February’s Market Drop
Once again, the market dropped low, low, low. For the past several weeks, there has been a lot of turmoil in the market. Some attribute it to the Fed, some to the algorithmic trading that has dominated the market.
These times always get my heart racing, and I find it a fun challenge to investigate my emotions and try to quell them with logic. It is a difficult task, but with the right training, you can develop some grit in those scary moments.
Personally, I follow the SPY stock because it is used as a benchmark for other stocks. This is sort of a followup of this post, and you could say I am just adding to the list of things I am learning throughout my trading experience.
Disclaimer — I am not a financial advisor. Do not use this as advice. Invest at your own risk and stay educated.
What I’ve learned from this drop:
Emotions Run High
The reality is — that red color with the magnitude of the drop is stark and can quickly turn the mind into a mess. You start to wonder how long this will happen. 2 minutes? 2 hours? 2 days? 2 weeks?
If it’s two weeks, maybe I should get out while I can. That’s what everyone else is thinking too. That’s what some of the media makes you think.
You kick yourself for buying into the bull market that didn’t seem to stop. You kick yourself for not looking out for the signs. Unfortunately, unless you’re well versed in economics, been through these cycles before, and/or are an oracle — you probably got emotional. Even those prerequisites can’t save you some times.
The black swan was among us, and it is in those times where stepping back from the computer or trading app you use can do a lot of good for you. Go for a walk, buy some ice cream. The market will adjust. It’s not the end of the world.
Have a Backup Plan
To mitigate this feeling of pain and constant anxiety — you can rest assured on your nice Plan B. Always have a Plan B. Always ask — if this happened next week, next month, next quarter, am I prepared?
A couple of things that that one can do is.
- Obviously, have a clear frame of mind of why you’re investing. Are you in the market long-term? If so, then why are you even looking at the day-to-day changes. Clear intentions should give you some direction of your overall plan.
- Buy the dip. If you had some reserve money for these types of events, then act! The market has rebounded which says there is opportunity in the face of a market drop.
- Be clear about how much you’re willing to lose. Are you okay with losing 10%, 50%, all of your money you put in? Whatever your threshold, be strict with yourself.
I’m sure there are tons of other backup plans, but the take home message is don’t put all your eggs in one basket. Diversify your portfolio and diversify your exit strategy.
Though this may seem obvious to you, these were learning moments for me. The drop is still semi-happening now, and there is a lot of speculation going on, so be weary. If this continues to happen, expect to see another post about the bear market. It’s always an interesting time on the street.
