Surviving Stock Market Crashes & Making Money Doing It
Surviving Stock Market Crash
The 2022 Stock Market Crash
It has been a chaotic year in the stock market.
Investors are full of fear and uncertainty, which always leads to market turbulence.
Although market crashes are normal, they aren't always easy to deal with emotionally. Especially if you are brand new to investing.
The most interesting thing to me is how everyone views a 20%+ market drop as a great investment opportunity when looking back in time but panics when those drops occur in real time (like right now).
This is due to the "uncertainty factor.”
The Uncertainty Factor
We can all look back at previous crashes (2000 tech bubble, 2009 financial crisis, 2020 pandemic crisis, etc.) and say, "Wow, that was such a great buying opportunity! Why didn't more people buy more instead of panic sell?"
The reason is that, for those big drops actually to occur, most investors have to be in panic mode.
Stocks won't drop unless more people are selling stocks rather than buying.
And the only way that will occur is when there is massive uncertainty flowing throughout the markets. Which is typically started by some unexpected breaking news.
Future millionaires are made (or destroyed) in bear markets
Another thing to note: Future millionaires are created or destroyed in bear markets.
For those who don't know, a bear market is when stocks are in an overall downtrend. A bull market is when stocks are in an overall uptrend.
What you do (or don't do) in bear markets determines your financial future.
Just like bull markets eventually become overly optimistic. Bear markets eventually become excessively pessimistic. But that pessimism creates excellent investment opportunities for long-term investors who continue to buy stocks on sale. Despite all of the short-term fear in the market.
The funny thing is that 5-10 years from now, most people will look back on 2022 and wish they would have invested more.
Just like people have looked back at previous crashes (2000, 2009, 2020, etc.) and wish they would’ve bought back then after things recovered.
The buying opportunities are never apparent until well after the fact.
Don't get me wrong; I'm not declaring we have reached the bottom of this current market crash.
Stocks can still keep going down. Predicting the absolute bottom is impossible.
What I'm trying to say is that market crashes are normal and part of the overall market cycles.
For example, look back to the 2000, 2008, and 2020 market crashes.
The stock market plummeted to record lows during those crashes but jumped back to all-time new highs a few years later. I don't expect this current crash will be any different.
But that also doesn’t mean stock market crashes are easy to deal with emotionally.
90% of investing is a psychology game
It’s easy to say you’re a long-term investor when the stock market is going up and everyone is making profits.
But building long-term wealth requires you to also deal with the inevitable market declines and the mass fear that comes with those declines (like what is going on right now.)
It’s moments like right now that test how good of an investor you are.
90% of investing is a psychology game.
The critical point to remember is that markets operate in cycles.
This is also why you don't want to follow what most people are doing.
Most people will buy at the top of the market due to greed and sell at the bottom due to fear.
There will be periods where most people are highly optimistic about the future of the stock market and periods where people will be extremely pessimistic about the future of the stock market.
The best investors do their best to stay out of both extremes and focus on continuing to buy great assets to hold for long periods.
Another critical point: You must also buy stocks/funds that will survive the inevitable market crashes.
That's why I'm a big fan of investing in QQQ and VOO. I'm essentially investing in the overall U.S. economy by investing in these funds. As long as the U.S. economy continues to trend upward over the long run, so will those funds.
The best way to invest is to continually buy great stocks/funds every time you get paid and to ignore the short-term market noise. Dollar-cost averaging into great assets is the best way to go. Time in the market always beats trying to time the market.
Stock Market Volatility
One last point: The faster an asset goes up when the market is in an uptrend, the faster it will also go down when the market inevitably reverses. Volatility works both ways.
The faster a stock goes up, the faster it could also go down (volatility works both ways)
Growth investors are figuring this out the hard way.
Everybody loves risky assets on the way up but won't touch them with a 10-foot pole on the way down.
I hope this blog post helps calm your emotions during these turbulent times.
The best way to survive a market crash is to keep your emotions out of your portfolio.
Try your best to view this recent crash as a sale because that's precisely what it will be on the vast scale of things.
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Want to keep learning? Check out some of my other blog posts:
As Always: Buy things that pay you to own them.
-Josh
Blog Post: #025
