Whenever there is a market correction and crashes, I find that it is important for me to help my readers gain perspective and to stay calm during such market downturns. There is a saying in business, "Don't cry for money, because money will never cry for you."
This applies to investing as well.
When it comes to investing, it is easy for people to become emotional, especially when they see their paper profits reducing day by day, and they constantly have this thought,
"Damn it, I should have sold earlier and taken my profits!"
And as the market turns even lower, they start to get even emotional, as the last thing they want is for their previous paper gains to turn into paper losses.
In this article, I want to share with you some mindsets so that you can put yourself in a position where you are no longer afraid of stock market corrections, in fact, at many times, you are looking forward to them.
Acknowledge That You Cannot
Predict Share Prices
Thinking that we can predict share prices is the worst thing that we can ever do ourselves.
In the past, I was obsessed with technical analysis. RSI, Stochastics, EMA, SMA, Fibonacci, Candlestick patterns, ascending triangles, etc...
And I spent over hundreds of dollars reading books and learning about technical analysis. I wanted to be able to learn technical analysis, thinking that mastering this skill set will allow me to predict share prices. As you imagined, this is impossible. And if anyone tells you that they can predict share prices using their "software" or "secret technical analysis" - challenge them to invest their entire net worth in every single trade. More than likely, they will start to swallow their words.
Why? Because the truth is the technical analysis is not about predicting where the stock market will go, but rather the probability of it. For example, if a stock is on an uptrend, then likely it will continues the trend. However, it does not mean that it will never reverse into a downtrend.
Today, my technical analysis really boils down to using simple moving averages together with stochastics. And when used in the 5 Layers Portfolio Protection strategy, I stack the odds heavily in my favor so that I am making it extremely hard for my portfolio to lose money.
Be Excited About
Corrections And Crashes
Having panic and anxiety is typical of investors who are still not used to thinking long term. You see, time is an investor's best friend, and stock market corrections and even crashes are the best opportunities to buy stocks. And whenever I invest in a stock, I am already mentally prepared to hold the stock for at least three years. This mental exercise is so important because even if the share price continues to fall after your purchase, you will feel mentally at ease, since you are already prepared to hold the stock for the long term in the first place.
To me, corrections and crashes are kinda like compressing a spring. Sure, the spring might seems smaller temporary because it is compressed, but it is getting ready to jump to the next level.
This is why I am always excited for stock market corrections, because it means that my portfolio will be compressed into a spring, and all I had to do was to buy more quality companies at even cheaper prices. And when the market recovers, my portfolio would have already jumped to the next level.
I know that it is a weird thinking process, but as an investor, our favorite color is red and not green. And sometimes, I even feel happy when my portfolio is bloody red, because that means that the quality companies that I am holding is now at even cheaper prices, and I can buy even more.
Focus On The Long Term Game
My goal is to always convert the cash that I have into stock equities. Because cash is an instrument that will definitely depreciate over time due to inflation. This is why, I am the weird guy who hates having too much money in my bank account.
Stock market corrections and crashes are the best time for me to convert my cash into stock equities, and as long as I am investing in fundamentally good companies, I am going to be compounding my wealth much faster than leaving them in the bank account.
I know that during such corrections, some may feel that they want to hold on the cash, simply because it "feels" safer. But as I said, cash is guaranteed to depreciate and suffer losses due to inflation. I am sure everyone would agree that the living expenses are always increasing. So if we are not investing to compound our money, then our buying power is only going to get smaller and smaller. This is why I will always choose to invest and leave as little amount in my bank as possible. Because I know that in the long term, investing in the stock market will always be the better choice in my opinion.
The Bottom Line
If we truly want to achieve wealth through the stock market, then we have to start changing on our perspective on corrections and crashes. These are the best time to invest. Remember what Warren Buffett said,
"Be fearful when others are greedy, and be greedy when others are fearful."
Also, remember that as long as we are investing in fundamentally good companies (i.e. passes the 8-point checklist), and follow the 5 layers portfolio protection - it is very hard not to make money in the stock market. This is why I am able to confident put in money into my brokerage account every single month.
Hope that this short article have been useful, till then, invest safe 🙂