Sometimes, when the stock market is going down - common sense goes out of the window.
People start asking me this, "This stock is fundamentally good, but should I sell since it is falling?"
To me, that's like asking - "I love my wife, but should I file for a divorce since she is having a fever?"
It makes absolutely no sense.
Don't Be Emotional...
If we want to be successful investors in the stock market, we need to deal with things logically and systemically. Never allow our emotions to come into play when making money decisions. That's why, the one thing that you should never do in the stock market is allowing your emotions to come into play.
In fact, I found that there are only two reasons why people get emotional over stock market downturn:
1. They don't know what they are investing - they blindly follow others when investing and didn't even bother understanding the finances of the company.
2. They invested too much into a single stock, which meant that they did not have good portfolio management.
I cannot think of any other reasons why anyone would panic about a stock market downturn. If you can manage these two reasons, chances are that you will be successful in the stock market in the long run.
I repeat again - "in the long run".
Investing in the stock market is never a short term game - if you prefer short term games, then you should be a trader who keeps his eyes glued on the stock market every day.
(I'm not saying that trading is bad - but for me, I prefer to use money to make more money and not my time to make money. It just makes more financial sense.)
Be Fearless
If you overcome your emotions and approach the stock market logically - the next step should come natural. Be fearless in your investing decisions, while ensuring that we follow portfolio management rules, of course.
In fact, whenever the stock market falls, I will be taking advantage and selling cash-secured put options with HOPES that these sell put options will be exercised.
Yes - I hope that these put options will be exercised.
Most people would focus only collecting the option premium - but for me, the option premium is only the consolation prize. The real big prize comes from having your put option getting exercised.
Why is that so?
It is because when we sell a put option, we should be selling put options on two conditions.
1. It is a stock that is fundamentally good and we want to own.
2. It is at a strike price that is undervalued.
This means that if my put options get exercised, I get to buy 100 shares of a fundamentally good company at an undervalued price.
"But Gin, if you get exercised, it means that the share price fell below your strike price- so you will be losing money!"
This is typical of short term traders.
When I hold a fundamentally good stock, I am willing to hold it for at least three years, so why would I be worried over the short term unrealised losses? It simply makes no sense to worry at all.
Again and again - always have a long term mindset.
What Do We Do In A Falling Market?
So I got this question.
My answer?
"The exact same things we do in a rising market."
The game of investing does not change - collect fundamentally good business at great prices.
If you cannot sell cash-secured put options, consider buying stocks at tranches and hold them.
When the stock market is giving you a discount, it is silly not to take advantage of it - but let me be clear, a stock market downturn will only benefit those who are able to think the long term.
For myself, I have been deploying capital on what I call qualified stocks. If you want to know what qualified stocks are, you might want to check out my video training below:
The 6-Figures Roadmap
What an engineer did to grow his portfolio from $7,137.68 to $185,352.15 in just 4 years using qualified stocks...so that WORKING AT A JOB was A CHOICE AND NOT A necessity...