Over this weekend, I got quite a lot of messages asking similar questions,
“What should I do with shares? Is it going to be like 2008?”
I am sure many of you out there might be thinking the same as well.
I did plan to write about market correction before I started this blog a month ago, it’s not because I have a crystal ball, but statistically speaking, we are long overdue for a market correction. As an investor, we should prepare ourselves both mentally and financially for it.
“A Storm is coming! Take Heart Young One, the Earth Mother is Near.”
For those that played a lot of Warcraft 3 game, you might be familiar with these Cairne Bloodhoof quotes, when you are commanding your orc troops around.
Last Friday 21 Aug 2015, from the market high, the US benchmark S&P 500 is 8% down, the Dow is 10% down, The UK FTSE 100 is 13% down.
Today the Australia, Asia markets continues the downward trend.
You get the idea, a storm is coming! What should you do?
Be calm, take a deep breath and Celebrate of course! Why is that?
The average market correction of 10% decline is roughly once a year. Although the average frequency is once a year, it does not need to happen every year, in fact, the last 10% decline was October 2011. So the stock market have been stingy and not giving us a good Sales for some time.
It might even give us a better sale, maybe 20% or more considering it’s been a long while since the last sale.
So would it be like 2008? I don’t know but as a long term investor, I hope it would be.
But why do people panic when there is a big market drop?
There could be plenty of reasons, some of them are:
- Gambling by overleveraging
- Trying to outsmart the market by cashing out and trying to buy back when it is lower (It usually never works, unless you have a working crystal ball)
- Investing with money that is needed in the short term
- Don’t like to lose money (it’s only a lost when you actually sell the stock)
As a long term investor, you should be like the shoppers in the Sale photo above. Rush in to hunt for good bargains. There’s a lot of good data which proves when you continue to invest like normal during a market crash, that is how you would maximise the return such as this and this.
This is due to every market crash, there would be a recovery. If you only start buying when the recovery has started, you would have missed out the initial gains.
It’s easy to feel like you have failed if you buy a company at $100 and it falls further. As an investor, you should measure your result based on the next 5 years, not the next 5 days. It would be virtually impossible to predict and buy at the very bottom, therefore I would recommend continue with regular investing to build your Avalanche of Financial Freedom.
If a very nice shirt that cost $100 is on Sale and is now selling for $80, do you see people rushing in and say,
“I bought this shirt last week, it is brand new, let me sell it back to you at $70.”
No, you don’t, but it’s funny that you see this in the stock market.
A famous Warren Buffet quote:
“Be Greedy When Others are Fearful.”
So I would recommend you go up to the guy that is selling his brand new shirt and say,
“Let me buy your brand new shirt for $70! Do you have more that I could have?”
So when the storm comes, take a deep breath, enjoy the breeze and Happy shopping!
If you have missed my first shared trade, I shared a company that I am buying. It is a good and stable company that could steadily compound your returns over time.
What would you do if the market drops by 50%?