to take a longer term point of view when dealing with a crash in the stock market. When you consider that your trading career is likely to consist of decades of ups and downs, it is easier to recognize that the majority of time, the ups have and will continue to outweigh the downs. While in the midst of a major downer, like a market crash, it can be hard to see beyond the current crisis, but trying to step back a little and keep sight of the bigger picture is one way to help in dealing with a crash in the stock market.
Stock market crashes are an inevitable part of the trading experience, and it is, in fact, the natural ebb and flow that allows the markets to function at all. Being prepared both practically and emotionally for dealing with a crash in the stock market allows a trader to ride the waves without getting wiped out, and even to catch some opportunities while in the trough.