When Will The Stock Market Recover?

This is an important question.

With many stocks tumbling down and some of the quality companies in my watchlist getting ridiculously cheap - it begs the question, will the stock market ever recover?

Well, it pays to look back in history.

In the long run, the stock market will always go up. This is the only natural process - with improving technology, growing population, inflation (yes, you heard that right - companies make more money with inflation).

In times where there is fear in the stock market, it always pays to be greedy. But not foolishly greedy and buying anything and everything and overleverage your account. Instead, being greedy at collecting quality companies at great discount.

In fact, if you are a true long term investor, you wouldn't want the stock market to recover so soon. You want to it to be prolonged, giving you the chance to invest the next few months of your salary into the stock market.

In the next few minutes, I want to share with you some of the mental models which will help you adopt the mindset of a long term investor.

Focus on Share Count, Not On P/L

When I speak to my seasoned investors and ask them about what they thought about the stock market, most of them will be reply very excitedly and say that "I hope that the stock market continues to go down for a while more!"

The next question you would ask them, "Isn't your portfolio in the red now?"

The typical reply would be, "Yes - but isn't that great? It means the stocks that I currently have is at a huge discount and I can collect more"

After investing for some time, we eventually realise two things:

• Market downturns are the best time to position yourself to make money
• You will never catch the bottom of the stock market

The reason why they get excited about market downturns, is because they are not focusing on short-term profits, but rather the number of shares of the quality companies in their portfolio. By doing so, they know that it is hard not to make money in the long term.

Next - who in the sane mind will want the stock market to continue to be down? Well, the answer is long term investors. Most of us are salaried workers, which means that we get paid every month. 

Now, imagine if the market downturn only last for one month, this means the most you could have taken advantage of the stock market was an extra one month worth of salary.

However, if the market downturn lasted for a year - you could have taken advantage of the stock market with 12 months worth of salary. And during the 12 months, they focus on constantly increasing the number of shares they have.

Focus on Cash Flow, not P/L

One thing that I realised over the course of building wealth is that your P/L statement are not as important. What matters most is actually the amount of cash flow that your portfolio is able to generate for you.

At the end of the day, we cannot pay for our expenses using paper profits. We can only pay for our expenses using actual cash flow.

The way I treat my portfolio may very much different like many other investors. I treat my portfolio much like I treat a property.

To me, if a property has been giving me a constant stream of income, the fluctuation of the value of the property matters little to me. After all, as I said, the stream of rental income is what allows me to pay for the bills, not the value of the property.

Cash flow is real, paper profits are fake.

For me, my preferred way of getting cash flow from the stock market is by selling put and call options. 

I don't look at dividend stocks for cash flow - most dividend-sustainable companies have poor dividend yields. Furthermore, if you are a non-US citizen investing in US dividend companies, you would also need to pay dividend tax of 30%. Not worth it.

Focus On Your Active Income, Not P/L

To me, the stock market is simply a high-yield savings account over the long run. This is why I can confidently put money into my brokerage account every single month.

The game plan is this. Collect more shares of quality companies over time, so that the amount of cash flow that you get from selling options can easily pay for your expenses.

To get there faster, the key is to increase your active income so that you can actually add more into your brokerage account. That's the way we can accelerate our financial freedom.

One of the best saying I have heard is this.

And it is so true - how many of us actually continue to work on our own personal side hustles, reading personal development books to improve ourselves? I am willing to bet very few of us.

To live differently from others, it is only natural that we do things differently. This means that we have to put time aside for our own development. This sometimes mean that we have to make certain sacrifices such as watching lesser NetFlix 😛

The Bottom Line

It is not all doom and gloom when the stock market keeps going down. Focus on the three areas above and shift your mindset to become a long term investor. That is how you succeed as an investor.

And if you are still looking for the answer, "When will the stock market recover?". Always remember that that is not the right question.

The right question should be, "How can I take advantage of the stock market before it recovers?"