When we are investing, we are always worried that the next market crash is coming. In reality, a stock market crash is not scary at all. In fact, it is good for you. In this video I explain why I like the stock market crash and what’s the best way to invest knowing that the next crash will come.
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0:00 – Intro
2:06 – Market crash brings discounts
Many people hate the market crash because it makes us lose money on paper. But as with all online sales, market crash allows us to buy stocks at a huge discount. The more a stock goes down, the more I get to buy. If we only look at short term, we do not know which way the stock will go, but if we zoom out, we can see that good stocks will only go up.
As Benjamin Graham once said, “In the short run, the market is a voting machine. But in the long run, the market is a weighing machine.” So I would rather buy stocks when they are much cheaper, which would only happen in a market crash.
3:20 – Crashes cool the market
The price of a stock is determined by supply and demand. The people who want to buy a stock, the higher the stock will go, attracting more people to buy the stock, creating an endless loop that feeds back into itself, creating a bubble.
Time and time again we would see bubbles appearing, like the Tulipmania, WallStreet crash of 1929, 1990s Dot Com Bubble. The only thing that can calm the market down is a market crash, which will cool it back to normal levels. It is much easier to get rich when you are buying when everything is crashing left and right, vs when you are buying at all time high.
We can see this happening all the time, like Business Insider reporting that billionaires in America got 44% richer during the pandemic.
5:12 – How I manage my feelings when investing
The reason I am calm during a market crash is because I am confident in all my stocks. I know they have good fundamental value. Warren Buffett once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” So only buy stocks which you are confident in, and you will be alright.
When investing, I find it helpful to have an end goal. The goal needs to be quantifiable, you need to know exactly how much you need, and by when you need it. For example, my goal is to achieve financial independence by 40 years old, which means I have 7 years left to reach $1 million. That means I can’t yolo my money into meme stocks.
With that goal, I can decide what to invest in, this can keep changing as you learn. I started out with dividend investing, then when I realized its too slow, I changed to index funds, then to growth stocks.
Next I need to have a buying strategy. I can choose between dollar cost average, lump sum investing or trying to time the market. Studies have shown that lump sum investing gives the highest returns while dollar cost average gives the most consistent returns, so I decided to just dollar cost average. If I don’t time the market, I will never time it wrongly. It also allows me to take advantage of market crashes. It also allows me to invest my money consistently. Nobody knows when the crash will come, so just use the most proven method to invest and you’ll be fine.
After that, you need to have a selling strategy. Should you sell when the stock went up? What should you do when the stock goes down? For me, I will only sell if I need the money or found a better opportunity. I’ll also sell if I realize my stocks are bad.
Test your buying and selling strategy here:
With these plans, you will be fully prepared when the market crash, not only that, you will look forward to market crash.