Experts have been predicting market ahead of us is more volatile than never before. As mutual fund investors, we have to adapt our strategy accordingly. Playing long term investment would possibly face frustration more often than not. In the following weeks of series articles, a new approach to deal with this kind of market would possibly yield higher return than long term investor.
Most, if not all investors do not like market crashes, except for market shorter. For one, no one can predict precisely its coming. It normally comes with a shock unexpectedly. Secondly, it can cause profits being eroded away quickly in a matter of days. Thirdly, it doubles the pain for investors who panic sold their positions during market crashes when stock markets turned their backs laughingly and recover quickly after investors cleared all their positions. In other words, they sold in the worst possible time.
If we have learned about market crashes enough, we should have turned away from such disadvantage consequences and become embracing market crashes readily and happily. Instead of avoiding market crashes, we should lone forward welcoming its coming. If it doesn’t come, we should feel disappointed instead.
Since experts have been warning us that market ahead of us will be more volatile, meaning to say that there will be more such market crashes coming ahead of us. Then we would most probably not be disappointed if we learn how to invest in such a way of anticipating market crashes. We should even feel the more crashes the better.
In fact, if you know the characteristics of market crashes, you would possibly learn to love it more often than not. In this article, we shall lay out the most common and unfailing characteristic of market crashes so that we can get familiar with its faces, and able to maximize it for our own advantage. There are at least 7 reasons why market players can benefit from market crashes;
1. Market crash rarely happens.
It normally happens once in a year or 2 during bull market, but it happened twice this year. Since this market crash happen rarely, it can be possible preciously rare opportunity we should have taken full advantage. But it requires a change of mental perspective and investment approach. Instead of feeling cautious or fearful while investing in this kind of environment, why not learn to love it instead.
2. Market crash drops deadly and deeply in a single trading day. One day drop in the US markets causes alarming and awakening to the entire world. It normally becomes headlines in global economic markets. All investors, economics, commentators will wake up and attention is fully focused on how this fall will evolve forward. Investors will join the panic wagon and flush out all their positions.
3. Market crash causes fearful feeling. This fearful feeling starts even before market crash really happens. There will never fail to have doom Sayers warning of eminent market crash ahead of us. When it happens, most or all informed and sincere investors will always search for causes of market crash. Articles from these doom Sayers will be the most prominent writing pieces for such desperate investors in times like these. Market players can always read such title such as, “The worst is coming… this is just the beginning… etc.” It makes the whole world feel like the end time is coming next hour. That is why panic selling is rampant and uncontrollably rushes out. Were you one of them?
4. Market crash is always systematic. Crashes will always involve all US markets. There’s never a single market crash in the US history. There’s always ripple effect. One crashes, the rest will follow. Global market crash always starts with US markets. Ripple effects will continue on from Asian market on the next morning, right up to the rest of the global markets. Never a single country will be spared or not be affected. All global markets always fall sharply and accordingly after US market overnight crashes.
5. Market crash always ends abruptly with a rebound. The stronger the fall, the stronger the rebound can it be. Market crash will never continue in a straight line down to the pit in any single crashing event. Even a bear market will travel in zig-zag pattern reaching its bottom. If market wants to turn from current bull market to become a bear market, it will have to rebound first for a number of trading days then drop further down.
6. Market crash duration is shorter and limited. When it comes, it normally takes 3 days to complete its crash duration. When comparison between Bull Run and market crash, possibly market crash is easier to handle than Bull Run. For one, duration of market crashes is always limited and shorter. The days for Bull Run is unlimited. That’s no way to tell when and where it will top out or stop in order for investors to lock up profit.
That’s the reason why most investors fail to profit from investing in stock market. Because it is harder to profit from Bull Run because you do not know the exact exit point to take profit. Once market crash happens with deadly fall, it can wipe out all the profit accumulated from months or even years.
Since market crashes will almost always limited within three days, if you are prepared enough, you will definitely know precisely when and how you should enter market to do bottom fishing.
7. Market crashes fast and deep, but recovery is shallower and slow. That’s a saying, “The bull walks up from staircase, but the bear comes down from the window,” reflects precisely this phenomenon. During market crash, players can enter fast with precision, but would have ample time to exit market in order to lock up profit.
In short, learn to invest in such a way that market crash will happen most often in near future. Reverse psychology is the most important key for market profit. Warren Buffet’s famous quote saying, “Be fearful when people are greedy. But be greedy when people are fearful” precisely fits into this context. Enter market when most people are leaving in panic selling during market crashes, exit market when most people are entering during Bull Run recovery.
However, in order to use this strategy, profiting from market crashes, one final advice you must be aware; if market crashes delay coming, you must be willing to take lesser profit while waiting. However, in this market high pricing top, possible ending phase of current decadal bull market, with so many obstacles and challenges ahead, such as trade war, Fed interest rate hiking, bond interest yield keep on rising, global political tensions keep on growing etc, keeping less market exposure would possibly be the best advice we could have for this period of investing experience.
Thank you for reading and happy investing but invest safely!
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to make up individual investment decision.