Do’s & Don’ts In A Market Crash
Quick checklist during a Market Dip..
Growth Stocks continue to tank in the first two weeks of 2022, sliding further in the red. Valuations are severely undervalued now. Some investors think we are near the bottom, and anticipate a V-shape recovery soon.
Personally, my hunch is things will get worse before the real recovery begins. With that in mind, I would like to share some Do’s and Don’ts that might be useful especially for beginner investors during this period.
Don’t:
- Sell your quality companies in a moment of panic. Please don’t do the classic opposite and “Buy High, Sell Low”. Stay calm.
- Wait for the bottom. Trying to time the bottom is futile, an inferior strategy. The best investors leg in tranches as it drops. Try doing that instead.
- Buy shares on margin. Note “Cash & Sweep” figure is not accurate for determining how much available funds are left. Quick re-cap here on how to calculate the exact amount.
- Sell options to get quick premiums w/o the cash to assign the stocks. It’s VERY dangerous. It’s like lighting a fire around highly flammable explosives.
Do:
- Stay Calm & Rational. Be grounded in logic, not emotions. There is no need for worry as market drops are part & parcel of investing. Markets don’t exactly go up in a straight line. Volatility is the fee we pay for superior returns.
- Invest only in the best companies. Your highest conviction stocks. The best growth companies, riding on multiple secular trends. Excellent management. Expanding TAM & huge optionalities, highly scalable. Strong cash flow, low debt.
- Plan your tranches. The stocks might continue to drop further. Don’t have to go all-in at once. Re-cap the Dynamic Portfolio System here.
- Take care of your mental/physical. Sleep enough, exercise more. A commander can’t lead the troops well if he is sick/tired. You as the capital allocator of your portfolio, will make sub-par decisions if you aren’t feeling your best.
- Ask for help if needed. Get support. No man is an island. If you are feeling overwhelmed, please reach out. Post in the group chat, or PM me @ruiminginvestor
If you can do the above points, I am confident you will ride out this market crash unscathed.
On a more personal note, I actually relish market drops! It’s times like these, I come alive (as an investor). For truly long-term experienced investors, these moments are a god-send for us. Because we know we will actually make more due to the extra opportunities presented. See ya on the other side!
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